The Coming Attack On Bitcoin And How To Survive It

By Anthony Freeman

(This article is the third in a series on bitcoin. Read parts 1 and 2 here and here.)

With bitcoin gaining mainstream attention the coming attack on its users is inevitable. In this short piece I will explain how it is likely to unfold and how you can survive it.

First, a little background:

In 1996 E-gold was one of the early entrants to the market with a private, global e-currency. They achieved stellar growth and widespread attention – much like bitcoin today. Accolades came from freedom-lovers everywhere. They were the “Great Gold Hope” that would free the people by freeing the money. Privacy-enthusiasts, libertarians, gold-bugs, autarchists, anarchists, voluntaryists, drug-dealers, and even unsavory types flocked to it with praise and adoration.

Of course, the monopolists of the monetary system didn’t take lightly to this threat to their very existence. They came after the independent exchangers and e-gold with their full force and fury – eventually succeeding in convicting the key players for “conspiracy to operate an unlicensed money-transmitting business” and “conspiracy to engage in money laundering”. E-gold was fairly easy to take down because their operations and data-center were centralized and readily accessible.

Many folks who are now currently acting as currency exchangers for bitcoin will be the first to come under attack. Many will get hurt and possibly even imprisoned but, because of its decentralized nature, bitcoin will survive where e-gold did not.

If any of the large exchangers are operating inside of the US then it won’t be long before they are raided, shut down, or regulated. Individual exchangers will be targeted as well – just to make an example and to scare others out of the community. This will create a giant “wet blanket” on the current enthusiasm for bitcoin and I expect the currency to take a major drop in exchange value when this happens. Not to fear though. Bitcoin will survive due to its decentralized “peer to peer” nature and it will continue to operate as an “alter-cash” resuming its growth albeit at a slower rate during the immediate aftermath.

To protect yourself I recommend the following:

You do not want to be involved as an “exchange service” conducting exchanges in and out of national currencies and you definitely do not want to have your money sitting in the exchanger’s account in the event they are raided and shut down.

Remember, e-gold was shut down for “conspiracy to operate an unlicensed money transmitting business”. Do not store any money in online accounts unless you can afford to lose it. Keep your private keys secured with multiple, encrypted back-ups in various locations.

The safest way to acquire bitcoin is to let people know that you will accept it as payment for your products and services. Avoid exchanging it for national currencies. The point that people miss here is that national currencies are the very problem that freedom-lovers are trying to get away from. Instead, use bitcoin to trade with merchants and individuals who accept it as payment. Offer it as payment to those who are unaware of it and explain the benefits to them. This will help develop the market and create a solid economy outside of national currencies. After the initial attack, bitcoin has the potential to be one of the most powerful and revolutionary tools to bring about more freedom and liberty to humankind.

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20 Responses to The Coming Attack On Bitcoin And How To Survive It

  1. Pingback: The Coming Attack On Bitcoin And How To Survive It « Keep Your Assets

  2. Pingback: The Coming Attack On Bitcoin And How To Survive It | The Freedom School

  3. Editor says:

    Excellent article. If there is “silkroad” fallout, the gov types will target the weakest link in the chain and the easiest accounts to get at are the U.S. based exchangers. E-gold agents got hit really hard and out of no where, so let’s hope that if something similar occurs here, Bitcoin agents are ready and customer’s money won’t be sitting in a U.S. bank account. Cheers and “go bitcoin”

  4. TexasMiner says:

    I agree that the US Govt (and others) will likely try and shut down any exchanges that they can. Fortunately the exchanges are in Japan (Mt Gox) and Chile (TradeHill) and I expect a lot of others to eventually open, which will make it more difficult for them to stop the transfers. Your point about not saving coins at the exchange is correct. Some of them are likely to be shut down and anything there would be lost, but for those mining for money (as I am), the best approach is probably to get the coins exchanged for cash and then tranferred to bank accounts in currencies that are less volatile while constantly mining more.

  5. If you have a significant number of bitcoins be VERY CAREFUL about computer security. I expect there to be bitcoin-stealing viruses and trojans any day now, and if they get onto your computer and manage to spend your coins then it doesn’t matter how many backups you have (and having encrypted off-site backups of your bitcoin wallet is a very good idea), your coins will be gone.

  6. darthie says:

    What Gavin said

  7. name says:

    “After the initial attack, bitcoin will likely be one of the most powerful and revolutionary tools to bring about more freedom and liberty to humankind.”

    Nah, the way to do that is to stop government. Bitcoin won’t help.

  8. Andy says:

    Can someone explain the following to me about bitcoin: I’ve read enough to understand that the total number of bitcoins is finite… but what’s to stop me from taking the bitcoin code, rebranding it as “Andy’s BitCoins”, and creating an entirely new and separate pool of “Andy’s BitCoins”? Assuming nothing is stopping that, isn’t the claim that the supply of bitcoins is “finite” a little specious? Sure, the two systems won’t interoperate, but isn’t consumer opinion going to be problematic if there are a whole bunch of these “alternatives” floating around? It seems that bitcoin enthusiasts are simply banking (literally) on their being a “first mover advantage” for their pool of bitcoins in terms of acceptance and adoption, but that seems a dangerous gamble to make with one’s money…

    • @Andy,

      Yes, first-mover advantage is the primary driver but it is a formidable one. There is already a $100,000,000+/- valuation of bitcoin holdings and tens of thousands of users. The users have a vested interest in improving and making bticoin successful versus starting from scratch with a new one. Other peer to peer currencies will undoubtedly come on the market but it is the equivalent of joining a 100 lap race when bitcoin has already completed 50 of those laps. Catching up will be hard to do. Nevertheless, competition is good and it is for this reason that bitcoin is good for the dollar. If the managers of the dollar don’t straighten up holders will dump them en masse.

      • Andy says:

        Thanks Anthony.

        I’m certainly not here to defend the dollar: I’m an AnCap.

        But from an economics point of view, I am not convinced as a consumer that I want to park my wealth in bitcoins, and this is but one of several concerns. I understand that there are already people invested in bitcoins, and that definitely creates some market momentum for them. Then again, at one time, there was an awful lot of money vested in tulips and beanie-babies too, but that didn’t stop their value from plummeting when people started to judge that their value was being propped up only by speculation rather than having some intrinsic value *other than the hopes that someone else will pay more for them*. I completely get, btw, that the current value of gold, for instance, is far above its “intrinsic value”, so I understand that something *can* have value by virtue of the market’s desire to use it as “money”. But gold still has advantages: it has been around a *lot* longer (you’ve mentioned this), it has *some* intrinsic value (if it had no additional value as “money”, I’d still be able to make some cool things with it), and no one can create an equally large pile of “Gold2.0” simply to cloning and modifying some computer code.

        As a potential consumer, the possibility that the number of other versions of bitcoin will explode and cause a panic for current bitcoin holders leaves me unwilling to risk much if anything in bitcoins.

        Personally, I might buy some bitcoins if I saw a merchant that was taking them that was selling something I wanted, simply long enough to transfer them to the merchant, but I wouldn’t use bitcoins as a place to store value. Perhaps the former use-case could be sufficient to keep the market in bitcoins going, I suppose.

      • Andy,

        Yes, that is a valid concern. Another possible use would be when crossing borders. Instead of trying to carry your suitcase full of gold through security checkpoints you can simply convert your gold to bitcoin beforehand. Encrypt the wallet and put a copy on a thumb drive and upload another encrypted copy to the cloud (or send yourself a copy attached to an email). When you arrive at your final destination simply convert your bitcoin back to physical gold and continue on with your life.

  9. Victor says:

    Here’s a question i haven’t seen addressed in any of the forums:

    What about the software project itself? It is an open source initiative. What is to stop that group from substantially changing the nature of bitcoin with the release of the next version? (possibly under pressure from a big government with big guns) It’s only software, and could be changed in a myriad of ways, with 99.99% of users unaware of it until it’s too late.

    Gavin, could you possibly address this?

    • Short Answer: The rest of the community would stop using it and another would emerge. An open source code allows people to detect any changes immediately.

    • What Anthony said.

      Also note that it takes a while for a new release of the bitcoin software to get downloaded by a majority of users, and there are people all over the world watching changes to the bitcoin source code very carefully.

  10. Victor says:

    Thank you for the prompt replies. I have also found some other forum threads that discuss the issue.

    I love open source initiatives — they do much good in the world. Nevertheless, the people component of the (currently highly centralized) bitcoin software seems much less secure than the currency itself. Large wholesale changes would be rejected by the established network of users, but resistance to subtle subterfuge or erosion over time is less clear. Consensus agreement of humans is mushier than mathematics, and I have not seen an argument as airtight as the cryptographic backbone of bitcoin itself.

    Regardless, I can easily imagine that state of affairs to be much more trustworthy than government fiat currency. In fact, with all the known and accepted manipulations to the dollar (e.g. conjuring trillions into existence from nothing), it might be hard to do worse!

  11. Pingback: Expect bitcoin to be “banned” – expect the ban to be ignored | Economics and Liberty

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  14. They will have to be a lot more creative to attack Bitcoin. e-gold was easy, they just went after the US exchangers and then after e-gold itself, which was based in the US (Florida IIRC). But they are always slow. If we can achieve critical mass fast enough, Bitcoin will be too big to stop.

    The most important thing that Bitcoin proponents can do right now is find some way to reach a mass market. Videogames, social media, file-sharing sites, gambling… anything that can get a few million regular users.

  15. Pingback: What is Money? – Bitcoin Investor

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