What would be the impact of a US all out regulatory attack on Bitcoin?

[mrmatt]

I imagine this has been discussed before, and if so please direct me to any interesting threads.

Suppose you have a good bit of money in bitcoin today.  Let's say most of them are in a Mt.Gox account.  And you wake up tommorrow and the US Government has realized, "holy cow, this Bitcoin is evil and bad and we need to do everything we can to stop it." 

First questions are:

What types of things would they try and what is the worst thing (worst for you and your money in bitcoin) the US Govt could do to try and stop the growth and success of Bitcoin?

How would this play out over time?

What would be the best thing to do to prepare for this day- if you believe in bitcoins.

Obviously this is an invitation to speculation, so please speculate to the best of your ability, based up on your knowledge, imagination, and instincts. 

Here is my answer:

What is the worst thing they could do?
First, US Govt declares bitcoins illegal/an instrument of Satan.
US Govt negotiates a deal with Japan to force MTGOX to hand over a list of names and account numbers of every US citizen with an account there.  This deal also forces MTGOX to freeze all those accounts and all US Citizens no longer have access to their bitcoins.
Bitcoin crashes like crazy as a huge portion of the US buyers market is in a panic.

Second, US Government declares bitcoin mining and transactions all illegal.  It makes some high profile arrests/ equipment confiscations of US based miners.  All US based companies that trade in Bitcoin immediately cease.  This all contributes the the Bitcoin crash in price of ridiculous proportions.

How would this play out over time?
Week 1 after the US Gvt attack.
Ok, so if everything I have described thus far happened, what would the long term impact on Bitcoin be?  Well, for all US citizens with Bitcoins in a frozen exchange- they would lose all their bitcoins.  So, let's jump to question 3 and say, maybe I should not store all my bitcoins in the hands of a company that conceivably could be pressured by a government to freeze them.  Alright, so let's say I have most of my bitcoins in cold storage or on some save usb drives.  But, everything else above still happens.  I wake up and my entire bitcoin wallet is worth 5% of what it was yesterday.  Bitcoins are getting more horrible inaccurate press.  Every positive mainstream inroad that bitcoins made into legitimate US based industry undone in 24 hours. 

Week 4 after the US Gvt attack
I am sitting here with still a butt load of bitcoins, and the price has stabilized at something.  What would it stabilize at?  Someone can take some number crunching attempts at this.  Freezing a ton of US held MTGOX bitcoins effectively removes those bitcoins from circulation.  That's one factor.  Suddenly eliminating all US legally registered trade in bitcoin also eliminates a huge portion of bitcoin usefulness- which may reduce demand a ton.  Of course, non US businesses will still accept bitcoins until their governments are coopted... 

Week 52 after teh US Gvt attack on Bitcoin
A couple different things could happen. 

If the US Government does an all out regulatory attack on Bitcoin, it might crush Bitcoin yet open the door for a different cryptocurrency to take its place.  If the US Government was really clever, it might try to secretly position an alternative to Bitcoin- an alternative the US Government had some more control over.  This I don't see happening.  Probably they would simply attack all crypto currencies.

A full US Government attack might drive the entire Bitcoin economy underground, possibly confining it almost entirely in the dark web of Tor.

And then what would happen?  Let's get to the important question, what would happen to you and all your bitcoins?  2 years after this government assault, I don't believe Bitcoins would be gone.  They are made to survive as long as the Internet survives.  Yet, will they recover their value?  Will this dark web economy slowly grow to compete with the mainstream economy?  Will such an attack literally inject a huge flood of interest and participation in the dark web economy.  Now we will have millions and then billions of transactions happening with "companies" and currency that are totally encrypted and anonymous, unregulated, and untaxed. 

I have no idea.  I am stretching my brain over this one.  So, what say you? 

• What types of things would they try and what is the worst thing (worst for you and your money in bitcoin) the US Govt could do to try and stop the growth and success of Bitcoin?
• How would this play out over time?
• What would be the best thing to do to prepare for this day- if you believe in bitcoins.

[mrmatt]

I want to clarify what I mean by "If you believe in bitcoins"

What I mean is:  I believe bitcoins are a good thing.  I believe we citizens of earth should be free to create a currency 100% uncontrolled by central authority and democratic.  I believe this should be a fundamental human right.

I also believe, if we do this, if this bitcoin experiment is able to continue, then bitcoins (or something like it) will play a huge if not central role in the economy of the future.

That is what I mean by "believe in bitcoin".  I believe it is good and should exist- and I want to take the best and most prudent action to support it- yet also not lose my pants.

[oThomasenaByrda]

if there is to create a plan to make the BTC price stable, I think it's doable (or with other coins).
but like this, in wich a dDos atack can lower the price that easily, i don't think it's possible

[warsnoopy]

I view bitcoins as a commodity that can easily be treated and used as a currency with little friction.  The US could try to stop it but I dont see how or why.  Since I think of bitcoin as a commodity first its a speculatory investment for me first and foremost.  Besides bitcoins biggest use as a currency is buying drugs, that wont stop.

[nebulus]

A quote from someone - "Bitcoin operates in a domain that can't be regulated"

[ooeygooeygold]

How would the US govt seize all mining computers? this would be impossible because a mining computer is along the same lines as a gaming computer. I believe there is nothing that is going to stop bitcoin one day they will be worth an oz of gold

[ooeygooeygold]

I view bitcoins as a commodity that can easily be treated and used as a currency with little friction.  The US could try to stop it but I dont see how or why.  Since I think of bitcoin as a commodity first its a speculatory investment for me first and foremost.  Besides bitcoins biggest use as a currency is buying drugs, that wont stop.

+1...no one is going to stop the flow of drugs and bitcoins

[tempestb]

  The biggest problem I could see happening would be that the exchanges used to convert USD into BTC and back would no longer be able to connect to banks and therefor limit your ability to transfer funds easily.  (Not that they make it that easy now.)  Paypal had similar problems to this in the early days and were literally shut out of some states like Louisiana (If I recall, been awhile) and so could not operate there with their banks. 

The biggest reason for this happening would be money laundering.  And likely rogue Governments.  Imagine, for instance, that North Korea got involved with Bitcoin and were using it to circumvent UN restrictions on their financial accounts.  The U.S. would notify banks to stop working with X number of exchanges to prevent cash from moving between states. 

There will always be workarounds.  Someone could sell you a BTC via Craigslist or similar and you could avoid the bank.  But this is not going to help Bitcoin become adopted by the masses, which is what is needed to increase its value. 

Ultimately, if the U.S. gets involved, Bitcoin would survive, but it would be difficult to transfer money to and from.  At least for the U.S.

[waxwing]

I've thought about all this quite a bit too.

One scenario worth contemplating is the Soviet Union. In that situation, dollars were the illegal currency and roubles were the official currency. People who arrived in the USSR from the West with just a few tens of dollars were like millionaires. It was called "hard currency" and the interesting thing is that while it was illegal for most people to possess it, it was nevertheless accepted for buying luxury items and going to fancy restaurants.
OK, I don't know all the details of that and maybe it's not a perfect analogy at all.

But you could imagine a situation where buying/selling in bitcoins was illegal in certain jurisdictions, but because of the tremendous innate value of them, there would be a huge black market.

Another thing to consider: suppose it is illegal to exchange USD to BTC. Well, then it also better be illegal to transfer EUR-BTC and RUR-BTC and JPY-BTC and so on ... because otherwise you just need to take one extra exchange step.

This kind of prohibition never really works, as long as people have an economic incentive to get around it. So in short, I think people trading in BTC can certainly be suppressed, but can it really be stopped?

A more negative scenario would be like what happens in China with internet censorship - imagine BTC-using websites constantly popping up and then being shut down. But unless the regulation is properly global it's going to fail badly unless they go to a completely totalitarian state model.

[cash4net]

if there is to create a plan to make the BTC price stable, I think it's doable (or with other coins).
but like this, in wich a dDos atack can lower the price that easily, i don't think it's possible

bitcoin would hit the roof !

[Elwar]

I imagine it would be similar to the government making buying drugs online with bitcoins illegal.

[mrmatt]

I guess one thing you could compare a US Gvt crackdown on Bitcoin to would be the US Gvt crackdown on online gambling.

That crackdown I believe did crush the online gambling market for a while.  Of course, now Bitcoin has started to open that right back up, but that is beside the point. 

If the US gvt tried to crackdown on Bitcoin...or even started hinting at talking about doing it...it would have a dramatic effect on mainstream attitudes and speculators...  I am just trying to imagine how it will play out, what it will do to the price, and how things might land in the end....

Maybe Bitcoin will become like dollars in the Soviet Union.  Incredibly valuable illegal currency...

Then again, if the US Gvt...or any government on Earth...  or just a billionaire or two started to think Bitcoin could become the number one currency protocol of the Internet in 5-10 years, rather than attempt to crush it, the smart thing to do would be to buy a truck load...throw 500 Million dollars at it and lock up 25-50% of all bitcoins that will ever exist- just as a hedge against their own current wealth/currency stockpiles.  Then again, when do governments do the smart thing?