Geopolitics and statesponsored attacks Jason has the toprated question and asks, What would a statesponsored attack technological, not political or legal on Bitcoin look like? What could be done to defend against it? That is a great question, Jason.
I think I have talked before about political and legal attacks on Bitcoin, which are the most viable ones. But what about technological attacks on Bitcoin? The most obvious technological attack is to try to block traffic and use denialofservice attacks, flood the network with nodes that provide fake information, or delay things by clogging up… all available connections on real nodes relaying transactions blocks. collect information various types of analytics. Oh, wait, that is already happening. specific types of attacks packet inspection, looking at internet traffic and trying… to determine Bitcoinrelated and then trying to block that traffic.
All of these technological attacks have, and will, various countermeasures. If the network is under attack like that, there a number of things developers, node operators, and miners can do to diminish the capabilities that attack. Attacks are only going to spur on the deployment of countermeasures, to strengthen the infrastructure, by making it more resilient to those and related attacks.
There are a number ways to get around them, including: the use of Tor which is The Onion Routing network, encrypted communications between peers which was introduced with BIP150 and BIP151 by Jonas Schnelli, and various obfuscation and stealth techniques in addition to Tor, to make traffic harder to analyse, filler traffic where packets are transmitted whether or not a transaction exists. you cant do traffic analysis on it. the use of alternative communication channels, direct modem connections or satellite connections between important nodes. A satellite broadcast like a project that Blockstream has been working on… which allows your nodes to receive the blocks and transactions from satellites, in addition to network connectivity or even private satellite channels for miners. Direct satellite connections have a bit of latency, but if you are being blocked that is a price worth paying.
For the various denialofservice attacks, forms of node reputation management … already exists in Bitcoin Core and other node implementations. In the peertopeer layer, if your node doesnt route well enough, invalid transactions or blocks, it will get banned . will remember its IP address and preferentially connect to nodes which have been useful and truthful… that are remembered from the past. This means already resistant to the kind of denialofservice attack that is most likely to happen. Anonymous asks, If China required all miners in their country to join a single… governmentcontrolled mining pool, can they effectively attack the Bitcoin network?
Yes. They could deny service, resequence transactions, and transactions, but they cant steal any that other people own. They can also fork the network, which they can do anyway. They can bog things down. Of course, if they do that and attack the Bitcoin network, the Bitcoin network will counterattack.
It will counterattack in a way that will effectively not just disarm their attack, but also turn their equipment into worthless electronics, burning a multihundred million dollar infrastructure, which wasnt used for very long . Very quickly, there will be a counter attack, which may vary denying service to Chinese IP addresses, cutting off from the network, which may or may not be effective to a certain degree. Finally, the nuclear option is to the proofofwork algorithm. Who knows?
There is so little little advantage to attack the network in that way. It is so expensive to do, with so little advantage. Right now, China has a unique advantage. They are domestically producing bitcoins, not importing, and that does not require them to export yuan currency in order to get those bitcoins… the presence of miners in their country.
Talk about killing the goose that lays the golden eggs . No, I dont think that is a smart strategic move. Chinese culture is really good at strategy. You dont stick around for 3, 000 years as a culture without knowing how to work out strategy. Kent says, Western government pumps bitcoin price.
Mainstream fear of missing out FOMO at pumped prices. Government tanks bitcoin price. acquires BTC from panic selling, causing shortterm damage for masses. Pros and cons ? That is a very expensive way to mess with Bitcoin. Also, the government wouldnt be the only one acquiring bitcoin during the panic.
There would be at least one other party like me acquiring bitcoin during the panic, as well as other people who have a longterm perspective on this and are not chasing pumped prices. There are sophisticated investors who could also use the futures market to… make a lot of money on this kind of very expensive maneuver. Lets look at some parallels from history. If it was that simple… A lot of people will tell you that the gold and silver markets are manipulated.
I have no doubt about that. I think the gold and silver markets are manipulated to a great extent, but they still cant do what you just described here, this kind of pumpanddump. They can supply and demand for a long time very big moves in the market, but they cant do this kind of pumpand dump with FOMOdriven price flucuation. It very expensive, very quickly, and it doesnt really achieve much, if anything. If it worked exactly as you, where the government comes back and buys bitcoin from the panicselling, those drive the price back up.
So what do you teach the market? It could drop, but if it drops, it will come back ! If you teach the market that, they wont let it drop in the first place. As soon as it starts dropping, they will be buying the dip, thinking will come back ., the drops become shorter the whole pumpanddump thing very expensive. I think people who are really worried about these dont understand how markets work. I probably dont either, but Im not concerned about a government manipulating the price to that extent, in a way that is very expensive to them and for very little return, in terms of the effect . M.J. asks, Do you think the United States and the European Union may be forced… to embrace bitcoin smaller nations do it first?
That is a fascinating question. Yes, I think we start seeing more geopolitics play this space, as more nations… try implementing their own cryptocurrencies, often backed by oil or minerals available in that country. using that to bypass sanctions imposed by one of the superpowers, or to get more sovereignty, connecting the concept of currency and security sovereignty… first small nations, even rogue nations and criminals, but then the rest get jealous., Oh, these criminals and rogue states a lot of privacy and sovereignty. Im not a criminal, but I privacy and sovereignty . That changes the strategic and geopolitical impact of the whole cryptocurrency space… on the entire monetary system. I think the U.S. and E.U. forced to reckon… with the fact that, when they squeeze their respective jurisdictions, there are plenty of other countries… that, We will take you.
Singapore, Switzerland, and a whole bunch of small countries that may play to become the next Switzerland, the next Cyprus, the next Singapore, the next Hong Kong, by geopolitically. I think that put a lot of constraints on the actions of superpowers. It geopolitical power, which is as it should be.
The next question comes from Nacho. Nacho asks, If you were a state actor that was comfortable… carrying 200 trillion in debt and unfunded liabilities, your ability to print money and run deficits, how would you attack Bitcoin? Could you spin up a hundred thousand nodes?
Could you take over consensus in some other way? What does the network response to your most likely attacks look like? Thank you, Nacho, for that question. Because we are engaged in technology, we assume the types of attacks this system will face… will be technological attacks.
But that doesnt make a lot of sense . If I am a state actor and want to attack, I would use technological as the absolute last form of attack. Why would I go and play in the turf of the other party, are damn good at it? Most governments are not that good technology. It would be like trying to attack a young person on social media they are much better at social media than you. You dont attack platforms using, that is not a very good . You will lose.
It is asymmetric warfare where a significant advantage. No, I would attack by creating legal uncertainty. How about to file capital gains for every single, even if it was for a pack of gum or cup of coffee? Make it impossible to engage in regular commerce. Instead of treating it as a currency, treat it as a commodity.
Oh wait, they already did that. It cost me more in accounting fees than my capital gains in order to do my tax reporting. How about making it legally vague as to whether you are allowed to hold or not? How about scaring the middle class and the mainstream in various ways? How about using propaganda in the media, announcements by officials … this technology cant be trusted, you will lose your money, and are all criminals anyway?
Those are much more effective. Finally, how about using paid sock puppets to infiltrate every public forum and scream ? creating drama accusing everybody of being a paid shill of or company? lying, being fraudsters and scammers? Who want to engage in cryptocurrency when people in the space seem so nasty and dramatic? Well, most of those people are not in the space. They are trolls who are for fun, or paid infiltrators who are doing this as a job.
Just recently, we found out that the central bank of Poland paid a YouTuber about 30, 000 to create… a laughably bad, public service announcement type of article where they make crypto look bad. A guy takes his girlfriend to a pizzeria, then he tries to pay with crypto, but he cant, and so she walks out. It was just ridiculous.
Anyway, this kind of propaganda is definitely happening. If state actors attack a movement, they use infiltration, surveillance, intimidation, coercion, blackmail, rumors, and drama, which they have done for every grassroots movement in history. It is naive to think they are not doing it this time. Why not?
Of course they are. State actors not use overt and direct technological attacks, especially not against technologists, use covert, underhanded, psychological, reputation and sentiment attacks… to attack this technology. They are already doing so.
Banksters versus Bitcoin. Evan asks, As big banks, governments, and ruling organisations are threatened… or should be threatened by Bitcoin, eventually they will lose money and power. How do you see this big upcoming battle playing out?
It is very difficult to predict how this battle will play out. Im actually gratified by the fact that, so far, the main reaction has been to underestimate the threat. There is one advantage here: historically, big incumbent organizations massively underestimated… the threat of disruptive technologies, until it is too late to do anything about it.
Whether it is Kodak underestimating digital cameras and steamrolled by Nokia, which wasnt even a camera manufacturer, or car companies underestimating Tesla, or Walmart underestimating Amazon and online shopping, or Blockbuster underestimating Netflix . Until very late into the competition, you were still hearing many executives of these companies saying, We have 100 years of tradition, loyal customers, the quality and eternal joy of analog film behind us. These new technologies cannot and will not possibly overtake us. Nobody will want to shop online.
Nobody can stream articles online. People like rewinding VHS cassettes. Okay, they never said that one, but still: hubris, dismissive attitudes, and complacency are characteristics of large incumbent organisations. One of the things that makes me optimistic, I think they will continue to underestimate Bitcoin. I hope they do for a very long time, until it is far too late to do anything.
Even if they did figure it out and wanted to try, they dont have too many options. They cant compete against it because the very architecture of these organizations is centralized. They can compete against decentralized threats.
They cant regulate it out of existence because regulation is the first thing this technology disrupts. They cant prevent people from using it in the places where it is needed most, people so desperate to gain financial freedom that they will break any law put in their, risk imprisonment or worse, as we have seen in places like Venezuela. They cant intimidate people using it.
In the end, there is really not much they can do. But still, Id rather they didnt figure that out until a lot later. A related question: in your view, what will be the geopolitical impact of, especially when it comes to pegged cryptocurrencies or rogue nations? Yes, the geopolitical impact of absolutely enormous.
Over the last fifty years, we have converted money from being a store of value, medium of exchange, and unit of account, into a system of control and in a global geopolitical game. When you have national money, or what I call flag money… Do you remember the old airlines had a flag on the tail?
Those are obsolete. And now it is happening to money. The idea that money becomes a system of control… to play geopolitical games, through embargoes and currency controls, is a relic of the industrial era.
It is being rapidly obsoleted by this technology, which has radical geopolitical implications. It removes the ability of sovereigns to control the monetary supply, removes the ability of central banks to take entire populations hostage on a crazy hyperinflation drive… into disaster, as we are seeing now in Venezuela, Brazil, Argentina, Cyprus, and Greece, etc. In all of those cases, the initial reaction is to apply currency controls, to stop the population from fleeing, and keep them all bound into this hostage experiment. That game is over.
It is not yet visible only a tiny sliver of the population can actually escape the controls. But right now in Venezuela, we are seeing the largest surge in of bitcoin in the world, their hyperinflation problems. Only a tiny percentage of the population can escape, but what happens when that 10, 15, 20, 25 of the population? The entire hyperinflation experiment goes wrong and the currency control system is fatally undermined.
This has enormous geopolitical implications, yes. Your initial reaction to this, We shouldnt. We mustnt.
We cant. And yet it is . That is the basis we start with.