Taking Down The Bitcoin Network(bitcoinweekly.com)
bitcoinweekly.com
Taking Down The Bitcoin Network
http://bitcoinweekly.com/articles/taking-down-the-bitcoin-network
32 comments
Yes, the US gov can easily prevent financial institutions from exchanging Bitcoins: If a bank holds US dollars, those dollars are "stored" in the US (even if the bank is located outside the US). So the US gov just needs to threaten that it will freeze the banks dollar deposits in case a bank decides to exchange Bitcoins.
No, the US government cannot easily block other types of Bitcoin exchanges. Consider bitmarket.eu: The site itself is hosted outside the US. Money transfer happens directly between individual users, e.g., by wire transfer. There's no single entity that you can attack.
And even in case where bank transfers are shut down you can still switch to cash. If you have a trusted exchange you can send cash via postal mail. Or your local drug dealer changes his business from dealing drugs to dealing Bitcoins. Of course, this will prevent many legitimate uses of Bitcoin - but I'll doubt that it can stop the usage of Bitcoin for "illegal" transactions.
No, the US government cannot easily block other types of Bitcoin exchanges. Consider bitmarket.eu: The site itself is hosted outside the US. Money transfer happens directly between individual users, e.g., by wire transfer. There's no single entity that you can attack.
And even in case where bank transfers are shut down you can still switch to cash. If you have a trusted exchange you can send cash via postal mail. Or your local drug dealer changes his business from dealing drugs to dealing Bitcoins. Of course, this will prevent many legitimate uses of Bitcoin - but I'll doubt that it can stop the usage of Bitcoin for "illegal" transactions.
I think a lot of people aren't really following this argument correctly. There is no necessity for the government to completely destroy BitCoin. This isn't about it being all or nothing, or even the government obtaining satisfaction in its efforts. The point is that they have very powerful tools to move the "demand" part of the supply/demand curve determining BitCoin's value in dollars (and by extension, the greater Global Economy that dollars are a part of; it is basically impossible for BitCoins to have vastly greater value in Euros than Dollars because that's just an arbitrage opportunity that will be immediately exploited and thereby removed). By powerfully dropping demand, the value of BitCoins will rapidly drop. The fact that they are rapidly dropping tends to self-reinforce. In minutes or hours, your "$500,000" of BitCoin could be worth ten cents. Are you going to be motivated to stick around after that? The True Believers will, but most average folk and most intelligent financial folk won't.
The end result may be an economy that the US government can't shrink past a few tens of thousands of dollars any more than it can eliminate drugs. But even if BitCoin is not "killable", it certain can fail to meet the goals set out for it, and it is pretty much within the power of the US government, and for that matter several others, to make that happen. You don't have to destroy it utterly to make it useless. In fact I'm rather concerned that BitCoin can't even survive a non-government caused shock once it is being used by more than just True Believers.
(Also, note that the immediately obvious parallel of the drug war doesn't apply; government attacked the supply of the drugs but has much less power to affect demand. Attacking supply causes prices to rise, but then the increased prices drove increasingly well funded smuggling efforts. If the government could actually remove the demand for drugs in some magical manner, the War on Drugs would be over in a matter of weeks.)
The end result may be an economy that the US government can't shrink past a few tens of thousands of dollars any more than it can eliminate drugs. But even if BitCoin is not "killable", it certain can fail to meet the goals set out for it, and it is pretty much within the power of the US government, and for that matter several others, to make that happen. You don't have to destroy it utterly to make it useless. In fact I'm rather concerned that BitCoin can't even survive a non-government caused shock once it is being used by more than just True Believers.
(Also, note that the immediately obvious parallel of the drug war doesn't apply; government attacked the supply of the drugs but has much less power to affect demand. Attacking supply causes prices to rise, but then the increased prices drove increasingly well funded smuggling efforts. If the government could actually remove the demand for drugs in some magical manner, the War on Drugs would be over in a matter of weeks.)
That'll severely limit liquidity of bitcoins, making them undesirable for use for any purpose.
Along with the massive amount of bitcoin hoarding by early adopters, as well as the difficulty of obtaining bitcoins from a country other than America. I won't be surprised to find bitcoin exchange rates plummet after a few weeks of no media attention.
I think that if Bitcoin is made illegal, people will trade them like dollars and West German marks were traded in East Europe during Stalinism, or like dollars and euros are traded now in Cuba, in the black market. People never stopped using good currency instead of the bad one.
http://xkcd.com/538/
Really, if the government wants to shut bitcoin down it's that easy.
Really, if the government wants to shut bitcoin down it's that easy.
"Even in a worst case scenario, if a government or some other anti-Bitcoin faction gets a hold of greater than 50% of the processing power (an extremely expensive feat, and hardly worth it unless you're really determined to destroy the network), the rest of the network can be reconfigured to reject that block chain."
At this point the author shows that he does not have much technical background in regard to the Bitcoin network. Once an adversary gains >50% of the processing power you have basically lost. Yes - you can manually blacklist a single "fork" of the blockchain, but the adversary can fork as often as he wants and you cannot immediately tell if a new block has been generated by the adversary.
At this point the author shows that he does not have much technical background in regard to the Bitcoin network. Once an adversary gains >50% of the processing power you have basically lost. Yes - you can manually blacklist a single "fork" of the blockchain, but the adversary can fork as often as he wants and you cannot immediately tell if a new block has been generated by the adversary.
> Once an adversary gains >50% of the processing power you have basically lost.
Wrong. An attacker having more than 50% of the network would just stop payments until the rest of the network rejects the attacker nodes.
https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...
Wrong. An attacker having more than 50% of the network would just stop payments until the rest of the network rejects the attacker nodes.
https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...
You can't "reject attacker nodes". There is nothing in the blockchain that identifies a given miner.
I've seen pie charts with the computing power of several mining pools and the total. I believe you can find the IP of a miner that has a lot of computing power.
If there's a public mining pool it's easy to estimate it's computing power. Just take part in the mining pool and compare your own computing power with the percentage of the 50 BTC that you get for each block. Or, alternatively, you can track the BTC that you get from the mining pool back to the block where they were generated, and so you know that this block must have been generated by the mining pool (again, allowing you to use the amount of blocks generated by the mining pool to estimate it's overall computing power).
However, if the attacker does not use a public mining pool, but private infrastructure, things get more complicated: The only way how Bitcoin clients can agree on a common view of the block chain is to treat the highest block number as the authoritative one. A malicious miner can now just generate new blocks and inject them over Tor to some of the Bitcoin nodes. As Bitcoin nodes distribute the blockchain amongst each others, those "malicious" blocks will quickly spread throughout the Bitcoin network.
The only way how you could prevent this problem is some kind of whitelisting approach, where miners need to be manually approved before their blocks are accepted. However, this would totally change the current Bitcoin infrastructure and turn a completely decentralized network into a more centralized one.
However, if the attacker does not use a public mining pool, but private infrastructure, things get more complicated: The only way how Bitcoin clients can agree on a common view of the block chain is to treat the highest block number as the authoritative one. A malicious miner can now just generate new blocks and inject them over Tor to some of the Bitcoin nodes. As Bitcoin nodes distribute the blockchain amongst each others, those "malicious" blocks will quickly spread throughout the Bitcoin network.
The only way how you could prevent this problem is some kind of whitelisting approach, where miners need to be manually approved before their blocks are accepted. However, this would totally change the current Bitcoin infrastructure and turn a completely decentralized network into a more centralized one.
This is very interesting. Thank you for the info.
I think a solution to this attack would be a web of trust, like PGP/GnuPG works for verifying signatures.
I think a solution to this attack would be a web of trust, like PGP/GnuPG works for verifying signatures.
Right. In fact, it's hard to imagine any network working if over 50% of the power rests with users who are trying to subvert or destroy the system.
I believe people have already brought up this argument in the past, but what are the arguments against why forking new bitcoins won't devalue the currency? Lets say one day Lady GaGa decides to start her own bitcoin, would that in anyway devalue the current bitcoin network if everyone instead decides to start mining Lady GaGa bitcoins?
I guess it's time to prime the pump again. More hype == more investment == $35 bitcoin.
Then in a few weeks, the early adopters start the "dump" phase of pump & dump. (ie. history repeats itself)
Then in a few weeks, the early adopters start the "dump" phase of pump & dump. (ie. history repeats itself)
"The likelihood that some government is going to declare Bitcoin illegal and try to crack down on it is low"
I wish this were true...
I wish this were true...
Bitcoin's greatest strengths [...] that will hardly affect the average user of Bitcoin [...] avoiding a port blocking attack would be as simple as [...] The forums and main site would be up in a matter of days [...]
ad infinitum.
While the article may (or may not) mostly make valid points, there is no honesty in linking to a site that will always promote the subject and only give positive spin to the discussion.
Imagine the subject of debate was axes: are axes dangerous? If you only asked theAxeGuild.com the answer would always be no: axes are useful tools but far too unwieldy to be used as a weapon. Such a website would fail, of course, to publish the editorial: "My whole family was killed by an axe murderer".
Clearly this website is simply trying to sell you axes no matter how good or bad they might actually be.
ad infinitum.
While the article may (or may not) mostly make valid points, there is no honesty in linking to a site that will always promote the subject and only give positive spin to the discussion.
Imagine the subject of debate was axes: are axes dangerous? If you only asked theAxeGuild.com the answer would always be no: axes are useful tools but far too unwieldy to be used as a weapon. Such a website would fail, of course, to publish the editorial: "My whole family was killed by an axe murderer".
Clearly this website is simply trying to sell you axes no matter how good or bad they might actually be.
Surely there's an easier, legal and potentially cheaper solution open to any government that wants to shut down bitcoin: buy up each and every bitcoin they can lay their hands on.
I would have thought it would wreck havoc with the market (there's no reason why the government couldn't use multiple fronts rather than buying under the same wallet), and past a certain point make it impossible to trade in bitcoin without inducing a headache.
However, I accept that I know next-to-nothing about how money markets really work; please let me know where I might be going wrong :)
I would have thought it would wreck havoc with the market (there's no reason why the government couldn't use multiple fronts rather than buying under the same wallet), and past a certain point make it impossible to trade in bitcoin without inducing a headache.
However, I accept that I know next-to-nothing about how money markets really work; please let me know where I might be going wrong :)
That scheme would fail due to basic forces of supply and demand. The government in this case would be a de facto market maker and the price would naturally get pushed up to the maximum amount the government is willing to spend as speculators continually test the limit, which if the government has an 'acquire all bitcoins at any cost' mission, means the limits of its overall solvency.
It's actually a similar scenario to what's currently going on in the bond markets. The Fed steps in any time bonds have a weak auction. Traders, knowing this, buy lots of bonds. It's basically a free roll for them because they know the Fed will always step in to prevent a major dip in price--and this cycle will continue until the Fed itself (aka, the dollar) collapses.
So who knows, maybe they are dumb enough to try! :)
It's actually a similar scenario to what's currently going on in the bond markets. The Fed steps in any time bonds have a weak auction. Traders, knowing this, buy lots of bonds. It's basically a free roll for them because they know the Fed will always step in to prevent a major dip in price--and this cycle will continue until the Fed itself (aka, the dollar) collapses.
So who knows, maybe they are dumb enough to try! :)
Thanks, your explanation is really helping me to understand! :-D
One potentially embarrassingly stupid question: you mention the government becoming a market maker. As far as I'm aware, it's not unknown for traders to spot an opportunity and corner the market. Surely Bitcoin's in an early enough stage to still do so?
One potentially embarrassingly stupid question: you mention the government becoming a market maker. As far as I'm aware, it's not unknown for traders to spot an opportunity and corner the market. Surely Bitcoin's in an early enough stage to still do so?
> Surely there's an easier, legal and potentially cheaper solution open to any government that wants to shut down bitcoin: buy up each and every bitcoin they can lay their hands on.
Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all.
Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all.
Some people won't sell. And all this would do is making bitcoins more expensive in dollars (deflation). Prices in bitcoins would adjust. No problem at all.
Great if it's not a problem: can you tell me why in a bit more detail please? :)
You see, I love the idea of bitcoin, but this is the one thought I can't get out of my head.
Say the government drives up the price of bitcoin, as you suggest. Every hour of every day, deflation takes place... but the government aren't selling any of theirs, and if nobody else is selling, it sounds like we rapidly head towards a stalemate where bitcoin becomes ridiculously hard to exchange in either direction.
Great if it's not a problem: can you tell me why in a bit more detail please? :)
You see, I love the idea of bitcoin, but this is the one thought I can't get out of my head.
Say the government drives up the price of bitcoin, as you suggest. Every hour of every day, deflation takes place... but the government aren't selling any of theirs, and if nobody else is selling, it sounds like we rapidly head towards a stalemate where bitcoin becomes ridiculously hard to exchange in either direction.
Bitcoin is divisible to one tenth of it, if I remember correctly. Prices in bitcoins can be adjusted to reflect the deflation. Merchants are already using MtGox API and ticker so they set a price in dollars, and the displayed price in bitcoins is updated as the BTC/USD exchange goes up or down in MtGox, automatically.
Extending your argument, the Government could try to mess up buying up a lot of bitcoins, to force deflation, then selling them all to force inflation, and so on. Good luck with that, because that would be very expensive in dollars (buying high and selling low). And if the Federal Reserve did this with out-of-thin-air dollars, it would just weaken the dollar in the long term, what would be good for Bitcoin.
Some people say the Fed has being trying this price suppression with gold. I don't know if that's true. But apparently nothing has stopped gold to go to the roof in the last 10 years.
Extending your argument, the Government could try to mess up buying up a lot of bitcoins, to force deflation, then selling them all to force inflation, and so on. Good luck with that, because that would be very expensive in dollars (buying high and selling low). And if the Federal Reserve did this with out-of-thin-air dollars, it would just weaken the dollar in the long term, what would be good for Bitcoin.
Some people say the Fed has being trying this price suppression with gold. I don't know if that's true. But apparently nothing has stopped gold to go to the roof in the last 10 years.
If anyone wants it I'd be happy to write up a quick how to on how Bitcoin really could be shut down, I have some expertise in the area if that matters and no serious bias either way.
Go ahead and write a blog post.
Done. Check nerdr front page for the article.
Thanks for writing it. Point by point:
- Bitcoin software: It's open-source. How would anybody compromise it with so many eyes watching?
- Bitcoin trail: Solved using Tor and adding noirc='1' to bitcoin.conf file. Also you need to earn your bitcoins anonymously. Anyway, Bitcoin isn't supposed to be anonymous. It can be anonymous if you do it right, like you can browse the web anonymously if you do it right.
- Bitcoin public data: Same as with bitcoin trail.
- Bitcoin exchange: Right, but you can buy bitcoins from someone without revealing him/her your name.
It seems your article analyzes if Bitcoin is good for money laundering. It can be used for that, but I don't care. It isn't what makes Bitcoin interesting. Bitcoin is an alternative to payment methods like paypal, to currencies like the dollar or the euro, to payment transfers like ACH or Western Union, and to bank accounts. That is what makes it an awesome currency. That is what makes it disruptive.
It can be used for money laundering just like cash and offshore bank accounts can be used for money laundering. Way more people are using cash than bitcoins for money laundering. And that isn't what makes Bitcoin disruptive, because money laundering already exists.
- Bitcoin software: It's open-source. How would anybody compromise it with so many eyes watching?
- Bitcoin trail: Solved using Tor and adding noirc='1' to bitcoin.conf file. Also you need to earn your bitcoins anonymously. Anyway, Bitcoin isn't supposed to be anonymous. It can be anonymous if you do it right, like you can browse the web anonymously if you do it right.
- Bitcoin public data: Same as with bitcoin trail.
- Bitcoin exchange: Right, but you can buy bitcoins from someone without revealing him/her your name.
It seems your article analyzes if Bitcoin is good for money laundering. It can be used for that, but I don't care. It isn't what makes Bitcoin interesting. Bitcoin is an alternative to payment methods like paypal, to currencies like the dollar or the euro, to payment transfers like ACH or Western Union, and to bank accounts. That is what makes it an awesome currency. That is what makes it disruptive.
It can be used for money laundering just like cash and offshore bank accounts can be used for money laundering. Way more people are using cash than bitcoins for money laundering. And that isn't what makes Bitcoin disruptive, because money laundering already exists.
Open source code tends to give a false sense of security. Many people assume others will check the code, yet few do. In addition, it is possible to spread malicious code throughout a code base to prevent detection. (mentioned in article).
To use TOR you still connect through an ISP. That can be tracked and deep packet analysis can be done. TOR is not a magic bullet.
Exchange - Correct. That was coming in part 2 of the article covering methods around each point, but unlikely to find the time to write it up at this point.
I leave the question: Why else would one use an anonymous currency unless they don't want to be detected? From there, who does not want to be detected? Usually those doing things they shouldn't. Otherwise, you'd just use a credit card or normal payment service as an everyday citizen would.
To use TOR you still connect through an ISP. That can be tracked and deep packet analysis can be done. TOR is not a magic bullet.
Exchange - Correct. That was coming in part 2 of the article covering methods around each point, but unlikely to find the time to write it up at this point.
I leave the question: Why else would one use an anonymous currency unless they don't want to be detected? From there, who does not want to be detected? Usually those doing things they shouldn't. Otherwise, you'd just use a credit card or normal payment service as an everyday citizen would.
Open source code tends to give a false sense of security. Many people assume others will check the code, yet few do. In addition, it is possible to spread malicious code throughout a code base to prevent detection.
Those few who do are usually enough. Closed-source code gives a false sense of security. There are way more exploits for closed source code and they tend to take longer to fix.
To use TOR you still connect through an ISP. That can be tracked and deep packet analysis can be done. TOR is not a magic bullet.
Untrue. Deep packet won't see anything besides an encrypted connection. If you use Tor bridges nobody will know you're connecting to Tor.
Why else would one use an anonymous currency unless they don't want to be detected?
It isn't an anonymous currency. That's the main misconception about Bitcoin. Bitcoin can be anonymous using Tor. Just like the web can be anonymous using Tor. But the web isn't anonymous per se, and so isn't Bitcoin.
Again, the main point of Bitcoin is how disruptive it is for the banking industry. It makes micropayments easy, it makes transactions among individuals easy and decentralized, etc. It disrupts their business models based on an oligopoly.
Why would you use Bitcoin? Because you can:
- Be anonymous if you want, but you don't have to.
- Transfer money to someone, overseas, without any fees.
- Charge money for your business without paying horrendous credit card or Paypal fees.
- Stash your money securely in case of Government collapse (think Argentina 10 years ago, Belarus 2 weeks ago, or Greece very soon)
- Make confiscation impossible if you leave in a corrupt country.
- Make micropayments (like tips) without fees.
- Buy stuff online from overseas (people are doing this with a NewEgg proxy that accept bitcoins)
And there are many more use cases that I'm probably forgetting right now.
Those few who do are usually enough. Closed-source code gives a false sense of security. There are way more exploits for closed source code and they tend to take longer to fix.
To use TOR you still connect through an ISP. That can be tracked and deep packet analysis can be done. TOR is not a magic bullet.
Untrue. Deep packet won't see anything besides an encrypted connection. If you use Tor bridges nobody will know you're connecting to Tor.
Why else would one use an anonymous currency unless they don't want to be detected?
It isn't an anonymous currency. That's the main misconception about Bitcoin. Bitcoin can be anonymous using Tor. Just like the web can be anonymous using Tor. But the web isn't anonymous per se, and so isn't Bitcoin.
Again, the main point of Bitcoin is how disruptive it is for the banking industry. It makes micropayments easy, it makes transactions among individuals easy and decentralized, etc. It disrupts their business models based on an oligopoly.
Why would you use Bitcoin? Because you can:
- Be anonymous if you want, but you don't have to.
- Transfer money to someone, overseas, without any fees.
- Charge money for your business without paying horrendous credit card or Paypal fees.
- Stash your money securely in case of Government collapse (think Argentina 10 years ago, Belarus 2 weeks ago, or Greece very soon)
- Make confiscation impossible if you leave in a corrupt country.
- Make micropayments (like tips) without fees.
- Buy stuff online from overseas (people are doing this with a NewEgg proxy that accept bitcoins)
And there are many more use cases that I'm probably forgetting right now.
1. Apologies for the misunderstanding. I didn't mean to say the code will be open to exploits, I meant the code will intentionally contain a backdoor at an agencies behest. Exploits are another matter entirly and open source has its pros and cons for that purpose.
2. Then TOR bridges could be blocked at ISP level or made illegal. We're starting to see censorship arise on the internet and it's possible.
3. Many of these use cases are of course valid, But I will add their exist transaction fees which are paid when bitcoin are transferred, plus exchange fees when bitcoin is exchanged for real currency. It's not a fee free currency as suggested. I would add (and this is of course a guess) that most users will have illegal purposes and intent in mind. If only because they have most to gain from Bitcoin use. Most average folk don't ever see a 2% Visa fee as business absorbs this cost, so for a user purchase fees for everyday goods is not a value driver. I can see it being used for tax avoidance, money laundering and payment for nefarious purposes. Other use cases do not stand up to value analysis.
2. Then TOR bridges could be blocked at ISP level or made illegal. We're starting to see censorship arise on the internet and it's possible.
3. Many of these use cases are of course valid, But I will add their exist transaction fees which are paid when bitcoin are transferred, plus exchange fees when bitcoin is exchanged for real currency. It's not a fee free currency as suggested. I would add (and this is of course a guess) that most users will have illegal purposes and intent in mind. If only because they have most to gain from Bitcoin use. Most average folk don't ever see a 2% Visa fee as business absorbs this cost, so for a user purchase fees for everyday goods is not a value driver. I can see it being used for tax avoidance, money laundering and payment for nefarious purposes. Other use cases do not stand up to value analysis.
1. If it had a backdoor, other programmers would see it, because it's open source.
2. Tor bridges can't be blocked because the ISP won't know the IP of them. Please inform yourself about what a Tor bridge is.
3. Have you used Bitcoin? Transaction fees are voluntary. You pay them if you want the transaction to be faster. Compare that with the fees you pay with Paypal even for sending money to a friend. Or compare it with the slowness of an ACH. A Bitcoin transaction without fee still beats an ACH transaction for several days. About money laundering and illegal activities, Bitcoin is as anonymous as having an offshore account in a tax haven: it's usually possible to trace down who the person is. If you dig in the Bitcoin community you'll see one of the most repeated questions in the forums is how to report to the IRS the money earned in Bitcoins. Right now most users of Bitcoin are partly ideological, like GNU/Linux users 10 or 15 years ago. It's about freedom. About having a currency not manipulated (inflated) by Governments.
I think you're believing the FUD spread by some people about Bitcoin.
2. Tor bridges can't be blocked because the ISP won't know the IP of them. Please inform yourself about what a Tor bridge is.
3. Have you used Bitcoin? Transaction fees are voluntary. You pay them if you want the transaction to be faster. Compare that with the fees you pay with Paypal even for sending money to a friend. Or compare it with the slowness of an ACH. A Bitcoin transaction without fee still beats an ACH transaction for several days. About money laundering and illegal activities, Bitcoin is as anonymous as having an offshore account in a tax haven: it's usually possible to trace down who the person is. If you dig in the Bitcoin community you'll see one of the most repeated questions in the forums is how to report to the IRS the money earned in Bitcoins. Right now most users of Bitcoin are partly ideological, like GNU/Linux users 10 or 15 years ago. It's about freedom. About having a currency not manipulated (inflated) by Governments.
I think you're believing the FUD spread by some people about Bitcoin.
The US government can compel almost any financial institution in the world to stop exchanging Bitcoins by threatening to sanction them for money laundering.[1] A private letter from the State Department stating that an activity is illegal (without specifying any laws) has been enough in the past for certain significant money transmitters.[2]
Recent reports that Bitcoins are being used in the transaction of illegal drugs & money laundering make it highly likely there will be government intervention.[3]
[1] http://en.wikipedia.org/wiki/Banco_Delta_Asia [2] http://techcrunch.com/2010/12/08/paypal-wikileaks/ [3] http://www.theregister.co.uk/2011/06/08/bitcoin_under_attack...