Theoretical attack by a central bank

[zab]

Apologies if this has been researched/debunked before.  If so, or if my understanding of bitcoin is incomplete, I will appreciate corrections.

Suppose the existence of a hostile government cooperating with a central bank.  The government is willing to steal from its people by devaluing its currency. 

1.  The central bank buys out all of the bitcoin available on the market and hoards it.  The holders of the bitcoin are under pressure to sell in order to take profits.  Weak hands are effectively shaken out.
2.  Those who refuse to sell on the open market establish smaller secondary markets limiting themselves to counter-parties who must agree not to trade with the central bank.  The reduced liquidity immediately reduces the value of remaining bitcoin in circulation, reinforcing the attack.

In a realistic attack scenario this will be coupled by massive deployment of compute resources by the government designed to make mining less profitable, internet filtering, legal persecution etc. but those vectors are not interesting.

Thanks,
Zab

[Garrett Burgwardt]

By buying so many bitcoins, they'd simply increase the value of them an insane amount, kicking off some good old Streisand Effect.

[benjamindees]

We divide Bitcoins into smaller pieces.  The price soars.  Adoption skyrockets.  Dollar goes into hyperinflationary spiral.  Checkmate.

[eof]

Apologies if this has been researched/debunked before.  If so, or if my understanding of bitcoin is incomplete, I will appreciate corrections.

Suppose the existence of a hostile government cooperating with a central bank.  The government is willing to steal from its people by devaluing its currency. 

1.  The central bank buys out all of the bitcoin available on the market and hoards it.  The holders of the bitcoin are under pressure to sell in order to take profits.  Weak hands are effectively shaken out.
2.  Those who refuse to sell on the open market establish smaller secondary markets limiting themselves to counter-parties who must agree not to trade with the central bank.  The reduced liquidity immediately reduces the value of remaining bitcoin in circulation, reinforcing the attack.

In a realistic attack scenario this will be coupled by massive deployment of compute resources by the government designed to make mining less profitable, internet filtering, legal persecution etc. but those vectors are not interesting.

Thanks,
Zab

The problem with this attack is not estimating how much money it would cost to 'buy all the bitcoin available'.  Buy it all off mtgox today?  Sure.. then when you've driven the price up to 50.. you're going to over bid everyone for the next days coins?  For 30 years?

[royalecraig]

I think people should be considering attacks like this by the Banksters,

[giszmo]

This so called "attack" is plain ridiculous. Sure throwing so many dollars at Bitcoin sellers that they drown in them will most likely make them and others rethink their BTC-buyings =D

[hugolp]

Let the central bank buy all the bitcoin at ridiculous high prices and then we can stop usin bitcoins, start a new chain making all thebitcoin the cenral bank bought worthless. I wish they were so stupid.

[jaimedimon]

If Central banks wanted to get rid of bitcoins, they would simply make them illegal to use in their country.

This would prevent them from ever being accepted as mainstream. 

[marcus_of_augustus]

Yeah, the bernanke is sending his $1000 per day to Mt. Gox as we speak ...

hahahhahahahahahahahahahahaha ... there are no big doors to entry here, it is for the little people.

[Gavin Andresen]

Buying lots of bitcoins with dollars, driving the price up (and maybe creating an expectations bubble), then waiting for the price to stabilize before selling all you've bought (hoping to create panic selling) would, in my humble opinion, be an effective attack by anybody who had a lot of money to spend, didn't mind making the owners of the bitcoin exchanges very wealthy, and wanted to create fear, uncertainty, and doubt in the bitcoin market.

Of course, if there was somebody with a lot of bitcoins willing to sell on the way up and buy on the way down to stabilize prices...

[jonathan]

Here is a related worry i have: if big retailers and similarly large corporations and institutions start accepting BTC transactions, many of the BTC will likely be funneled straight to the banks. The banks wouldn't have to *buy* any BTC at all. Then, having acquired all this BTC, the banks could just sit on it, and take the losses on the chin. It wouldn't take long before that would become a very big pile of bitcoin for them to sit on.

[marcus_of_augustus]

Here is a related worry i have: if big retailers and similarly large corporations and institutions start accepting BTC transactions, many of the BTC will likely be funneled straight to the banks. The banks wouldn't have to *buy* any BTC at all. Then, having acquired all this BTC, the banks could just sit on it, and take the losses on the chin. It wouldn't take long before that would become a very big pile of bitcoin for them to sit on.

Retailers are not going to pass BTC onto banks when they can sit on an appreciating asset themselves for little to no cost (few security experts).

[hugolp]

Buying lots of bitcoins with dollars, driving the price up (and maybe creating an expectations bubble), then waiting for the price to stabilize before selling all you've bought (hoping to create panic selling) would, in my humble opinion, be an effective attack by anybody who had a lot of money to spend, didn't mind making the owners of the bitcoin exchanges very wealthy, and wanted to create fear, uncertainty, and doubt in the bitcoin market.

Of course, if there was somebody with a lot of bitcoins willing to sell on the way up and buy on the way down to stabilize prices...

Someone trying this would probably affect the price of bitcoins in a big way, but would also end up loosing a lot of money. The price of bitcoins would collapse quickly until it reached a new equilibrium not allowing the seller to regain all the money he payed for bitcoins. You can see this dinamics all the time when someone tries to corner the market. If they want to sell quick, they end up loosing money.

[saqwe]

uuu
scary

like in that movie wall street 1

[BubbleBoy]

Nice going buddy, ruined for everybody this year's edition of The Most Retarded Business Plan contest.
Your proposal is just about as effective as bankrupting Amazon by buying up all their inventory.

[Remotay]

I wish your scenario happened. Then anyone holding bitcoins would be rich. How could you even think this was a threat to the Bitcoin economy? It's as the above poster said - it's like trying to bankrupt amazon.com by buying all their products lol

[jaimedimon]

Here is a related worry i have: if big retailers and similarly large corporations and institutions start accepting BTC transactions, many of the BTC will likely be funneled straight to the banks. The banks wouldn't have to *buy* any BTC at all. Then, having acquired all this BTC, the banks could just sit on it, and take the losses on the chin. It wouldn't take long before that would become a very big pile of bitcoin for them to sit on.

Please get a job with the government and pass this idea onto them!!!