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I know the US Government is opposed to competing currencies. It seems that it would be a rather simple solution for them to destroy Bitcoin before it grows too much by merely buying all the currency, which would be rather feasible given today's market cap of $80M (as of July 2012), and never selling.
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The exchange rate at any one point in time is determined by supply and demand at the markets.
The value of all bitcoins at the current market price is $80 million because the current market price is the point where the demand for bitcoins at a certain price meets the supply. You are describing introducing an artificial demand that would indeed cause incredible rallies in the exchange rate and cause tremendous exchange rate volatility
While some people cash out in a rally, others are buying. This government taking this action would be enriching speculators mostly -- certainly not the best use of the governed's tax dollars.
Even in a hypothetical scenario where this party you describe were somehow able to acquire 9.49 of the 9.5 million coins issued today, there are just about 11 million more that will be issued, so this entity would need to continue buying. But even with just 10,000 coins remember that Bitcoin is divisible down to a Satoshi (0.0000001 BTC). That 10K BTC gives 1,000,000,000,000 Satoshi trading units. That allows plenty enough time to get an update out that provides for even greater divisibility.
Of course, the risk then is that those 9.49 million coins are not destroyed but find their way back onto the market, creating again huge volatility and price inflation. That can technically be done, yes.
I don't think too many speculators are losing even a wink of sleep over it though.
Whoa dude! Hold your bravado! You assume that the attacker would simply buy. They have another option which is to raise the volatility of the currency to make it unattractive to hold and use. See my answer. Can you market-time the manipulators in the real markets? Of course not! – Shelby Moore III – 2013-03-23T13:45:34.013
@theymos, And really easy to lose money too ;) – Pacerier – 2014-02-15T18:19:55.633
3Speculators would be elated if that happened. It'd be really easy to make money in that situation. – theymos – 2012-07-26T20:59:07.953
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The process of attempting to buy all of the currency would drive the price up arbitrarily high.
For example, I have some bitcoins and plan to sell 10% of what I have left every time the price doubles. I will never run out of bitcoins to sell, no matter how high the price, so it is impossible for anybody to buy them all.
The US government could try to destroy Bitcoin by repeatedly buying and driving up the price, then selling to make the price crash. Eventually they should get tired of paying transaction fees to the exchanges (or run out of money to pay the exchange fees). And, of course, if their buying and selling is at all predictable everybody else will just repeatedly sell high and buy low.
But what do you do if the manipulators cause the volatility to never reach a doubling, rather a downward grind of debilitating volatility with adoption going into a tailspin? At some point, you sell too at less than your fancied speculation. – Shelby Moore III – 2013-03-23T13:56:23.247
That is an interesting strategy for selling! Thank you. I made a chart, but formatting was tough. At any rate, Gavin will make 1.8-fold more USD each doubling period. – Streblo – 2012-08-23T22:11:44.430
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It's impossible to tell the difference between bitcoins that have been lost forever and bitcoins that are being hoarded, so the US government would never be able to tell when they had bought all available bitcoins. And they're going to have to offer a lot more than the current market prices for some people to sell.
Yes but if their goal was to reduce the bit coin supply to the point where it was not useful for much of anything they don't have to get every last bitcoin. If they got enough so that the remaining supply was small enough that commerce shuts down then they will probably have met their goals. Of course this could be almost any government no just the USA, $80million USD is not that much money to a government or bank – Zachary K – 2012-07-26T11:39:44.703
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It is unrealistic to believe that such a purchase would survive
More than likely, a call for Congressional action would come not from the legislative branch, but from the executive or judicial branch. Alternatively, pressure may come from lobbying entities.
Moreover, a Congressperson who authors or support a bill outlawing digital currencies would likely face severe pressure from voters who use them. Remember that laws a written very vaguely, so digital currencies may include in-game currencies like WoW and Diablo gold, Linden dollars, Eve ISK, etc.
Lastly, can you image the headlines?
2You forgot black budgets. See my answer. – Shelby Moore III – 2013-03-24T03:58:07.253
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As stated before: if the government or who ever tries to buy all existing BTC this would lead to enormous volatility. But what are the consequences(?): Increasing price volatility would harm the possibility of storing value. But as prices for goods and services which are offered in exchange of BTC are flexible, BTC could still be used as a mean of exchange.
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There are many exchanges (this reason is good enough by itself) and most exchanges "must" follow some kind of an AML policy so they can get bank accounts opened quickly, safely, ... Just because of that most of exchanges refuse to work with governments, agencies since they know there could problems. Also person with lot of money usually "must" be identified by the exchange.
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The powers that be could theoretically accomplish horrendous volatility of the value of Bitcoins by running the price up and then selling. Thus rendering Bitcoin unsuitable as currency.
If speculators think they can game this by market-timing the manipulations better than an insider such as JP Morgan, I suggest they prove in the futures markets for gold or silver to receive their reality-check spanking.
As documented by Catherine Austin Fitts former Managing Director and Member of the Board of Directors of the Wall Street investment bank, Dillon, Read & Co., Inc.; Assistant Secretary of Housing/Federal Housing Commissioner at HUD in the first Bush Administration; and President and Founder of Hamilton Securities Group, Inc. . . .
. . . TPTB have access to at least $4 trillion "black budget" off-balance sheet funds that need no public oversight to be used.
And it probably wouldn't require any where near a majority share of the coins to create debilitating volatility. Remember when it fell from $17 to 1 cent briefly because of one account hacked and sold.
2Can you define acronyms the first time you use them in your answers? I had to google TPTB to figure out what the heck you were talking about. – gavinandresen – 2013-03-31T01:49:35.037
1welcome to the internet, gavin :) – herzmeister – 2013-03-31T20:10:39.583
2welcome to Stack Exchange, hermeister and shelby--the place people are clicking on in their search results to find out those answers. let's save them a step. – eMansipater – 2013-04-22T21:57:30.443
TPTB: "The Powers That Be". I, too, had to search for it. Too bad some people think it not rude to use acronym and imply everybody else should understand it. – Joe Pineda – 2013-10-19T00:08:16.803
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It is unrealistic to assume that one entity such as the US Government would actually care enough about Bitcoin to drive it to the ground. Hypothetically, yes, one could destabilize it. But the developers would likely add preventative measures to stop this from happening.
What preventative measure can stop someone from buying and selling to create volatility? That doesn't make any sense to me. The only counter-measure I can think of is to have the debasement self-adjust, but in Bitcoin the debasement is on a fixed schedule to stop at 21 million coins. I would downvote this answer if I had enough rep power. – Shelby Moore III – 2013-03-23T13:51:33.163
If Bitcoin came to challenge the USD the government would be very much interested in its demise in order to protect the billions they create through inflation. – Cory Klein – 2013-03-25T19:08:20.840
1The chosen answer is wrong, because it doesn't consider the option of destruction through volatility, and thus it doesn't consider that manipulators can fool the speculators on timing. – Shelby Moore III – 2013-03-23T13:48:07.757
Let's assume they actually did manage to buy all the coins. What's stopping us from starting Bitcoin2, the exact same protocol under a different name? – Pacerier – 2014-02-15T18:21:10.250