Bitcoin Cannot Possibly Become A Threat To Fiat Currency

Let me preface this post by saying that I am NOT a bitcoin expert.  I’m not even a semi-expert in the ways of bitcoin.   I wrote previously that I think bitcoin’s major impediment is that guys like me:  highly educated, intelligent people who are not computer geeks – can never get comfortable using it.*  Anyway, let’s get to the meat of this post, and perhaps one of you bitcoin-geniuses can tell me why I’m wrong.

Unfortunately, I somehow manage to spend some time reading precious metals commentary and blogs on the internet.   There is a large segment of the precious metals commentariat that believes that the Powers That Be manage the price of gold, including manipulating the price of gold lower to maintain confidence in the dollar and dissuade confidence/adoption of gold.   I have zero interest in debating this topic, but it got me thinking:

If the Powers That Be want to destroy bitcoin, they can do so, right?  All they need to do is acquire more than 50% of the hash power, and they can ruin bitcoin.   This topic came to light recently when one of the bitcoin mining networks came close to the 50% threshold.   So far, the best arguments for why this issue isn’t really a huge problem seem to be macro-economic or game theory ones:  it’s expensive to acquire 50% of the hash power, and if one were to do so and reek havoc on bitcoin, one would not be able to profit.   One would sabotage one’s own investment in computing power.

But what if profit wasn’t the motive?  What if, putting on my Powers That Be Manipulate Everything Tinfoil Hat, bitcoin emerged as a threat to existing fiat currencies?  Wouldn’t it be relatively easy for the Powers That Be to acquire 50% of the hash power in bitcoin and then effectively ruin bitcoin?

Why not?   This is where you bitcoin-geniuses come in:  tell me why I’m wrong.

Cost can’t be the problem: I read recently that it would cost roughly $ 1B to acquire 50% of the bitcoin hash power.  I’m not going to bother looking for a reference for that, because I suspect that my $ 1B cost number will increase over time.   So call it $ 10B.  call it $ 20B.  Still seems like chump change to destroy bitcoin and save fiat currency…

A classic Gordon Gekko quote from Wall Street is coming to mind:

Bud Fox: “Why do you need to wreck this company?”

Gekko: “Because it’s wreckable.”

Bitcoin is wreckable – it’s just a matter of cost, and cost doesn’t matter to those who would be most incentivized to wreck bitcoin.  This gets back to the title of the post:  bitcoin cannot possibly become a threat to fiat currency, because those who control the fiat currencies can wreck bitcoin if and when they choose to.



What can an attacker with 50% of hash power do?



* as I wrote in a previous post:

 “Izzy @ FT wrote: ”Unless you are a computer geek, an MIT grad or an algorithmic genius, it’s unlikely you will ever really understand.”

well, I AM an MIT grad – a math major, in fact – and I sure as heck don’t understand…

to me, the problem from the user point of view is: if you’re not a techno-geek, how do you gain comfort that you won’t be victimized? if you’re a master of encryption of computer security, this probably doesn’t bother you. but most of us are not such experts – even those of us who consider ourselves to be wicked smaht.

today, one of the online Bitcoin Wallet Companies was hacked… that’s kinda exactly what I’m talking about.

related: I guess people use browsers like Tor to anonymize their internet travels and make them safer? well, how do I know that Tor isn’t stealing all of my personal information from my computer as I use it?

I’m not paranoid about the ‘web, but these are the kind of concerns I think about when being offered new “safe” solutions to problems i’m not sure I even have…. “

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