I'm a Central Bank trying to keep Bitcoin from being adopted

[notme]

Agree with your banker buddies to clone bitcoin, but with a fresh blockchain.  Slightly change the mining algorithm so bitcoin mining setups don't work.  Integrate the new coin with your online banking software and offer it as an option when nonchargebackability is desired (such as for international settlements or when a merchant requires it (scammer prone industries)).  Create financial products based on the new coin that can be traded by anyone with a brokerage account.

Same as the Microsoft strategy for open source: embrace and extend.  Sure it only works if you own the market, but there is no industry more locked down than the finance industry. Even putting themselves into bankruptcy wasn't enough for banks to lose their place at the table.  The strategy isn't working for Microsoft anymore, but that's because the market they own (desktops) is being replaced by mobile devices where other OSes took root first.

But you have to get everyone to use it for that to work    The manipulation won't work if it's recognized and becomes a known factor, people will just work it into their assumptions.  Microsoft took people from a somewhat open platform to a closed platform with better usability, I don't think that same transition can happen here.

When banks say "do X or the economy will be in trouble", politicians reliably do X.

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[mindtomatter]

Agree with your banker buddies to clone bitcoin, but with a fresh blockchain.  Slightly change the mining algorithm so bitcoin mining setups don't work.  Integrate the new coin with your online banking software and offer it as an option when nonchargebackability is desired (such as for international settlements or when a merchant requires it (scammer prone industries)).  Create financial products based on the new coin that can be traded by anyone with a brokerage account.

Same as the Microsoft strategy for open source: embrace and extend.  Sure it only works if you own the market, but there is no industry more locked down than the finance industry. Even putting themselves into bankruptcy wasn't enough for banks to lose their place at the table.  The strategy isn't working for Microsoft anymore, but that's because the market they own (desktops) is being replaced by mobile devices where other OSes took root first.

But you have to get everyone to use it for that to work    The manipulation won't work if it's recognized and becomes a known factor, people will just work it into their assumptions.  Microsoft took people from a somewhat open platform to a closed platform with better usability, I don't think that same transition can happen here.

When banks say "do X or the economy will be in trouble", politicians reliably do X.

Why on earth would it matter what a politician thinks you should do with your bitcoins?  Again, somebody has to buy them - Who would buy something that requires a law in order to get people to buy it? 

[paultramarine]

I'm a central bank powerful national government and feel threatened by alternative monies, e.g. bitcoin.  But cryptocurrencies gain a hold in the world before I squash them because of their incredible practicality:
1) Send to anyone instantaneously
2) Minimal fees
3) Anonymity

I know I can never kill them off completely so I will co-opt the idea with a government run (and backed!) cryptocurrency.  The USDCoin!
......
  But still, the gov could probably just argue USDCoin is as good as the coin that's also used for criminal transactions.

That works as long as you've got the most useful product on the market, but I don't think that would be the case.   The more of a head start Bitcoin and free market cryptocurrencies get, the harder it is to put that genie back in the bottle.

I strongly disagree.  The most useful product on the market loses out all the time due to superior marketing, perceived security, etc.  I mean, either Windows, OSX, or Linux is a better OS but they have lived side by side for years.
The sheeple of the US would probably like those basic three conveniences (or two if anonymity is removed) well enough to go with the currency that their government hasn't banned and thus is widely accepted.  Bitcoin is far from being widespread enough at this point to squash it, I think it's still 2-3 years out from wide adoption on Main Street and by then the gov will make laws discouraging or banning it's use. 

[abbyd]

Then we will create options and futures in bitcoin at www.cmegroup.com so people can speculate in derivatives so the bubble becomes even bigger. We take the other side of the trades and make huge profits when the bubble bursts. And we of course buy major holdings in bitcoin after the 90% crash which will be triggered by attacks from us against the bitcoin network and later on price manipulation with algorithmic trading creating flash crashes. We now own most of the bitcoins created and issue derivatives that people speculate in that we easily manipulate. They believe that they are trading bitcoin, but in reality they are betting against the house.

I thought that for quite a while, but then I realized there's not reason to financialize bitcoins because they're already the perfect financial instrument.  Gold and Silver are expensive to move expensive to guard expensive to ship so paper or digital assets make all the sense in the world.   But to bitcoin they actually encumber you, bitcoin is a currency built on ownership, not debt so to participate in derivatives is to introduce the risk that the counterparty will default, and with the state of regulation in Bitcoin good luck getting your money back - How's that recovery from the pirate default going?

So if there are no advantages, why would the be the preferable way to invest in bitcoin?   In order for it to become manipulative it would have to dwarf the real bitcoin market and I just don't see a scenario where that happens, and if it does the question must be asked "What are these people trying to do?"   

"Expense to move and guard" is called your "cost of carry". It's true that Bitcoin's cost of carry is quite low, much lower than precious metals. I'd say that the main COC is keeping a copy of the blockchain synced - required if you're holding a lot of coin. 

Creating a derivative based on BTC is easy - the question is, are people DUMB ENOUGH TO BUY IT?  From the look of many posts on this forum, YES.

I still think the most likely scenario is a big money pump and dump. If somebody succeeds in implementing BTC short selling (last I checked it does not exist?), we'll see BTC/USD dropping in a big hurry.

[deathcode]

Then we will create options and futures in bitcoin at www.cmegroup.com so people can speculate in derivatives so the bubble becomes even bigger. We take the other side of the trades and make huge profits when the bubble bursts. And we of course buy major holdings in bitcoin after the 90% crash which will be triggered by attacks from us against the bitcoin network and later on price manipulation with algorithmic trading creating flash crashes. We now own most of the bitcoins created and issue derivatives that people speculate in that we easily manipulate. They believe that they are trading bitcoin, but in reality they are betting against the house.

I thought that for quite a while, but then I realized there's not reason to financialize bitcoins because they're already the perfect financial instrument.  Gold and Silver are expensive to move expensive to guard expensive to ship so paper or digital assets make all the sense in the world.   But to bitcoin they actually encumber you, bitcoin is a currency built on ownership, not debt so to participate in derivatives is to introduce the risk that the counterparty will default, and with the state of regulation in Bitcoin good luck getting your money back - How's that recovery from the pirate default going?

So if there are no advantages, why would the be the preferable way to invest in bitcoin?   In order for it to become manipulative it would have to dwarf the real bitcoin market and I just don't see a scenario where that happens, and if it does the question must be asked "What are these people trying to do?"   

"Expense to move and guard" is called your "cost of carry". It's true that Bitcoin's cost of carry is quite low, much lower than precious metals. I'd say that the main COC is keeping a copy of the blockchain synced - required if you're holding a lot of coin. 

Creating a derivative based on BTC is easy - the question is, are people DUMB ENOUGH TO BUY IT?  From the look of many posts on this forum, YES.

I still think the most likely scenario is a big money pump and dump. If somebody succeeds in implementing BTC short selling (last I checked it does not exist?), we'll see BTC/USD dropping in a big hurry.

short-selling is implemented. there's an exchange that does it https://www.bitfinex.com/

[mindtomatter]

I'm a central bank powerful national government and feel threatened by alternative monies, e.g. bitcoin.  But cryptocurrencies gain a hold in the world before I squash them because of their incredible practicality:
1) Send to anyone instantaneously
2) Minimal fees
3) Anonymity

I know I can never kill them off completely so I will co-opt the idea with a government run (and backed!) cryptocurrency.  The USDCoin!
......
  But still, the gov could probably just argue USDCoin is as good as the coin that's also used for criminal transactions.

That works as long as you've got the most useful product on the market, but I don't think that would be the case.   The more of a head start Bitcoin and free market cryptocurrencies get, the harder it is to put that genie back in the bottle.

I strongly disagree.  The most useful product on the market loses out all the time due to superior marketing, perceived security, etc.  I mean, either Windows, OSX, or Linux is a better OS but they have lived side by side for years.
The sheeple of the US would probably like those basic three conveniences (or two if anonymity is removed) well enough to go with the currency that their government hasn't banned and thus is widely accepted.  Bitcoin is far from being widespread enough at this point to squash it, I think it's still 2-3 years out from wide adoption on Main Street and by then the gov will make laws discouraging or banning it's use. 

The question is - Will the situation with other moneys around the world have improved by the time they try to ban bitcoin?

  Based on the way the last 5 years have gone, I don't think that's very likely to happen so by banning a currency that everyone will clearly works quite well and has a number of advantages over the old way of using money.  They'll be asking people to give up what they view as better money because you don't like that they're using that instead of your proprietary worse currency because that's the new rule they made.

I don't think you can successfully pull off that action without first intentionally creating marketplace chaos that scares out new users by causing them painful losses.  In most circumstances it winds up looking petty and late to the party, if they do it too early it lends legitimacy to the fledgling currency.

It's a very difficult situation to be in as the issuer of a worse-currency in a bitcoin world.

[paultramarine]

I'm a central bank powerful national government and feel threatened by alternative monies, e.g. bitcoin.  But cryptocurrencies gain a hold in the world before I squash them because of their incredible practicality:
1) Send to anyone instantaneously
2) Minimal fees
3) Anonymity

I know I can never kill them off completely so I will co-opt the idea with a government run (and backed!) cryptocurrency.  The USDCoin!
......
  But still, the gov could probably just argue USDCoin is as good as the coin that's also used for criminal transactions.

That works as long as you've got the most useful product on the market, but I don't think that would be the case.   The more of a head start Bitcoin and free market cryptocurrencies get, the harder it is to put that genie back in the bottle.

I strongly disagree.  The most useful product on the market loses out all the time due to superior marketing, perceived security, etc.  I mean, either Windows, OSX, or Linux is a better OS but they have lived side by side for years.
The sheeple of the US would probably like those basic three conveniences (or two if anonymity is removed) well enough to go with the currency that their government hasn't banned and thus is widely accepted.  Bitcoin is far from being widespread enough at this point to squash it, I think it's still 2-3 years out from wide adoption on Main Street and by then the gov will make laws discouraging or banning it's use. 

The question is - Will the situation with other moneys around the world have improved by the time they try to ban bitcoin?

  Based on the way the last 5 years have gone, I don't think that's very likely to happen so by banning a currency that everyone will clearly works quite well and has a number of advantages over the old way of using money.  They'll be asking people to give up what they view as better money because you don't like that they're using that instead of your proprietary worse currency because that's the new rule they made.

I don't think you can successfully pull off that action without first intentionally creating marketplace chaos that scares out new users by causing them painful losses.  In most circumstances it winds up looking petty and late to the party, if they do it too early it lends legitimacy to the fledgling currency.

It's a very difficult situation to be in as the issuer of a worse-currency in a bitcoin world.

Yes, I agree that cryptocurrencies can't easily be completely killed by inferior gov-backed knock-offs as competition.  But I think in the G-6/G-8 countries it can easily be made pretty useless for everyday transactions via the strategy I described.  Most residents in those countries will like the ease of use of the new USDCoins but not care (or be glad) that it is government-backed.  And they are also easily cowed by government bans on things that are not actually harmful (e.g. marijauna in the US 1930-1990).  If there were a $1000 fine for using bitcoin in the US then no businesses would accept it so it would lose the wide appeal and use it could have.  And the penalty would likely be much worse than $1000.

As for the rest of the world, cryptocurrencies could be much better than their national fiat currencies for many transactions and they will likely be used heavily there.  Though high volatility could make that more difficult. 

Thanks for starting this post and keeping it so active, OP!

[Adrian-x]

• I win when I can cause situations that scare users away from using Bitcoins.  

You can't scare me away from Bitcoin. Well you can pull me away with something like it but just orders of magnitude better.

If you follow my golden rule the central bank even Bitcoin Nouveau riche can't win.
1) Only buy in to Bitcoin economy if you truly believe in the Idea and the economics it enables.
2) Only sell or triad out your Bitcoin's for something of greater value than you put in.

Demand and exchange rates have little to do with it in principal, they are only an accelerant.

Manipulating and crashing prises, just makes cheep coins available for the believers. 
Buying all the coins only makes an opening for a competitor.

[gogxmagog]

1) Buy off / co-opt development team and major miners.  (check)

2) Establish network control via frequent, forced client upgrades and network splits.  (check)

3) Use shills to co-opt and distort Bitcoin political message away from freedom and opposition to bail-outs and towards democracy and paying taxes to support cronyist banks.  (check)

4) Support large-scale criminal enterprises to secure a supply of Bitcoins to short (ponzi schemes, thefts, fraud, etc).  (check)

5) Setup Bitcoin services designed to eliminate anonymity.  (check)

6) Identify major holders.  (check?)

7) Control ASIC manufacturers.  (in progress)

8 ) Targeted shut-downs, bank account raids, random door-kickings of major participants that fail to go along. (coming soon)

9) THE PUMP -- pump up the price by preventing selling, artificially limiting supply, and by buying en masse.

10) THE DUMP -- crash the price by coordinated technical attacks, sabotage, targeting merchants, loosening of restrictions on selling, and by dumping BTC.

11) GOTO 8

I like the way your brain works... but you forgot an easy one...

12) lobby governments to regulate the hell out of BTC and strip it of most of its potential usefulness.

[MatTheCat]

You can't scare me away from Bitcoin. Well you can pull me away with something like it but just orders of magnitude better.

If you follow my golden rule the central bank even Bitcoin Nouveau riche can't win.
1) Only buy in to Bitcoin economy if you truly believe in the Idea and the economics it enables.
2) Only sell or triad out your Bitcoin's for something of greater value than you put in.

Demand and exchange rates have little to do with it in principal, they are only an accelerant.

Manipulating and crashing prises, just makes cheep coins available for the believers. 
Buying all the coins only makes an opening for a competitor.

'Gee, I sure love these corrections, they give me the chance to buy plenty more gold n silver at fire sale prices'

This was the sort of guff spouted by the likes of Mike Maloney, James Turk, and all the other precious metal retailers, when the metals had their pullbacks in 2011. Had anyone taken their advice, and kept on stacking up at any point since then, then they would be out of pocket in terms of net worth today.

Before I place my bets on any competitor, I will wait and see what cryptocoins Silk Road, or another dark net site just as significant as it, starts dealing in.

[abbyd]

short-selling is implemented. there's an exchange that does it https://www.bitfinex.com/

Thanks - I had a feeling I wasn't up to date on shorting.
That said, I don't think this exchange is shorting much volume.

BTC trading is getting interesting today. Waiting to see if these "rescue buyers" are ready to sop up more coin at 120...
LTC's break to 5 USD is amazing as well...

[sgbett]

Originally posted at Reddit

Playing Devil's Advocate here....

Let's play a game:  I'll be the Central Bank with say, 10 billion USD to devote to the "problem" of bitcoin.  You try to think of why my plan won't succeed.    

• I win when I can cause situations that scare users away from using Bitcoins.  
• I lose when non-technical users successfully and satisfactorily use any currency that's not controlled by a central bank.

Both the win and loss aren't well defined outcomes. More importantly, I think they are misdirection.

see https://bitcointalk.org/index.php?topic=154907.msg1734674#msg1734674 for explanation of what I think the real failing of this plan is

[mindtomatter]

From the other thread

so, this "central bank pump and dump scenario" that is being proposed:

will the dump kill every single last participant's interest?

if it doesn't will they try it again?

if they try it again you think it will work the second time? ... the third?

I think when you think about those questions it becomes clear, that the issue is not how does one stop this from happening, but "so what if it does".

The biggest hole in this scheme, is that this whole plan seems to be aimed at destroying bitcoin's legitimacy as a means of increasing relative wealth, by creating unpredictable boom/bust scenarios. Whilst BTC is to each, for his own, I was under the impression that this was not the primary 'goal' of bitcoin.

It's use as a means of value transfer remain largely unaffected. In particular there is little counterparty risk at this time to merchants using bitpay. The volatility does not seem to have hindered its use on silk road.

As 'money' it is performing reasonably well. As a store of value not so much. (There was a time when it didnt just go up )

The point is it can't be killed by discrediting only one of its functions. Those that need it for what it does, well why would they stop using it because somebody was messing around with the exchange rate. BTC works whether it is worth $1m a coin, or $1 coin.

Now, if the central bank destroys any value as a speculative investment, then the exchange rate may drop, but it will only ever go as low as its utility value. This floor is some function of the amount of wealth that needs to be exchanged, and the number of 'circulating' coins.

Of course at that point it doesn't matter how good of a job was done destroying BTC as an investment. They will be so cheap that people are bound to gamble. It may be that billions were lost last time around, but im sure that millions were made. Human psychology is such that there are always going to be people that want to take a shot at that.

What you see as a hole, I see as the whole purpose!  We both agree that there are people who you will not be able to chase away from bitcoin, and we agree that you can't destroy it through outward forces (like making it illegal) without causing a Napster/eMule cascade.  

So what is left?  

You can't make it go away, and you can't argue with its superior features, but you can scare people who don't understand either of those advantages away from it by causing them to lose money.

The new people who don't know anything are exactly the people who the central bank has the ability and means to impact, once they come to appreciate Bitcoin for its many and varied advantages they can no longer be scared out with this.

It is a means to limit the overall pool of users, if they successfully pull this trick with more than 80% of a population over any number of repetitions they can probably stave off the loss of functional reserve status.  Technically legal tender laws would still apply, so people setting prices only in bitcoin with floating dollar amounts would be in violation.  But once we're there the battle is over, Dollar is functionally replaced with Bitcoin as the reserve.

And for the central bank, that is game over - I lose the majority of my power to impact and implement monetary policy since continued issuance of currency no longer has an implied buyer no matter the amount.

Does that help?

[bb000]

 The  scenario described seems quite realistic,  the same  risk was described in a zerohedge headline today.
 With bitcoins huge coverage lately  I'm surprised it has not been more demonized in the MSM,  I would have thought that would be the first defensive reaction of those who would like to see bitcoin fail.
The possible defenses that I can think of are
a)  back bitcoin with reserves ( of gold probably), like a central bank, just enough to put some sort of floor on how far the price   could  fall in the case of a crash.  I can't see this happening,  who would pay for it?
b)  more exchanges,  somehow supporting more graceful price drops when demand is low.
c)  access to more btc  denominated  assets,  allowing current btc holders to cash out without going through exchanges.

The key is to  get money flowing within the bitcoin economy, and providing a wide range of exits to try and avoid panic selling when the price does fall.

[sgbett]

From the other thread

so, this "central bank pump and dump scenario" that is being proposed:

will the dump kill every single last participant's interest?

if it doesn't will they try it again?

if they try it again you think it will work the second time? ... the third?

I think when you think about those questions it becomes clear, that the issue is not how does one stop this from happening, but "so what if it does".

The biggest hole in this scheme, is that this whole plan seems to be aimed at destroying bitcoin's legitimacy as a means of increasing relative wealth, by creating unpredictable boom/bust scenarios. Whilst BTC is to each, for his own, I was under the impression that this was not the primary 'goal' of bitcoin.

It's use as a means of value transfer remain largely unaffected. In particular there is little counterparty risk at this time to merchants using bitpay. The volatility does not seem to have hindered its use on silk road.

As 'money' it is performing reasonably well. As a store of value not so much. (There was a time when it didnt just go up )

The point is it can't be killed by discrediting only one of its functions. Those that need it for what it does, well why would they stop using it because somebody was messing around with the exchange rate. BTC works whether it is worth $1m a coin, or $1 coin.

Now, if the central bank destroys any value as a speculative investment, then the exchange rate may drop, but it will only ever go as low as its utility value. This floor is some function of the amount of wealth that needs to be exchanged, and the number of 'circulating' coins.

Of course at that point it doesn't matter how good of a job was done destroying BTC as an investment. They will be so cheap that people are bound to gamble. It may be that billions were lost last time around, but im sure that millions were made. Human psychology is such that there are always going to be people that want to take a shot at that.

What you see as a hole, I see as the whole purpose!  We both agree that there are people who you will not be able to chase away from bitcoin, and we agree that you can't destroy it through outward forces (like making it illegal) without causing a Napster/eMule cascade.  

So what is left?  

You can't make it go away, and you can't argue with its superior features, but you can scare people who don't understand either of those advantages away from it by causing them to lose money.

The new people who don't know anything are exactly the people who the central bank has the ability and means to impact, once they come to appreciate Bitcoin for its many and varied advantages they can no longer be scared out with this.

It is a means to limit the overall pool of users, if they successfully pull this trick with more than 80% of a population over any number of repetitions they can probably stave off the loss of functional reserve status.  Technically legal tender laws would still apply, so people setting prices only in bitcoin with floating dollar amounts would be in violation.  But once we're there the battle is over, Dollar is functionally replaced with Bitcoin as the reserve.

And for the central bank, that is game over - I lose the majority of my power to impact and implement monetary policy since continued issuance of currency no longer has an implied buyer no matter the amount.

Does that help?

I think they can, as seems to be their specialty, kick the can further down the road. It seems to me though that they cannot stop the tide.

I think their best bet would be to try and capture as much of the bitcoinmarket as possible. Buying up coins now is the short term method. The real key though, I think, is to invest in hashing power (whilst their dollars are still worth something).

In the medium term you then capture most of the mined transactions. In the long term you start to ream in the transaction fees.

In this endgame, nobody has enough BTC to buy up hashing power to compete. Transacation fees become the new 'tax'. Welcome to the future! It's the same as before

[Mageant]

Buying up or mining a significant amount the coins would not necessarily cripple the Bitcoin economy.

People would simply use what is left in circulation.

We sort of already have that situation now with lots of the coins from the original miners being forgotten or lost.

[sgbett]

Buying up or mining a significant amount the coins would not necessarily cripple the Bitcoin economy.

People would simply use what is left in circulation.

We sort of already have that situation now with lots of the coins from the original miners being forgotten or lost.

I doubt the central banks *want* a crippled economy, what they want is not to lose their position as your lord and master!

[Razick]

From what I can tell there area lot of people looking to get into Bitcoin or even start accepting it who are waiting for more realistic prices. A drop in price could take Bitcoin mainstream.

[RodeoX]

Wait until it comes out at the shareholders meeting that you spent all their money on your operation.  You will be lucky to get a job as shift manager at McDonald's.

[mindtomatter]

From what I can tell there area lot of people looking to get into Bitcoin or even start accepting it who are waiting for more realistic prices. A drop in price could take Bitcoin mainstream.

You really don't get bitcoin uh?
It doesn't matter what price bitcoin is at...
you can just use mBTC.
Where is your source stating that a lot of people are waiting for for more realistic prices?

It's not about "getting" bitcoin, it's about the price increases having both a push and pull effect on new buyers.  Using mBTC will be fine, but not when people are expecting to use BTC.  It's about expectation management, specifically with new users who as you say "really don't get bitcoin"