Is Bitcoin subject to a "Hostile TakeOver" ?

[PseudoCode]

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

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

[1715586742]

1715586742

[kiba]

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

[deadlizard]

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

[barbarousrelic]

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.

[Jered Kenna (TradeHill)]

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.

[PseudoCode]

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]

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.

[deadlizard]

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

[Jered Kenna (TradeHill)]

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.

[MoonShadow]

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.

[Anonymous]

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]

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

[ArsenShnurkov]

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]

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]

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

[deadlizard]

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

[Jered Kenna (TradeHill)]

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.

[MoonShadow]

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.

[Jered Kenna (TradeHill)]

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.

[Jered Kenna (TradeHill)]

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.

[ryepdx]

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.

You know, it seems to me that a person could create a crude form of leverage by directing a botnet attack on the network at large and then using whatever mining rig they have to mine while everyone else is impeded. This could be used to artificially lower the difficulty and increase the percentage of the network's hashing power their box is contributing. This could prove lucrative depending on how much leverage is possible using such a technique.

[MoonShadow]

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.

You know, it seems to me that a person could create a crude form of leverage by directing a botnet attack on the network at large and then using whatever mining rig they have to mine while everyone else is impeded. This could be used to artificially lower the difficulty and increase the percentage of the network's hashing power their box is contributing. This could prove lucrative depending on how much leverage is possible using such a technique.

The network-at-large is pretty large.  I would doubt a DDOS attack would be effective.

[MoonShadow]

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.

You know, it seems to me that a person could create a crude form of leverage by directing a botnet attack on the network at large and then using whatever mining rig they have to mine while everyone else is impeded. This could be used to artificially lower the difficulty and increase the percentage of the network's hashing power their box is contributing. This could prove lucrative depending on how much leverage is possible using such a technique.

The network-at-large is pretty large.  I would doubt a DDOS attack would be effective.

The largest botnet on record is BredoLab, 30,000,000 zombies strong. Let's say that the zombies are only single core capable of 2 Mhash/s, and only 10% of the processor power is being robbed for a total hashing power per zombie of 200 Khash/s ... A total of 2e+5 * 3e+7 = 6e+12 hash/s ... Yeah, that's a threat.

Unless the network grows significantly, or a protocol is developed for filtering 'valid' connections on the network this will continue to be a threat.

No, that's not a threat.  This just goes to show that it would be profitable for a botnet owner to mine using the botnet, which wouldn't harm the network at all, and would actually help it grow stronger.  What he was describing was blockading a majority of the honest network (probably by identifying the largest pools and other large miners that share an IP address) and denying those nodes access to the network in some fashion.  My point was that this probably isn't possible, because although a botnet could DDOS a large number of those major players, all of the smaller miners that the botnet isn't aware of (or simply doesn't have the size to attack) benefit as well, so the attack isn't viable.  As you have pointed out, it would be vastly more profitable for the botnet owner to simply bend his stolen clockcycles to actually mining in a 'honest' fashion.  For all we know, this is already happening.

[MoonShadow]

What he was describing was blockading a majority of the honest network

Such a botnet could also do this.

For a limited time, sure.  However, even if you could isolate every known node from one another, you would still have to be (or connected to) the largest of the isolated networks.  A botnet can't realisticly stop these nodes from generating while isolated.  Artforz, alone, once represented 5%+ of the network and his setup is on a private network, not a pool.  So even if a botnet was large enough to fracture the network, the botnet owner's clients would have to be able to out run Artforz, any other miner of equal or greater capacity, and the total of the clients that it couldn't blockade.  For the blockade must end eventually; and when the network reconsolidates, the blockchain with the greatest proof-of-work still wins.  That could be the botnet owner, but it might not.  Participating honestly in the mining is still the best overall business plan.  This is actually part of the point of the way the mining system was designed.

As you have pointed out, it would be vastly more profitable for the botnet owner to simply bend his stolen clockcycles to actually mining in a 'honest' fashion.

This will not always be the case.

Sure, but by the time it's not, the size of the Bitcoin network will be much larger than any botnet.  And this kind of plan assumes that the major players in the network right now just sit back and do nothing while a DDOS attack persists upon the network.  This is unlikely, and all that it would take to completely deny the botnet owner his ill-gotten gains would be for Artforz to set up a couple of modems on his network and connect directly to a couple other major players to directly trade blocks.  Furthermore, there is no certainty that such an emergency physical peer connection network isn't already up and running.  How would we know if Artforz and the other major miners have privately discussed this or not?  With the capital costs that these miners have already commited to their systems, a few modems and a script to call one another directly over POTS (even if it were long distance) would be a small additional cost.

If they haven't already discussed this, they will be shortly after seeing this thread.

[MoonShadow]

What he was describing was blockading a majority of the honest network

Such a botnet could also do this.

For a limited time, sure.  However, even if you could isolate every known node from one another, you would still have to be (or connected to) the largest of the isolated networks.  A botnet can't realisticly stop these nodes from generating while isolated.  Artforz, alone, once represented 5%+ of the network and his setup is on a private network, not a pool.  So even if a botnet was large enough to fracture the network, the botnet owner's clients would have to be able to out run Artforz, any other miner of equal or greater capacity, and the total of the clients that it couldn't blockade.  For the blockade must end eventually; and when the network reconsolidates, the blockchain with the greatest proof-of-work still wins.  That could be the botnet owner, but it might not.  Participating honestly in the mining is still the best overall business plan.  This is actually part of the point of the way the mining system was designed.

30,000,000 nodes and 12 times the current network capacity... Just sayin'.

For the largest botnet ever discovered...Just sayin'.

If you think your botnet is up to the challenge, give it a try.

[MoonShadow]

For the largest botnet ever discovered...Just sayin'.

If you think your botnet is up to the challenge, give it a try.

Yes, that is just the largest botnet ever discovered...

BredoLab was over twice the size of Mariposa, in the space of only a year.

Imagine a 60,000,000 strong botnet, one which is also able to harness GPU power... Where will Bitcoin be in a year?

I can't disprove a negative.

I'll just say, give it a try.  See how it works out.

[Gavin Andresen]

RE: botnets:  if the botnet operator is economically rational, then their best strategy to make money is to just follow the rules, mine coins, and then sell them on the exchanges.

RE: the original poster's question on "can somebody with lots of money and a willingness to spend it to mess with the bitcoin exchange rate and cause fear, uncertainty and doubt" :

Yes.  Yes, they can.  That will be true while the bitcoin economy is small, and that is why I tell people not to 'invest' money in bitcoins that they can't afford to lose.

I still predict that there will be natural price bubbles and artificial ponzi schemes and all sorts of other things causing wild swings in the value of bitcoins.   Next time I talk to an economist who knows something about currency markets I'll have to ask how big a currency has to be before it is mostly immune from speculative bubbles and price manipulation...

[marcus_of_augustus]

I still predict that there will be natural price bubbles and artificial ponzi schemes and all sorts of other things causing wild swings in the value of bitcoins.   Next time I talk to an economist who knows something about currency markets I'll have to ask how big a currency has to be before it is mostly immune from speculative bubbles and price manipulation...

From experience, the answer to that is never. E.g. the US dollar is the biggest reserve currency the globe has ever known and by some accounts it has just gone through, or is going through, a speculative bubble blow-off phase with reserve banks all heavily invested in US dollar denominated assets that they are beginning to unload on. Gold is the next biggest, depending on how you do the valuations, and more stable but has been subject to periodic manipulations and manias also.

Currency failure risk is always there, however remote, because humans' value systems can be extremely stable or extremely fickle.