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Author Topic: Is Bitcoin subject to a "Hostile TakeOver" ?  (Read 3601 times)
PseudoCode
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March 25, 2011, 01:03:22 PM
 #1

Greetings People.

I have been tinkering with Bitcoins for the last few months, learning, mining, buying and purchasing a few odds and ends with them. Enjoying the idea of possibly being on the forefront of an idea to free trade and currency from the manipulation of those with more of it than I have.

This is my first post, so pardon me if its a dumb question or has been answered before.  I have read all the Wikis, a lot of forum posts and other resources (even poked through the code, being a Linux-head and dilettante in coding, although no expert cryptographer).

I'm also no economic's grad, so I might be making some stupid obvious error in assumptions here, but I figure its better to ask and look like a fool temporarily than stay quiet and stay a fool Smiley

Given that the there are only a limited number of bitcoins available, (currently around 5 million at a bit under $1 each ? ), If some wealthy entity (individual/state) hostile to the idea of allowing a new currency to gain traction *really* wanted to kill it before it builds momentum, what is to stop them from offering a $ price well above the current market value ($5each, $50each whatever) for the existing bitcoins - Im sure a large percentage of folk would gleefully offload their coins and take the profit, then they just sit on them, making a large percentage of them unavailble by taking them out of circulation.

I believe this is a "hostile takeover" ?  (if I have my sketchy biz terminology correct) ?

5 million dollars would be pocket change to anyone with heavily vested interests in the current $ system, and might be seen as a small price to pay to "bump off" a potential threat.

OK, So more coins would be mined, but at a fairly slow rate if I understand the difficulty mechanism, would the "replenishment rate" be sufficient to forestall this type of attack ?

perhaps the remaining circulating coins would then gain much more value, people start using the decimal places more, then sometime later the hoarder decides to dump his stash, taking a huge profit and driving the value back down into the dirt ?

I believe this is a consequence of what is known as a "shallow market" ?   Since bitcoin will always be a limited shallow market by design, unless/until the fractions gain a lot of value, will it always be vulnerable to such manipulation by anyone with sufficient resources to "buy and sell" a large part of the market ?

Is this a more likely attack vector than the hypothetical crypto-breaks, or network takeovers ?  Is there a defense, or is that just the way it is ?

Or am I missing something that any economics 101 student would know the answer to ?

thanks for any explanations/reassurances forthcoming
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kiba
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March 25, 2011, 01:10:23 PM
 #2

Nope. The bitcoin economy can run on 1 BTC just fine. It's just a matter of divisibility.

deadlizard
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March 25, 2011, 01:18:10 PM
 #3

Actually thats called "cornering the market" and it will be great for miners and anyone holding bitcoins.
It is unlikely to be profitable for the persons attempting to corner the market.

http://en.wikipedia.org/wiki/Cornering_the_market

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barbarousrelic
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March 25, 2011, 01:30:05 PM
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If this happened,

A) everyone holding Bitcoins would see a tremendous profit, and
B) we would all probably just start over from scratch with another blockchain for "Bitcoin 2." Which would probably take off much faster now that everyone has seen the US Government has ridiculously overpaid for Bitcoin 1.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
Jered Kenna (TradeHill)
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March 25, 2011, 02:11:11 PM
 #5

Not to mention the publicity would be huge.
It's a scary thought that it could be manipulated easily enough if you want to throw 5+ million at it.
I'm not sure how well you could buy them up though. A lot of people don't have coins actively sitting on the exchange price waiting to sell.
You'd snatch up a bunch right off then the price would jump and you'd have to pay more. Then more if you continued buying.
We could estimate but there would have to be a lot of guessing exactly what it would cost to buy out most of the bitcoins.

It would also be interesting to see the rush on mining if that did happen and if it would cause people to flock or run.

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PseudoCode
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March 25, 2011, 02:12:21 PM
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Well, I wasnt so much considering it as a "profit making" manuever by someone, more as a way to try to discourage ongoing adoption of bitcoins by making them  unavailable, even if they made a loss on the move..  

but I think I see  what you guys mean.  even if they had 90% of them, it would just make the remaining 10% worth more,  

Im still not clear on the "economic strategy" of this type of market though, which is why I asked.  

While I can read and write code and data structures, the relationships between the concept of "money" and peoples minds is a bit obscure to me when playing for high stakes.  I can only hope that someone who understands it better than I do has thought these aspects through.    

Since Bitcoin is my first venture into a trading market, I have recently been reading about things like "painting chart patterns" to fool speculators by people with the resources to do so, and found myself wondering what non-technical attacks might be aimed its way.

Someone recently liked to a current thread on the Australian tech-news Whirlpool.net.au website, and reading the responses on there makes me feel like a little fish in a big ocean populated by sharks and morons.
http://forums.whirlpool.net.au/archive/1663664

It seems any "new form of money" idea faces some pretty closed minds to overcome..
barbarousrelic
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March 25, 2011, 02:26:23 PM
 #7

It's a scary thought that it could be manipulated easily enough if you want to throw 5+ million at it.
Keep in mind though that the cost it would take to ruin Bitcoin is proportional to the size of the Bitcoin economy. Nobody in the federal government cares enough about the Bitcoin economy right now to do anything about it. They might care if it were a hundred times as large, but in that case, it would cost them a hundred times more to disrupt it.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
deadlizard
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March 25, 2011, 02:40:18 PM
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It's a scary thought that it could be manipulated easily enough if you want to throw 5+ million at it.
Keep in mind though that the cost it would take to ruin Bitcoin is proportional to the size of the Bitcoin economy. Nobody in the federal government cares enough about the Bitcoin economy right now to do anything about it. They might care if it were a hundred times as large, but in that case, it would cost them a hundred times more to disrupt it.
all the more reason for them to do it now. I'm sure they could push the mining difficulty into the stratosphere at the same time too taking the miners out of the equation and keeping all the mined coins off the market aswell

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Jered Kenna (TradeHill)
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March 25, 2011, 02:45:13 PM
 #9

It's a scary thought that it could be manipulated easily enough if you want to throw 5+ million at it.
Keep in mind though that the cost it would take to ruin Bitcoin is proportional to the size of the Bitcoin economy. Nobody in the federal government cares enough about the Bitcoin economy right now to do anything about it. They might care if it were a hundred times as large, but in that case, it would cost them a hundred times more to disrupt it.

Well let's say hypothetically 5 million could really hurt possibly destroy bitcoin as we know it. If the US government wanted to they could throw 5 million at it and it would be a joke.
That's the cost of about 10 cruise missiles give or take. They fired what 124 at Libya without blinking an eye. Also figure the cost of those is way higher with all the logistics involved.
Granted you're talking about physically attacking a country vs a digital currency but it's not even a drop in the bucket for a US budget. If they consider bitcoin users terrorist then they could easily justify it too.

Maybe they'll come out and say "paying 2usd per bitcoin, amnesty period. After this it's illegal" I imagine a lot of people would dump it. Of course a new one would start up but it would be harder the 2nd time around.

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MoonShadow
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March 25, 2011, 10:08:38 PM
 #10

I think that you guys are forgeting an important point about Bitcoin.

It's not a US centric system.  Just because the US government might choose to stamp it out, doesn't mean that it dies in Russia or New Zealand.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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March 25, 2011, 10:47:43 PM
 #11

I think that you guys are forgeting an important point about Bitcoin.

It's not a US centric system.  Just because the US government might choose to stamp it out, doesn't mean that it dies in Russia or New Zealand.

+1


eMansipater
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March 26, 2011, 12:59:29 AM
 #12

I think that you guys are forgeting an important point about Bitcoin.

It's not a US centric system.  Just because the US government might choose to stamp it out, doesn't mean that it dies in Russia or New Zealand.
+1
+1

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March 26, 2011, 07:47:19 AM
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Just because the US government might choose to stamp it out, doesn't mean that it dies in Russia or New Zealand.

-1

I am not sure, that it will not banned in Russia. By the law it is already illegal here.
Alex Beckenham
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March 26, 2011, 10:17:40 AM
 #14

Nope. The bitcoin economy can run on 1 BTC just fine. It's just a matter of divisibility.

Tip sent. I look forward to more people understanding this concept. The position of the decimal place is arbitrary.

ben bernank
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March 26, 2011, 12:22:50 PM
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Its time to announce we are seizing all your bitcoins and buying russia with them.

Bitchez dont know bout my helicopters.
deadlizard
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March 26, 2011, 12:33:18 PM
 #16

Its time to announce we are seizing all your bitcoins and buying russia with them.

The ruskies only accept yuan in trade now, sorry ben

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Jered Kenna (TradeHill)
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March 26, 2011, 02:52:08 PM
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I think that you guys are forgeting an important point about Bitcoin.

It's not a US centric system.  Just because the US government might choose to stamp it out, doesn't mean that it dies in Russia or New Zealand.
+1
+1

No it wouldn't kill it but it would be a huge blow, of course the publicity might help assuming other countries don't follow suit.

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MoonShadow
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March 26, 2011, 03:52:22 PM
 #18

It's a scary thought that it could be manipulated easily enough if you want to throw 5+ million at it.
Keep in mind though that the cost it would take to ruin Bitcoin is proportional to the size of the Bitcoin economy. Nobody in the federal government cares enough about the Bitcoin economy right now to do anything about it. They might care if it were a hundred times as large, but in that case, it would cost them a hundred times more to disrupt it.
all the more reason for them to do it now. I'm sure they could push the mining difficulty into the stratosphere at the same time too taking the miners out of the equation and keeping all the mined coins off the market aswell

Bureaucracies may be heavy-handed, but they are also slow and dense. It is much more likely that someone would throw a botnet at it 'just to see what happens'.

That has probably already happened, perhaps more than once.  That would be one reasonable cause of the spike and drop in hashing power about two weeks ago.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
Jered Kenna (TradeHill)
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March 26, 2011, 04:04:31 PM
 #19



Bureaucracies may be heavy-handed, but they are also slow and dense. It is much more likely that someone would throw a botnet at it 'just to see what happens'.

I'm not doubting the "throw a botnet to see what happens" scenario but what would they be losing in potential revenue etc?
I don't know a hell of a lot about what botnets are capable of. I'm trying to see how serious someone that did that would be.

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Jered Kenna (TradeHill)
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March 26, 2011, 04:21:37 PM
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Bureaucracies may be heavy-handed, but they are also slow and dense. It is much more likely that someone would throw a botnet at it 'just to see what happens'.

I'm not doubting the "throw a botnet to see what happens" scenario but what would they be losing in potential revenue etc?
I don't know a hell of a lot about what botnets are capable of. I'm trying to see how serious someone that did that would be.

I think that is an important reason why there hasn't been a concerted attack. Currently, botnets are more valuable for other purposes, but I don't think that will always be the case. I am pretty confident in my ability to step around Big Brother where I need to... But, Little Brother is everywhere...

Yeah the traditional value of a botnet will stay pretty constant but the value of bitcoin will increase.
Hopefully by the time it becomes worth it bitcoin will be too big / distributed to hurt. I'd imagine that's the way it works.

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