What will the state do?

[becoin]

Won't killing off mining operations, if indeed that's possible, just serve to revalue the existing 10 million plus BTC already in circulation?

No. Mining is not just new coin generation. It is also (and more important) transactions verification in every single block!

[nobbynobbynoob]

Won't killing off mining operations, if indeed that's possible, just serve to revalue the existing 10 million plus BTC already in circulation?

No. Mining is not just new coin generation. It is also (and more important) transactions verification in every single block!

Doh, indeed. My brain really should be working better at this time since I generally am a night owl. But if one mining op gets zapped, difficulty rate drops and smaller mining ops can thrive again. Undermining or destroying the Bitcoin network probably isn't too easy. If it was, "they" (whichever shady powers we're considering) might've done it already, especially to help dispose of black markets such as Silk Road.

[TheBible]

You guys have a real paranoid streak.  The feds don't give a shit about bitcoin.  You can't buy food or land with it, and the entire economy is only worth about 100 million.  Besides, the rampant constant scamming done with it is doing more than enough to ensure no one will ever trust it on any large scale.

[Roger_Murdock]

You guys have a real paranoid streak.  The feds don't give a shit about bitcoin.  You can't buy food or land with it, and the entire economy is only worth about 100 million.  Besides, the rampant constant scamming done with it is doing more than enough to ensure no one will ever trust it on any large scale.

Let's compare to e-gold:

At e-gold’s peak, the currency would be backed by 3.8 metric tons of gold, valued at more than $85 million.

and

e-gold has been perceived by the United States government as the medium of choice for many online con-artists, with pyramid schemes and high-yield investment programs ("HYIPs") commonplace. This has been blamed on e-gold's policy of irreversible transactions. In 2006, e-gold began blocking accounts where fraud is proven or suspected

So obviously the feds would never go after e-gold because it's too small and associated with constant scams. So yeah, we're probably just being paranoid.

http://www.wired.com/threatlevel/2009/06/e-gold/

[FreeMoney]

Bitcoin is not decentralized. It is actually very centralized. Bitcoin is not just the network and the protocol. Bitcoin is also about mining. A coordinated action in just 24 hours can shut down a dozen mining pools and that will be the end. In the original paper Satoshi talked about CPU mining, not GPU mining. Technically the weakest point is not the exchangers but centralization of mining activity!

Miners will keep mining at the shutdown pools you think? Probably they like getting paid so no.

[FreeMoney]

You guys have a real paranoid streak.  The feds don't give a shit about bitcoin.  You can't buy food or land with it, and the entire economy is only worth about 100 million.  Besides, the rampant constant scamming done with it is doing more than enough to ensure no one will ever trust it on any large scale.

Must be true since TheBible tells me so..

[tvbcof]

You guys have a real paranoid streak.  The feds don't give a shit about bitcoin.  You can't buy food or land with it, and the entire economy is only worth about 100 million.  Besides, the rampant constant scamming done with it is doing more than enough to ensure no one will ever trust it on any large scale.

It's as likely that the authorities will prop it up as it is that they would shut it down as long as it remains an exceptional honey-pot for attracting users with potentially interesting attributes.  At least until it starts to gain more traction, value, legitimacy, etc.  I would anticipate a more active and negative response from the official authorities if Bitcoin gets on a trajectory where real success looks like a potential outcome.

[kjj]

Bitcoin is not decentralized. It is actually very centralized. Bitcoin is not just the network and the protocol. Bitcoin is also about mining. A coordinated action in just 24 hours can shut down a dozen mining pools and that will be the end. In the original paper Satoshi talked about CPU mining, not GPU mining. Technically the weakest point is not the exchangers but centralization of mining activity!

Yes, you are right.  The people that have invested their time and money in mining rigs would never think to try pool # 13, or p2pool, or solo mining.

[Stephen Gornick]

The Liberty Dollar was referred to on record as a "unique form of domestic terrorism," and not one person outside of the LD userbase batted an eyelash or wondered how on earth minting and using silver coins could be a form of terrorism.

Even India's Supreme Court rejected that conclusion:

Possession of fake currency not an act of terror
 - http://www.thehindu.com/news/states/other-states/possession-of-fake-currency-not-an-act-of-terror-hc/article4044723.ece

[Gabi]

Bitcoin is not decentralized. It is actually very centralized. Bitcoin is not just the network and the protocol. Bitcoin is also about mining. A coordinated action in just 24 hours can shut down a dozen mining pools and that will be the end. In the original paper Satoshi talked about CPU mining, not GPU mining. Technically the weakest point is not the exchangers but centralization of mining activity!

Then everyone start using p2pool. Good luck shutting down it.

Nah, actually a 51% attack is much easier and much much more effective.

[Rudd-O]

I suspect Bitcoiners are sometimes a little to prone to believe that 'the people' will be on their/our side.  Particularly US Bitcoiners.

To people who:

 - rely on direct assistance from the government for necessities like food (a rapidly growing number)

 - rely on the government for employment (a pretty large number which, notably, include the paramilitaries)

 - rely on the framework which the government facilitates such as infrastructure, foreign policy pressures, etc (a huge number)

threats to the USD, and even similar replacement in the event of a failure, are pretty much a direct and immediate threat to their mode of existence.  This is actually a reality, so all the government really has to do is to make the reality apparent in order to sway probably a significant majority to support 'the official system'.

Since very few individuals have gold, and even fewer have BTC, I don't think that the 'powers that be' would have to much trouble provoking the plebs to adopt the position which they find desirable.  And although not a certainty, I doubt that the position will include private citizens autonomously controlling either physical gold/silver or Bitcoin secret keys.

Well said.  "The People" are by and large children in adults' bodies who expect their Mommy and Daddy government to take care of everything and wipe the peanut butter from their ears.  When Mommy and Daddy government dies, "The People" will be the first to wail on the streets in disbelief, and throw violent tantrums.

If you want to get an idea of what level of catastrophe this will be, imagine a very bratty and spoiled child who is suddenly left alone to his own devices, and now imagine this child is a man-child (adult but with a child's brain), and now multiply that by two hundred million people.

[Rudd-O]

Never underestimate the state's ability to scare or beat its citizens into submission.

Plus, the state's credibility isn't exactly riding high these days.

Naw.

Fifty percent of the people are dependent on the state at least in some form, if not totally.

The credibility of the current politicians might be low, but the credibility of the state as a religious idea, is at an all time high.

[justusranvier]

The credibility of the current politicians might be low, but the credibility of the state as a religious idea, is at an all time high.

It's got nowhere to go except down. The credibility of the state is inversely proportional to the size of the informal economy, and that's not going to get smaller any time soon. Growth in the underground economy is the normal and expected response of a population to economic stress, we've seen that in every country that's had a major currency crisis.

[Rudd-O]

The credibility of the current politicians might be low, but the credibility of the state as a religious idea, is at an all time high.

It's got nowhere to go except down. The credibility of the state is inversely proportional to the size of the informal economy, and that's not going to get smaller any time soon. Growth in the underground economy is the normal and expected response of a population to economic stress, we've seen that in every country that's had a major currency crisis.

Well, this is true.  Unfortunately, the per capita percentage of underground economy in the U.S. is nowhere near the levels of countries like Argentina or Ecuador.

[justusranvier]

Well, this is true.  Unfortunately, the per capita percentage of underground economy in the U.S. is nowhere near the levels of countries like Argentina or Ecuador.

Devaluation of the dollar hasn't yet reached the same levels those countries have experiences in their currencies.

[Rudd-O]

Well, this is true.  Unfortunately, the per capita percentage of underground economy in the U.S. is nowhere near the levels of countries like Argentina or Ecuador.

Devaluation of the dollar hasn't yet reached the same levels those countries have experiences in their currencies.

If the dollar went down, Ecuador would be fucked once again.  That would be LOLsome.  Bad Luck Brian Ecuadorians.

[marcus_of_augustus]

Maybe the OPs question should have been

"What can the state do?"

it would make for good starting point for an analyses of possible state/supra-state attack possibilities upon bitcoin.

[Trader Steve]

If bitcoin takes hold how are they going to able to fund their police state or military industrial complex to go after bitcoin ?

If they were really all powerful the silk road wouldnt be out there giving them the finger right now  

Sales Tax on merchant nodes, property tax, luxury tax, capital gains taxes (enforced by exchangers), and a variety of other ways they can tax you (EVEN WITH Bitcoin)....

People who are serious about Bitcoin need to stop saying that they aren't going to be paying any taxes...

I will admit that it will be much more difficult for a state authority to abuse a system like Bitcoin, but saying we're not paying taxes!

It sends the wrong message, and only shows you are living in pure fantasy land when you say "they can't touch me", when really they can...

Here's how I see it going down:

1. As the State (pick your State) spirals down into inevitable default, confidence in the State deteriorates even further.

2. For economic/survival reasons more people move into the informal economy - bitcoin helps them and helps protect them from confiscation, inflation, etc.

3. Tax revenue drops off and cash-starved States are forced to either shrink (cut costs), increase taxes, or inflate at a faster rate.

4. Those who move into the shadow economy - and protect their savings with bitcoin - will be less affected than those who don't and they will be able to bear the increased tax burden better than their non-bitcoin neighbors.

5. As the poor economy worsens, and the tax burden becomes too great for the non-bitcoiners, they will go into the streets in open revolt - thus creating somewhat of a check against State expansion - all while pushing more people into the informal economy and bitcoin.

6. At this point the State either becomes brutally totalitarian or shrinks dramatically. To prevent the former it is imperative that the ideas of liberty and sound economics are preached far and wide because, in the end, it is ultimately a war of ideas.

Here is one of my favorite quotes:

“Economics is sometimes thought of as a very dry and dismal subject dealing with dusty tomes of statistics about material goods and services.  Economics is not a dry subject.  It is not a dismal subject.  It is not about statistics.  It is about the human life.  It is about the ideas that motivate human beings.  It is about how men act from birth until death.  It is about the most important and interesting drama of all – human action.

“The main objective of economics is to substitute consistently correct ideas and actions for the contradictory ideas and actions inherent in popular fallacies…

“We all want things that are not necessarily essential, but we always choose those actions which we think will best improve the situation from our viewpoint.  This means that the ideas that men hold determine their choice of actions.  This means that the most important thing in the world is ideas.”

- Percy L. Greaves, Jr., Understanding the Dollar Crisis

BTW: Can you guess who the elephant represents in the quote beneath my avatar?

[Zangelbert Bingledack]

It seems plausible that in the process of the Bitcoin economy supplanting the state, the huge boost to economic efficiency (along with other techologies like 3D printing) will drive general prosperity so incredibly high that few will miss the state's handouts; at no point in time will people be in a position to dislike what  Bitcoin is doing, because the effects of diminishing their state welfare programs will happen further down the line than the material gains. In other words, by the time bitcoins start cutting into the state's welfare schemes, it will already be far too late, and shutting down or regulating bitcoin at that point will result in massively worse effects for the average person, so they will oppose it. We can already see a similar dynamic with the Internet itself.

Of course, with Bitcoin the state will be much more likely to attack early and hard than with the Internet. But perhaps by the time it does people will already see bitcoins as the "currency of the Internet" - a once-maligned but now jealously guarded freedom.

[justusranvier]

Maybe the OPs question should have been

"What can the state do?"

it would make for good starting point for an analyses of possible state/supra-state attack possibilities upon bitcoin.

There's plenty of documentation available about what governments do when they go full retard.

This is what's happening right now in Argentina, for example:

The government claims inflation is 9.9% and has outlawed calculating or quoting any other inflation rate. Forty percent of dollar deposits have been withdrawn from Argentina since last October. Now there are capital controls. You need special permission to move your dollars overseas.

To take a foreign vacation, Argentines have to apply to a bureaucrat for permission and explain where they got the money for the trip. And there are rumors that it will be made illegal to talk about the existence of the shadow market exchange rate for dollars.

If you pay in dollars, you could get 25% off the price of property. The government has outlawed this, making the buying and selling of real estate in dollars illegal. Just one more rule Argentines will find their way around.

The government claims that the rate of outflow has slowed. But with every passing week, companies and individuals figure out new ways to get their cash out.

But they continue to do incredibly dumb things. Two years ago, President Kirchner seized private pension accounts. Now she is going to lend $4.4 billion of this money, at a rate of one-tenth the inflation rate, to new home buyers. A lottery will decide who gets the loans – not capacity to repay.

If you want more examples this list should provide a good starting point: http://www.munknee.com/2011/03/21-countries-have-experienced-hyperinflation-in-last-25-years-is-the-u-s-next/