Posted to the foundation forum,
https://bitcoinfoundation.org/forum/index.php?/topic/483-bitcoin-dark-wallet/page__st__20#entry5410 Dunno if you have a membership or not.
Patrick Murck said it in simple terms: The use of Bitcoin will (and is) regulated, not the Bitcoin protocol itself..
He's right, but the way he's right is not at all the way you probably think he's right: Bitcoin mining can and almost certainly will be regulated, and by regulating mining you regulate all use of the Bitcoin protocol.
The first problem is ASICs, specifically the huge gulf in performance per unit cost between commodity hardware, or even hardware possible to create on a small scale with FPGAs, and ASICs. The nature of IC manufacturing is such that a very small number of companies, about two to three, can afford the immense capital costs required to operate top-of-the-line chip fabrication facilities. Put another way, the entire world's economy is unable to support a diverse IC manufacturing industry at the current level of technological sophistication.
Control those chip fabs and you control mining. It would be extremely easy for the US government to tell Intel and TSMC that from now on any wafers they process capable of doing Bitcoin mining must include additional circuits that let the US government control how, and by whom, they are used. This is a problem in general with computing, but controlling the manufacture of a special-purpose ASIC is far easier and simpler, both technologically and politically, than controlling the availability of general purpose computing hardware. Fortunately it is possible to create proof-of-work algorithms where custom ASICs have less of an advantage over general purpose hardware, but Bitcoin itself isn't going to change the algorithm.
The second problem is bandwidth: the Bitcoin protocol has atrocious scalability in that to mine blocks you must keep up with the bandwidth used by all transactions. The current 1MB blocksize is small enough to make this not a major problem yet, but if you increase that (with a hardfork!) at some point you will have increased it to the level where you can no longer mine anonymously and then regulating miners directly becomes possible. Unfortunately while technological improvements have made non-anonymous bandwidth more plentiful, for anonymous bandwidth - or even just censorship resistant bandwidth - the options are much more limited. Jurisdiction hopping is an option, but even for the likes of The Pirate Bay it's proved to be a huge pain in the ass, and they only had the relatively small media industry as their enemy rather than the much larger banking industry. (and government in general) It does appear that you could make a crypto-currency with better core scalability - as opposed to the well understood and already-used ways to fairly securely transfer funds off-chain - but no-one's quite yet figured out yet how to upgrade Bitcoin itself with those improvements.
What's interesting is with good cryptography we've figured out ways to at least detect if miners are violating every other aspect of the Bitcoin protocol: some relatively small and backwards compatible changes to the protocol allow auditing everything miners do with peicewise audits done on low-bandwidth connections. If your wallet randomly audits 0.1% of every block, and there are a few thousand like you, the chance of fraud not being detected quickly approaches zero.
But auditing can only detect if miners fail to follow the rules of the Bitcoin protocol; it can't force miners to decide to include your blacklisted transactions in a block. If a majority of hashing power is under government control, there's no way we can prevent them from blacklisting whatever they want. Secondly, if the government does decide to change the rules of the Bitcoin protocol by fiat, then what? Suppose the Federal Reserve or equivalent decides that the deflation of Bitcoin is bad for the economy, and the coin distribution schedule needs to be changed. Or perhaps the courts decide that some stolen Bitcoins, that were subsequently lost, are to be returned to their former owners in an invalid transaction. They can order the majority of hashing power to follow new rules, and while you're wallet software may detect that fraud and shutdown, what alternative do you have but to "upgrade" it to accept the new rules? If you're transactions aren't protected by the majority of hashing power, you're transaction aren't secure.
Where Dark Wallet goes wrong
This is what bothers me about their efforts: I see no reason to think they understand any of the above. They're approach of making a ground-up re-implementation of Bitcoin is fundementally flawed, both from an engineering point of view, as well as a political point of view. What they should be doing is latching on to the notion that the core Bitcoin protocol is a fixed suicide pact that must only be changed with the true consent of all users. As step #1 they should have taken the Satoshi source code, stripped out everything that isn't directly related to that core consensus protocol, and turned it into an easy to use library. Only then should they have built a wallet/node implementation around that core, unchanging, protocol.
Where Amir Taaki and the rest of the Dark Wallet team go so very wrong is they don't understand that the Bitcoin specification is the consensus-critical part of the Satoshi source code. Instead they are pursuing a ground-up re-implementation, and like it or not, they're just not smart enough to get all the details right - nobody is. Because they haven't gotten the details right, no significant amount of hashing power is going to ever use their node implementation to mine with - what pool wants to lose thousands of dollars of profit just because yet another libbitcoin consensus bug was found? Of course, with no-one using their code to mine, they have no political power - Gavin and the Bitcoin Foundation's ability to control the core Bitcoin protocol is entirely based on the fact that almost all the hashing power uses the source code at
https://github.com/bitcoin/bitcoin On the other hand, if even just a quarter of the hashing power used the Dark Wallet node implementation, and could trust it because the !@#$ thing actually implemented the Satoshi protocol properly by using that protocol's source code, changing that protocol in fundemental ways would be far harder - Dark Wallet would have a lot more genuine political weight. With hashing power using that implementation, they would be able to implement their own rules for relaying transactions. For instance while much of the community complained violently about the 0.8.2 dust rule, which made it far harder to get "dust" outputs mined, if the Dark Wallet team decided they didn't like that rule and had hashing power that trusted their node implementation, they could make the rule irrelevant. They could even come up with a anything-goes mechanism with no rules at all governing what transactions got relayed, and let individual miners make those decisions.
If I were the US Government and had co-opted the "core" Bitcoin dev team, you know what I'd do? I'd encourage ground-up alternate implementations knowing damn well that the kind of people dumb enough to work on them expecting to create a viable competitor anytime soon aren't going to succeed. Every time anyone tried mining with one, I'd use my knowledge of all the ways they are incompatible to fork them, making it clear they can't be trusted for mining. Then I'd go a step further and "for the good of Bitcoin" create a process by which regular soft-forks and hard-forks happened so that Bitcoin can be "improved" in various ways, maybe every six months. Of course, I'd involve those alternate implementations in some IETF-like standards process for show, but all I would have to do to keep them marginalized and the majority of hashing power using the approved official implementation is slip the odd consensus bug into their code; remember how it was recently leaked that the NSA spends $250 million a year on efforts to insert flaws into encryption standards and commercial products. With changes every six months the alts will never keep up. Having accomplished political control, the next step is pushing the development of the Bitcoin core protocol in ways that further my goals, such as scalability solutions that at best allow for auditing, rather waiting until protocols are developed, tested, and accepted by the community that support fully decentralized mining.
Dark Wallet has the opportunity to make the very idea of the "core" Bitcoin dev team irrelevant. But sadly Amir's lot seem to understand the art of PR a lot better than the political science of decentralized consensus systems.
The take-away is that to have real political power, libbitcoin (and btcd) must be in use by a large portion of the hash-power. In order for this to happen, at least one implementation using libbitcoin must be bug-for-bug compatible with the standard bitcoind. At the very least, it should pass the same regression tests.
