An ASIC Company's Guide to Maximizing Profit while Destroying Bitcoin

[cancis]

Here's a fun little scenario I came up with the other day. Below I describe the most profitable business model for an ASIC hardware company to follow if they are looking to solely maximize profit without regard to protecting the Bitcoin network.

I sincerely hope for the sake of Bitcoin that no company decides to go this route - but where there is massive profit potential with no legal repercussions, there's fire:

Step 1. Recruit the team needed to make a legitimate ASIC offering

Step 2. Get in bed with SEC/FBI/[whatever three-letter agency that wants to see Bitcoin fail while painlessly hiding their involvement in it's failure]

Step 3. Start taking pre-orders and begin furnishing all pre-order information (full names, addresses, payment info) to the given Three Letter Agency. Three Letter Agency now has a dataset containing a very large portion of the United States population that could be considered a legitimate threat to national economic activities. To make it into this list of pre-orders, it implies the following about you:

a.) you have a significant interest in anonymous, decentralized cryptocurrency (this could be argued as an interest in "anti-economic activities" depending on which Three Letter Agency and their interests)
b.) you have the resources to invest significant sums of cash into these "anti-economic activities"
c.) you possess a higher-than-average intelligence and capacity for critical thinking, and further
d.) you have taken definitive and documented action to utilize the above resources to further your interests in these activities (placing a pre-order for a mining device)

Step 4. Continue collecting large pre-order USD/BTC sums, assemble first batch of ASICs

Step 5. Slowly bring ASIC units online in different pools (maybe even your OWN mining pool for maximum control!) as well as solo-mining, and begin funneling your mined BTC to a central location

Step 6. Delay, delay, delay as long as possible to maximize mined BTC profits and lure in any stragglers for pre-orders

Step 7. At some point - the "tipping point" as I will refer to it - you announce that you are on the verge of delivering on all pre-orders. Several important things now happen:

a.) Take your substantial USD assets and artificially inflate the exchange rate (the "pump")
b.) Hold this exchange rate long enough to create a massive bid wall at a desirable USD rate
c.) Execute the "dump" at this favorable exchange rate, turning your pile of BTC into a monolithic pile of USD

Step 8. Congratulations! You've devalued BTC massively, walked away with pre-order profits + mining profits, all amplified by massive and controlled speculation, and to top it all off you got some extra cash from Three Letter Agency and a Get out of Jail Free card for playing ball with them. Now all you have to do is deliver on the (now essentially worthless) hardware, and you have mitigated all your civil suit liability as well!

BONUS ROUND: Do a 51% attack right before delivering to really upset folks' confidence in the market
BONUS ROUND 2: Cancel orders and return BTC to their owners (although they're hardly worth anything now). Continue 51% attacks to keep Bitcoin from recuperating!


I hope you all have enjoyed my theoretical scenario, and I'll look forward to your comments and speculations. Oh, I am so totally not writing this to implicate any specific company either, in case anyone was drawing correlations that I did not intend.

[cancis]

Sorry to self-bump, but I realized this might be better-suited for Economics or Mining Hardware discussion.

Mods, please move at your discretion.

[theta]

a very large portion of the United States population that could be considered a legitimate threat to national economic activities.

Mining or speculating in bitcoins is not a "threat to national economic activities" by any stretch of imagination. Contrary to the fantasies of some delusional conspiracy theorists, the government is not threatened by the existence of alternative currencies nor does it give a damn about it, nor it ever will. 

[mik3]

This is quite scary.

[mik3]

Mining or speculating in bitcoins is not a "threat to national economic activities" by any stretch of imagination.

So creating a new anonymous crypto currency that can potentially destabilize the US dollar leading to possible government collapse/run on banks is not a threat?

[VinceSamios]

Please cancel your pre-orders and STFU

Thankyou :-)

[cancis]

a very large portion of the United States population that could be considered a legitimate threat to national economic activities.

Mining or speculating in bitcoins is not a "threat to national economic activities" by any stretch of imagination. Contrary to the fantasies of some delusional conspiracy theorists, the government is not threatened by the existence of alternative currencies nor does it give a damn about it, nor it ever will. 

Such language is standard-issue spin terminology for getting those less-informed/less able to be informed/less capable of being informed to join the pitchfork party.

It's a thought experiment, not a reflection of my actual thinking.

That being said, the issue of whether Bitcoin is or is not a "threat to national economic activities" has less to do with reality and more to do with how governments decide to label it. I'm no conspiracy nut, but when motive and opportunity meet with no legal recourse, it is in your best interest to examine where that path leads.

Please cancel your pre-orders and STFU

Thankyou :-)

One such popular ASIC hardware company has this to say about canceling pre-orders: "Payments made for pre-orders of ASIC based products now under development should be considered non-refundable until products begin shipping or 1 January 2013, whichever is earlier."

[Starlightbreaker]

ooo..


sounds like BFL.


/tinfoil

[PatMan]

Pretty good! 

One little point though, it's not just americans who have an interest in bitcoin, in fact I think there's more people active in bitcoin outside of the US than there is inside the US, I'm not sure. But I am sure of one thing, those who are outside the US don't give a monkeys about all the 3-5 lettered US gestapo agencies...

I know I don't.

Peace 

[mik3]

those who are outside the US don't give a monkeys about all the 3-5 lettered US gestapo agencies...

You don't have to care about them, but if the CIA/FBI/whatever sees that bitcoin can be a thread to the mighty US dollar, you bet your ass they will do anything they can to stop it. Look at the US sticking their nose anywhere and everywhere the past 100 years. And with the amount of money they have, they can definitely perform a 51% attack by building a shitload of ASICs.

[cancis]

those who are outside the US don't give a monkeys about all the 3-5 lettered US gestapo agencies...

You don't have to care about them, but if the CIA/FBI/whatever sees that bitcoin can be a thread to the mighty US dollar, you bet your ass they will do anything they can to stop it. Look at the US sticking their nose anywhere and everywhere the past 100 years. And with the amount of money they have, they can definitely perform a 51% attack by building a shitload of ASICs.

You know, now that I think about it, it would be trivial for the government to indict an ASIC company right before they start shipping. Through the discovery and asset seizure processes, they'd be able to snatch all the ASICs and pre-order lists and do what they please. This would be a bit more nefarious from the government's angle, but I assess it as a higher possibility than collaboration between an ASIC co. and the government from Day 1.

On the other hand, collaboration from Day 1 would be a higher likelihood if the government already had an upper hand/bargaining position on an owner of the company (e.g. the person is a felon, on probation or parole, former military, or something along those lines).

[mik3]

Reddit discussion relating to this: http://www.reddit.com/r/Bitcoin/comments/1av40x/cant_big_banks_destroy_bitcoin/

[jaywaka2713]

You would need sooooo much money to do this, but it isnt exactly impossible. Since the FinCEN regulation has passed, I am doubtful any 3,4 letter agency will be interested.

[PatMan]

Besides, to destabilize a currency it has to be stable in the first place.....Mr Bernanke, the Rothschilds & co & the FED seem to be doing a fine job of destabilizing world currencies on their own......lol

[cancis]

You would need sooooo much money to do this, but it isnt exactly impossible. Since the FinCEN regulation has passed, I am doubtful any 3,4 letter agency will be interested.

Actually you would need only a small percentage of the ~700m USD market capitalization to severely effect the exchange rate. But the real threat is a 51% attack, destabilization of the exchange rate, and - most importantly - the extremely valuable dataset of every pre-orderer's name and address.

[jaywaka2713]

Such a dataset isnt important to the government because Bitcoin isn't illegal.

[theta]

if the CIA/FBI/whatever sees that bitcoin can be a thread to the mighty US dollar

The problem with all these conspiracy theories (and the same applies to many gold-bug theories) is that they fail to explain why would any asset/currency/commodity/whatever be a "threat" to US dollar and consequently why would the US government have an incentive to kill it. In case you haven't noticed, the US issues the US dollar, which is a currency backed by its monopoly in taxation in the USA. It doesn't care if it loses value, in fact it has an interest to see it go down in value. It has an interest to see people using it to do whatever (even buy gold, bitcoins, or oil futures) so that they can tax the activity generated from it. Bitcoin in this sense is NOT a threat to US govt interests, it's more of a blessing. A reason for more economic activity (more hardware sold, exchange fees paid etc.) and therefore more taxes paid.

You can make an argument for being a threat to the banks, but not to the government. Even that argument wouldn't fly though, because if and when bitcoin goes mainstream, existing banks and mega-corporations will be in a very good position to actually offer services such as exchanges, online wallets, etc. that could threaten existing businesses in these areas, and therefore replace the current revenue stream from banking operations with equivalent stream from bitcoin equivalent operations.

[jaywaka2713]

Bitcoin in this sense is NOT a threat to US govt interests, it's more of a blessing. A reason for more economic activity (more hardware sold, exchange fees paid etc.) and therefore more taxes paid.

You could theoretically get away with paying no sales tax with using Bitcoin. You most definitely can get away with not filing mining earnings as federal and state tax.

[theta]

Bitcoin in this sense is NOT a threat to US govt interests, it's more of a blessing. A reason for more economic activity (more hardware sold, exchange fees paid etc.) and therefore more taxes paid.

You could theoretically get away with paying no sales tax with using Bitcoin. You most definitely can get away with not filing mining earnings as federal and state tax.

In that case you would be breaking the law,  so it's another issue altogether and the government would go after the tax revenue,  nut bitcoin itself.  Same thing with any tax evasion case.

[cancis]

Bitcoin in this sense is NOT a threat to US govt interests, it's more of a blessing. A reason for more economic activity (more hardware sold, exchange fees paid etc.) and therefore more taxes paid.

You could theoretically get away with paying no sales tax with using Bitcoin. You most definitely can get away with not filing mining earnings as federal and state tax.

In that case you would be breaking the law,  so it's another issue altogether and the government would go after the tax revenue,  nut bitcoin itself.  Same thing with any tax evasion case.

The government involvement was mainly icing on the cake - the most profitable route still exists with nearly the same negative effects: pump and dump the value, deliver the hardware as promised, and walk away with no civil/criminal liability.

That being said, I would say Bitcoin is one of the best tax evasion strategies ever created if/when the volatility is negated.

The dataset may not be useful precisely for the purpose of prosecuting right now (although I am positive that purchasing ANY sort of mining hardware is an indictable offense - the intent is what matters and that's an open-and-shut case given the specific purpose of an ASIC [unless you want to try arguing to a jury that you bought a SHA256 hasher for something else - be my guest]). However, that dataset is unarguably a master list of the points I mentioned in my first post: intelligent folks with financial resources and proven intent to participate in aforementioned activities.

But again, divorcing the government angle from this argument, you still have tons of incentive + opportunity for a ASIC hardware company to run a pretty big ruin on individuals and the network alike.