In this thread I will propose a simple legal and social approach which will allow a government entity to take control over Bitcoin with minimal resistance. This attack is, in a way, much simpler than the various technical ones (building a super computer, etc).
There have been a number of threads in this forum regarding ways a freedom-hostile entity, usually a government, could take control over Bitcoin and destroy its benefits such as inflation resistance and privacy. These threads so far have focused on the idea that the entity would either set up a super computer to become the largest miner in the world, or that the entity would hunt down the largest miners in existence and regulate/coerce them. The usual counterargument is that Bitcoin is too small to warrant that kind of attention, and later it will be too large to effectively mount such attacks.
Unfortunately, the very popularity of a large Bitcoin network would open it up to being taken over by tricking the average uneducated user. The attack would become more effective the more widespread Bitcoin adoption is. This is true even if all of the following wildly positive assumptions were true:
- Bitcoin is a great success: you can even buy your vegetables in microcoins.
- Economy is booming because of the lack of transaction fees. People love using Bitcoin since everything is cheaper without all the Visa and Mastercard middlemen.
- Mining operations are plentiful making it impractical to take over 51% of all mining activity.
- Bitcoin is so ingrained in public culture that making it outright unlawful to use Bitcoin would be difficult without resistance.
Let's say our freedom-hostile entity is China. Here's how China would gain essential control over even this huge Bitcoin success in 8 easy steps:
1. China makes the public case that while Bitcoin is great, it is still used in part for terrorism, money laundering and crime. This will drum up political and public support for "something to be done", even if shutting down Bitcoin altogether is not on the table.
2. China creates its own Bitcoin client. Let's say they call it Bitcoin Patriot Edition. The only visible difference between Patriot Edition and the regular edition is that Patriot Edition requires a validated national ID or social security number to use. The government openly tracks the association between your wallet and your identity and says this is a feature, not a drawback. The software is free and voluntary, but if you have nothing to hide why wouldn't you use it? You do want to help fighting terrorism, don't you? As we know, regular people love hearing this argument and gobble it up.
3. China waits a good bit of time to allow the software to spread without alarm from the Bitcoin community. Perhaps several years. We will all laugh about how stupid these average users are for switching to the Patriot Edition.
4. China makes a law that requires banks, money exchanges, commercial stores and other major commercial entities to use Patriot Edition. Most people won't care because they're not banks nor major commercial entities. People generally don't care when people they don't know suffer, and besides these banks are rich.
5. China begins to promote the law from point 4 ("Patriot Protected Economy") internationally. The one thing that unifies governments across the globe is the desire to collect taxes and even countries which normally hate each other cooperate when it comes to tracking untaxed money (see Switzerland's bank privacy laws). So the law will spread easily. The international leadership community will describe it in glorious hyperbole, saying how it's protecting everyday people from fraud and crime.
6. China flips a secret switch. From now on, you cannot send Bitcoins to the Patriot Edition unless you too run the Patriot Edition. People are perhaps a little miffed but since your bank, your exchange, the grocery store and everyone else you deal with already uses the Patriot Edition, you make the 'upgrade'. China also buys or seizes Bitcoin.org at this point and makes Patriot Edition the 'official' edition. Most users will not notice nor care.
7. The Patriot Edition "upgrade" becomes viral because your friends are upgrading and you can't send money to them anymore without this edition. Yes, intermediaries start popping up allowing you to send money through them from vanilla Bitcoin, but do you really want to pay those fees? Avoiding fees was one of the reasons your choose Bitcoin to begin with. Easier to just upgrade. The Patriot Edition is now the most common edition of the Bitcoin software on the planet, and it's entirely controlled by China and a coalition of willing governments internationally.
8. Flip the second switch. The Patriot Edition now rejects mining activity by non Patriot Edition versions of the software. This is possible since Patriot Edition is used by almost every user - much more than 50%. Most people won't notice because they all use the Patriot Edition and the commercial entities they communicate with do so as well. The 'old guard' Bitcoin network is essentially segmented and frozen out. The value of any coins remaining in the old segment crashes since their proof of transactions cannot be trusted anymore, having been corrupted by the Patriot Edition.
The only reason this attack was possible was because the broad majority of the Bitcoin users were no longer libertarians and futurists like those who populate this forum. At step 6 very few complained that their freedoms were being taken away, and those who did were quickly shut down as 'terrorist sympathisers'. Even people who were just uncertain about the change didn't really know what to do because they weren't technical, and bitcoin.org said the Patriot Edition was the right choice.
There was very little economical disruption since the frog was boiled gradually.
Now the majority of the Bitcoin advantages are gone.
- It is no longer decentralised: Patriot Edition is centrally controlled.
- Inflation is perfectly possible: Patriot Edition can at any point set new rules for how hard it is to make coins or how many may exist, or indeed, even what a coin is.
- It is no longer open: not everyone can use Bitcoin anymore. If your Bitcoin Patriot Edition license is revoked, you can only use the now devalued, tiny economy of vanilla Bitcoin.
- 'No small print' is no longer true. The Patriot Edition can log everything you do, choose which transactions to allow. Most people will not even realise this because people are uneducated.
- 'No freeze' is no longer true. The Patriot Edition can freeze your account at any time. It has already marked all bitcoins in the 'old guard' economy as badcoins and will never touch them. It can mark your coins as badcoins whenever it pleases, or even transfer them against your will to the coalition of willing.
Of course 'old guard' Bitcoin would be altered to freeze out Patriot Edition in return. But it will be too late for that: the large economy you built up is gone since the majority of the population already made the switch. You will have a very hard time finding a proper Bitcoin/Chinese yuan exchange since they'll be illegal. You have been relegated to a shattered shadow economy, trading badcoins among the few remaining disenfranchised who must.
All of this happened because the growing popularity of Bitcoin replaced this forum's ideologists with regular people. The same regular people who allowed today's surveillance society and top controlled economy to form.
Bitcoin downfall scenarios are a fun topic for anybody involved in the community. Although this might not be the most plausible one according to other members, I encourage you to keep coming up with them!
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