I've been thinking of this lately, but shouldn't there be a way to allow difficulty decreases more quickly?
Take the following figure:
the Current Network hashrate is something between 10 and 12 THash/sec.
Let's say some government/greedy banker/insert bad guy here figures bitcoin to be a threat.
They could easily deploy their own mining equipment and greatly increase difficulty until the next block is reached.
If you take numbers, adding about 150-200 additional TH/sec could drive up difficulty in a day to a value of about 10-15M.
I think that those computing powers are actually not too much for governments/intelligence agencies/wealthy banks.(actually I consider the NSA for example having such computational powers already).
Thing is, just forbidding bitcoin will probably not kill it, as it's kind of the same as with illegal downloads... people know it's illegal to download current movies from the internet, they still do it. So Govts/whoever hates BTC would be considering to shut down the network using this or another attack more probably than just pulling out laws against it.
So lets say, they do it.
After difficulty gets adjusted, the bitcoin hater pulls his miners out, reducing the hash-rate back to the normal 10-12TH/s.
With a difficulty of about 15M, the network would only generate about 16 Blocks/day, making it 126 days for difficulty to get recalculated.
However with that difficulty, most profit-oriented miners would probably pull out, as there's enough wealthy early adaptors that could buffer the price spike with their own wallets, and mining at 15M difficulty would be probably unreantable for anyone. So we could guess that the network would take about three times that value to recover from that difficulty spike. Bitcoin might be dead or forked by then.
There should be some consideration to have the network check average hashing speed every like 50 blocks for abnormal spikes in network power. For example, if the network hashing rate sunk by more than lets say 300% during the last 50 blocks, it could recompute difficulty to prevent such attacks on the coin.
What do you think about this?