The Blockchain Debate Podcast

Motion: Nation-state attack on Bitcoin is an unresolved ticking time-bomb (Mike Kelly vs. Hasu)

June 29, 2020 Richard Yan, Mike Kelly, Hasu Episode 12
The Blockchain Debate Podcast
Motion: Nation-state attack on Bitcoin is an unresolved ticking time-bomb (Mike Kelly vs. Hasu)
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The Blockchain Debate Podcast
Motion: Nation-state attack on Bitcoin is an unresolved ticking time-bomb (Mike Kelly vs. Hasu)
Jun 29, 2020 Episode 12
Richard Yan, Mike Kelly, Hasu

Guests:

Mike Kelly (@mikekelly85)
Hasu (@hasufl)

Host:

Richard Yan (@gentso09)

Today’s motion is “Nation-state attack on the bitcoin network is an unresolved ticking time bomb.”

In this thorough and fascinating debate, we covered these topics:

  • The motivations of nationstate attacks
  • The mechanisms of nationstate attacks
  • The aftermath of nationstate attacks
  • The preventive mechanism of nationstate attacks

The idea for this debate was born out of a twitter discussion, where someone posted a video of Andreas Antonopoulos dismissing the threat on bitcoin from nationstates.

Now, while you’re here, be sure to also check out our previous episodes too. We’ve featured some of the best known thinkers in the crypto space. And it was great to have a few no-coiners on. I always appreciate their agreeing to do the show, and adding perspectives to what sometimes seem like an echo chamber.

If you would like to debate or want to nominate someone, please DM me at @blockdebate on Twitter.

Please note that nothing in our podcast should be construed as financial advice.

Source of select items discussed in the debate:

Show Notes Transcript

Guests:

Mike Kelly (@mikekelly85)
Hasu (@hasufl)

Host:

Richard Yan (@gentso09)

Today’s motion is “Nation-state attack on the bitcoin network is an unresolved ticking time bomb.”

In this thorough and fascinating debate, we covered these topics:

  • The motivations of nationstate attacks
  • The mechanisms of nationstate attacks
  • The aftermath of nationstate attacks
  • The preventive mechanism of nationstate attacks

The idea for this debate was born out of a twitter discussion, where someone posted a video of Andreas Antonopoulos dismissing the threat on bitcoin from nationstates.

Now, while you’re here, be sure to also check out our previous episodes too. We’ve featured some of the best known thinkers in the crypto space. And it was great to have a few no-coiners on. I always appreciate their agreeing to do the show, and adding perspectives to what sometimes seem like an echo chamber.

If you would like to debate or want to nominate someone, please DM me at @blockdebate on Twitter.

Please note that nothing in our podcast should be construed as financial advice.

Source of select items discussed in the debate:

Richard:

Welcome to another episode of the blockchain debate podcast, where consensus is optional, but proof of thought is required. I'm your host, Richard Yan. Today's motion is, "nation-state attack on the Bitcoin network is an unresolved ticking time bomb." In this thorough and fascinating debate. We covered these topics, the motivations of nation-state attacks, the mechanisms of nation-state attacks, the aftermath of nation-state attacks, the preventive mechanisms of nation-state attacks. This idea for the debate was born out of a Twitter discussion where someone posted a video of Andreas Antonopoulos dismissing the threat on Bitcoin from nation-states. You can find a link to that Twitter thread in the show notes. Now, while you were here, be sure to also check out our previous episodes too. We feature some of the best known thinkers in the crypto space, and it was great to have a few no-coiners on in the past. I always appreciate their agreeing to do the show, and adding perspectives to what sometimes seem like an echo chamber. If you would like to debate or want to nominate someone, please DM me @blockdebate on Twitter. Please note that nothing in our podcast should be construed as financial advice. Okay. Without further ado, let's dive right in! Welcome to the debate. Consensus optional, proof of thought required. I'm your host, Richard Yan. Today's motion: nation-state attack on the Bitcoin network is an unresolved ticking time bomb. To my metaphorical left is Mike Kelly, arguing for the motion. He agrees that nation-state attack on the Bitcoin network is an unresolved taking time-bomb. To my metaphorical right is Hasu, arguing against the motion. He disagrees that mission state attack on the Bitcoin network is an unresolved ticking time bomb. Mike and Hasu, I'm so excited to have you on the show. Welcome.

Mike:

Cool. Thanks.

Hasu:

Yeah, hi, thanks.

Richard:

Great. So here's a bio for the two debaters: Mike Kelly is a software engineer, product designer and entrepreneur. He's currently building Curl, a new kind of consumer payment network to replace visa and MasterCard, designed for push payments of all kinds, including crypto. His goal is to make everyday payments as secure, convenient, and cost-free as messaging someone on Signal. Mike has been involved in Bitcoin since the London meetup was a handful of people in the tiny back room of a pub.

Hasu:

Hasu is an independent crypto investor and researcher. He regularly publishes on Deribit Insights and on his blogging website, uncommoncore .co . He is also a contributor to CoinDesk.

Richard:

As usual. The debate has three parts. An opening statement from both sides, starting with Mike. The second round is the body of the debate with me directing questions to the debaters. Both sides are highly encouraged to follow up with their opponent after hearing answers on the other side. And of course, they're also free to respond to each other's points raised during the opening statement. The last round is audience questions selected from Twitter, and we will end with concluding remarks from both debaters. Currently our Twitter post shows an even split between the two positions after the release of this recording. We'll also have a post-debate poll. Between the two polls, the debater with a bigger change in percentage votes in his or her favor wins the debate. Okay. Let's get started with the opening statement, Mike, please go ahead.

Mike:

Cool. So , I wanted to start this off with , prefacing what I'm going to say with , I'm in no way , in favor of nation-states attacking Bitcoin. So these statements aren't me justifying anything that an explanation of what I believe to be the inevitable consequence of the network ceding at what it sets out to do. So , I think this debate is going to split into three sections. So first, we'll be looking at the motive. So whether or not these nation-states actually have the motive and aligned incentives to engage in such an attack. The second will be the method. So whether or not they have the capacity and the capability and whether or not the network , has the ability to defend. And then finally, I think we'll probably end up discussing what the impact of such an attack would have and , whether or not it could be mitigated. So just briefly on the motive, I mean, for me, if you look at something like the Powell doctrine, which is what the US military use when making decisions of war. The first question of, that's raised in the Powell doctrine is, is a vital national security interest threatened? And the US for example , they govern the SWIFT network. they are the predominant , monetary power on the planet. And Bitcoin's thesis ultimately undermines that power, and that power is a national security asset to the US. So I think one of the big challenges for Bitcoin is that its entire thesis is extremely antagonistic to some extremely well-resourced nations who have directly opposed incentives. So the design of Bitcoin on any blockchain system really is ultimately to obviate the need for, and subvert the control of regulators or governments. And so it's picked some pretty , pretty large opposition with a lot of resources. if you combine that with the security model that Bitcoin has, which is proof-of-work, that's a bad combination. So ultimately proof-of-work and we can get into the details of it later, but proof-of-work is, is a game of brute force. the US military spend $700 billion a year , getting into direct conflict with them in a game of brute force is not a good idea. And currently the network spends nothing like the kind of budget that the US military deploys on a yearly basis. I mean, a single, one aircraft carrier costs $15 million and that's excluding the research costs. So if we want to try and quantify the amount that Bitcoin spends on its defenses and the way whether or not that is , beyond the capacity of these nation-states, I don't even really think it comes close to being high enough to defend against them if they become a direct adversary. The main arguments that are used in these kinds of discussions are ones around the motive of these nation-states. So some people try to argue that there's an opportunity cost to sabotaging Bitcoin, that these nation-states would suffer. So they wouldn't get tax revenue, or there'd be a political cost of violating people's property rights, but the opportunity costs of not taking that action against Bitcoin, if it became a viable threat to their power, both domestically and internationally are massive. I mean, it would undermine their ability to enforce sanctions. It would prevent their ability to collect tax. it would encourage money laundering. So I think a lot of these discussions really need to be a lot more realistic about why governments haven't so far attacked the network. And I think the real answer to that is that they don't really see it as a serious threat because the activity on it at the moment is not of a scale , that really , really lands on their radar in terms of risk. But if it succeeds and when it succeeds , I think that will change. And using the last 10 years as a reason, not to be concerned about it is not a good idea.

Hasu:

Okay. Yeah. Thanks for your opening statement. I don't have an opening statement of my own prepared, so I'll just directly address what you said here. And so this is also unusual for me to argue from this position, because I guess in the Bitcoin community, I am more known as like someone who takes the red team, sort of the blue team , and points out, oh, by the way, said that Bitcoin can fail . So I pretty much agree with everything you said so far. And I mean, that's a , we also came in, in contact each other before, right. Because we both like to think adversarially about Bitcoin. and I think that's absolutely the right way to think about it. The ambition for Bitcoin should be to think through all the possible ways that it can fail. Well, with that said, for one, I completely agree that Bitcoin is antagonistic to what the , maybe not the nation-state, but definitely in this current combination of the state and its control over the monetary system and the money supply. So , yeah, I completely agree that , states can see Bitcoin as a threat in that regard. And I mean, we have heard as much from politicians in the US. For example , in the Senate or , in the House who said, you know, Bitcoin would impede our ability to accept sanctions and so on. And so, yeah, I completely agree with all of that. what I thought was interesting was that you think they don't don't really have an incentive to attack Bitcoin today. And I think that's really , the crux of the argument , because it's true. I mean, if someone expended a hundred billion dollars, if you take 20 PhDs and give them a hundred billion dollar budget and put them in a room for six months, they could probably destroy Bitcoin. So I would , if you give that bet to me, I would take it. So I think that's totally realistic. But at the same time, it does matter that the incentive to take Bitcoin is not that large today. and that's also what protects it . So like the kind of obscurity that Bitcoin still has, that it does contribute to its protection and its security works in a way where if it does become more relevant and keeps growing and keeps becoming more valuable, then it automatically allocates also more budget to its defense, so as Bitcoin becomes more attractive to attack. So in my opinion, it also becomes way costlier to attack.

Mike:

Okay. I mean, when you say it becomes way costlier, I mean, do you have any idea of like how you expect that to scale over time? So what costs do you think needs to get to before it's beyond the bounds of a G-20 nation, like the US or China to attack it? Because at the moment it's nowhere near, I mean, $60,000 a block effectively. So actually this is a good point. So maybe it makes sense to actually just come up with some agreements about ways to measure the cost of the attack. So the way that I tend to do this is just to look at ... you can look at the absolute hash rate, right, which at the moment is 90 exaHashes, which by the way is down 25% from three weeks ago, just before the harvest.

Hasu:

Okay. So hold on, hold on for one second. So before we get into like mining attacks, do you also agree that states have like a variety of possible attacks on the system? Like Bitcoin's not just mining, right. So may not be the most profitable way to do it, but it could be. So we should explore it.

Mike:

Well , yeah. So, I mean, yeah, so I mean, I've actually laid out effectively the red team argument . So what I think if I was in that position, the steps that I would take and , it's not just mining, it's a combination of multiple ...

Richard:

Yeah Mike. Do you want to give us a rundown of the tactics?

Mike:

Yeah. I mean, I still think it is worth going back to this point of costs, and the idea that as Bitcoin scales , its activity becomes insurmountable to these nation-states. I mean, the delta between where it is now and where it would need to be in order to be beyond the means of , a nation-state like the US or China. I mean, it's just, it's not even close. The Bitcoin network spends $60,000 a block, $80 million a day or $30 billion a year, which sounds like a lot. But in the grand scheme of nation-states defending themselves, nation-states have spent orders of magnitude more than that for far less threatening issues. Particularly if you're talking about the larger nation-states, like the US who are the predominant , financial power on the planet. So I'm not really sure I buy that argument. I mean, obviously as the value of Bitcoin rises, the amount effectively, that's being able to be invested in mining because the majority of mining comes from the block subsidy. So if the Bitcoin is worth more, therefore in real world terms, the profitability increases, and therefore the amount of Exahashes that can be employed increases, that is true. But the question is really whether or not that total amount that would be afforded would be beyond the capabilities of a nation-state. And I don't think that's true. And I think the delta is enormous. It's not fair to say that those are close.

Hasu:

Yeah. So think it makes sense to distinguish between who can, who even has the capabilities of attacking Bitcoin, like a mining kind of way today, versus maybe if the price goes up like 10X or 100X. And I'm kind of in a position where I think that Bitcoin is already, could already only be attacked by, successfully attacked by pretty much the US or China. And then that's it. So it's already today in a position where the smaller countries, or even some kind of like private market initiative could not really threaten the network in any ...

Mike:

Sure. That's fair. But then you just listed the two major financial powers. Right. So that doesn't really help. I mean, even if it's a small subset, still those two parties are the most resourced on the planet.

Hasu:

Yeah. But then they also have the least, I mean, I just don't see what they have to fear from Bitcoin like that , that they have to expend so much resources.

Mike:

Okay. So let's focus on the motive first and then we can move into the stuff around the attacks later. So I think for me, I don't think the motive is very complex. I mean, blockchain systems are designed to subvert regulatory control, so they obviate the need for, and they also subvert regulatory control. That's what they're designed to do. So , the idea that the incumbent power in , for example, the US when it uses the SWIFT network to enforce , sanctions on countries, I mean, that is a national, a major national security assets with network. If Bitcoin grows and it becomes a network for large volume global transactions, that is a direct threat to that national security asset . So I don't really understand how those two, how the US wouldn't see that as a threat to its international dominance or even domestic control for that matter. So if a permissionless network allows transactions, which are permissionless, which are pseudo anonymous, then it makes money laundering easier.

Hasu:

Yeah. Okay. But I mean, you can address all these things in different ways. You don't have, you don't necessarily have to attack the network itself. So if you're worried about domestic things, for example, then you have way more options when it comes to just preventing people from, from using Bitcoin a lot. Right. So you could either take the very aggressive approach and just make it ownership illegal , and ban all the on- and off- ramps. But I think ...

Mike:

But that wouldn't be an example of an attack on Bitcoin, right?

Hasu:

Yeah, absolutely. Yeah. But I mean, even easier would be to just say , what are you really worried about, right. Is that in the free market for money, is that like your own product, Like the US Dollar, the US banking system basically loses to this magic internet money. And what you do is you give like, your own currency a significant leg-up, so it can hold itself. And they do that just by introducing various levels of friction to using Bitcoin that don't exist when you use the US Dollar. I mean that like many of such issues in place today, so it would be fair to say a Bitcoin is already under attack. So, because using Bitcoin is in no way as easy as using the US Dollar.

Mike:

That of course is true. But then again, whichever , whichever form of control they try to introduce or layer on the top of the Bitcoin network is in and of itself an attack on Bitcoin. So if you tried, let's say for example, that instead of banning it, they decided to permit it, but only permit it if you use a white label address and white label addresses can only be minted by financial institutions, which are granted a licensed by a regulator, right? Like that would be, and if you effectively, what you're saying that the inverse of that is that the activity which occurs outside of those white labeled addresses, is therefore criminal, punishable through money laundering or whatever kind of mechanism they used to do it. That is an attack on Bitcoin. I mean, it's a lightweight one and it's very easy for them to do. They already inferred that they would do it. So when the Libra thing happened , as you alluded to before, the US government was very clear that they won't allow crypto operators to quote , operate in the shadows. And really what they mean is that if this thing becomes serious enough, that we think there's enough activity on here, that we should be governing it, then we will make aggressive moves to ensure that all of the activity is what they would consider above board, which essentially means censoring , the stuff that they think isn't.

Hasu:

Okay. But you're talking about inside the US right now. So, I mean, I think we both would be that the US can make using Bitcoin very annoying for US citizens, but what is the effect of that on the rest of the world?

Mike:

I'm not really sure. I understand the purpose of your question. I don't know there's many different effects it could have, but I would rather, I mean ...

Hasu:

Yeah, sorry , let me just rephrase it. So if one country, even like a major one, like the US that's to implement domestic policy that makes Bitcoin really annoying to use. And what is the effect of that on people in every other country?

Mike:

Well, I would imagine that the US government starting to act antagonistically towards the Bitcoin network would not be good for its value. Somebody might be able to argue that it wouldn't make a difference, or it might increase it because some, through some bizarre logic, you know, the US government taking it seriously, therefore means that it's legitimate. It's possible that some people may come to that conclusion and the price could rise.

Hasu:

We can agree that it probably would fall.

Mike:

Yeah. I'm not really sure. I mean, there's many different consequences this could have, I'm just not really sure what you're driving towards.

Hasu:

I guess, I just want to know what is the effect of one country bans it. I mean, so, because then we have to look at it, if you say, okay, one country can ban it, but it has no effect on everyone else that we kind of have to look at, okay, what are the incentives then to do that in the first place? Because if the US can't prevent other countries from using Bitcoin by implementing any kind of domestic policies, then, I mean, what did they really gain?

Mike:

Well, they could, because they could use international sanctions. So they could use the same mechanisms they use at the moment, if they thought they were starting to see , countries engaging in international transactions in a way that undermined their control, they could start to issue sanctions and use force in that way. And then beyond that, I mean, obviously the controls that they have from a legal point of view are only domestic. So if they wanted to impact the efficiency or the operation of Bitcoin outside of , the domestic , kind of , the area that they have jurisdiction over, then we get into a scenario where they're looking at effectively , kind of attacking, sabotaging Bitcoin itself. And now we're talking about the various methods they can use to do that. So , there are , international charters for financial crime. So , there's FINCEN, and there's all this stuff that the US has a stake in. And they can lobby those groups to change international policy on terrorist financing and money laundering. But I mean, those aren't particularly interesting. They could try that if people thought that, you know, for whatever reason, they didn't want to follow suit, the US could directly attack Bitcoin itself. So it could seize mining equipment, it could manufacture mining equipment, and both of those are , completely within the capacity of the US government. There's nothing preventing the US government from doing either of those two things.

Hasu:

Okay. But they couldn't confiscate enough hardware today, not even close to be anything, to 51-percent the network.

Mike:

They could manufacture it.

Hasu:

Yeah. But they would take ... Sso the way that manufacturing works is if you want to make chips that are like anywhere near competitive, then you kind of need capacity with the, well kind of with the major foundries , TSMC and Samsung. And , they could do that, but it would maybe like by exerting some spending, some certain amount of political capital. But , in practice, they would compete with like their own industries, like Silicon Valley, like every other industry that also request these chips. What I'm getting at is that it's not so easy to just conjure, like it's never a billion dollars worth of mining hardware out of thin air, even if you're the US. So there's a significant , operation , a challenge with that. And it would take at least four to five years to get anywhere close as you started today.

Mike:

Okay. So, so the first point I would raise is this issue of their ability to produce a competitive hardware. So if somebody is sabotaging the Bitcoin network, that is an investment, it's an investment in the attack itself. But It could control it. It could tolerate not being , efficient enough to be competitive. So if it was 20% or even 50% less competitive, it just means they need to manufacture 50% more chips. And then they would effectively have the hash rate that they need. So as long as they're not price sensitive, which they're not because they're extremely heavily resourced, that's not really an issue for them. And even if they had to pay a premium, if they had to effectively bribe the existing chip manufacturers, because they wanted to do it in a short amount of time, again, it's just cost. It's just additional cost . And they have mountains of cash that they sell on top. So the only thing that, that would really be preventative, I don't know, I'm sort of listening to you say that this would be beyond the US government, but, is the idea that the US would be incapable even in a worst case scenario where they couldn't get international suppliers to provide them with the chips, which they almost certainly could for the right price, is the idea that they would be incapable of manufacturing them domestically.

Hasu:

No. Only that it would take them several years to do so. Yeah, that would be my view . So, yeah, I mean, if you're saying money is no issue, like the attacker has an unlimited amount of capital, then I would pretty much agree with , with any attack that you can come up with, because Bitcoin is secured, like at the fundamental level, by incentives. And if the attacker is willing to outspend the defenders by an order of magnitude or more, then there's really nothing that can, not much that can be done about it. So they can already make it asymmetrical in the favor of the defender, because Bitcoin, for example, prints its own currency, right. And that currency is worth more to the defender than to the attacker. So that's just one of the ways how basically a Bitcoin creates like this [inaudible] better for the attacker, but it only scales so far. So if the attacker is willing to spend a hundred billion dollars and the defendants are not even willing to spend collectively $10 billion , then yeah. Then Bitcoin is absolutely going to fail. So I think it's really important that's also why I write so much about the security budget and declining block subsidy, because you have to admit that , Bitcoin has to outspend the attacker. Otherwise it's not secure. it's so important that the incentive to attack doesn't skyrocket , for example, because Bitcoin shoots up in value and suddenly becomes heavily used, and then the budget that's dedicated to securing the networks stays where it is today. So that I completely agree. That's like a huge risk for Bitcoin.

Richard:

So guys, maybe hold that thought just for a little bit, before we get into the weeds of the monetary practicality and so forth, I think we can both agree that if someone has unlimited or close to unlimited resources , they can destroy Bitcoin. But now going back to the motive a little bit, and maybe it's a little bit more nuanced because it depends on the motive by different country. So for the US, do you envision some kind of attack on a more covert basis or a more open basis? Do they sanction on-ramp / off-ramp, or do they have some kind of NSA sort of takeover, right. And then also outside of the US if you could talk about China or North Korea, some of these more irrational, hermit-like countries and more authoritarian regimes, how they would attack this problem, that would be interesting too.

Mike:

I think it's harder for smaller , less , financially dominant countries these days to attack Bitcoin because of the resources required to do it. So unless you have the financial capacity to do it, it's probably outside of your capability. But so the question about covert is really interesting. So the idea that, let's say the US was attacking, the idea that this would need to be covert is a red herring, really. And in fact , it's not being covert is part of the attack. So if you were a nation-state like the US looking to attack Bitcoin, your attack would effectively be focused on two outcomes. So one is maximizing your own hash rate. And the second is minimizing the rebel hash rate, or the hash rate of the resistance inside of the network. And minimizing the rebel hash rate is effectively increasing their cost of operation or reducing the amount of revenue that they generate. And one of the ways to reduce the amount of revenue that the rebel miners generate is to suppress the price of Bitcoin, and announcing as the US government that you intend to attack Bitcoin will lead to the price reducing. So I think the idea that the US government would somehow need to do this covertly is craziness. I mean, Antony (he meant: Andreas Antonopoulos), this is the reason we're having this debate is because someone posted the video of Antony saying that, you know , the US government wouldn't be able to do this in a covert way, and maybe that's true. They wouldn't, but why would they, I mean, not doing it covertly and explicitly stating their intent to attack Bitcoin in this way would actually have a very beneficial outcome, and that it would reduce the price of the asset, which would reduce the compensation going to the rebel miners, which would reduce the rebel hash rate, which is exactly what they need to happen.

Hasu:

Yeah. I mean, there's absolutely reasons for why you would do an overt attack and reasons why you would do a covert attack. And it depends on what kind of attack you use. Right? So, I mean, the US have, in the history of like the secret service, like assassinated, like variety of foreign leaders and so on, and this would not be things that they do overtly, right. Because there is, even though you're the US for certain things, there's like a political backlash in the international community. But if you do it covertly, then you can reap the same benefits , have like a power vacuum in that state or whatever, but without that backlash. So, the same kind of t ool for when you take B itcoin. So, and there's things that may be perceived as like dirty play or whatever, then you would do it covertly. I d on't k now. So for example, m y idea could be that you actually launch, like you launched like hacking attacks against, i nternational exchanges, maybe even against US customers. So that's not, and then basically you steal their assets, right? So the idea is to erode the public trust and the property rights of Bitcoin.

Mike:

That attack would not really work because all that would happen is that you would have new market actors that replace them. So I think if you were thinking about this strategically, that approach wouldn't really work. It would just be expensive and it would ultimately just lead to one market actor falling, and then being replaced by another market actor . I don't think that's a sustainable ...

Hasu:

Oh, no. I think it would be very powerful. Like if I was a government, I would not attack Bitcoin . I would not think about attacking Bitcoin probably by our mining, at least today. So if you could attack, like, if you could attack Coinbase or Binance or whatever, right.

Mike:

But these aren't parts of the Bitcoin network themselves. They happen to be sent temporary central operators. That's all, centralized operators.

Hasu:

Well, Bitcoin still depends heavily on those, right?

Mike:

Okay. So now I'm arguing there isn't an attack, and you're arguing there is an attack.

Hasu:

You don't have to agree about that . I was just saying, so when you do an attack that you don't want to be seen with, then you would do it covert style. Maybe, actually, since we are in the motivation section. So that's just, I have some arguments prepared, especially for that, because when, and I would like, just for now, just zoom way out. So right now we are talking about hacking exchanges and so on. But When we are talking about whether a nation-state would detect Bitcoin, then I think we have to take a really high level view. And think about this from the perspective of the world, where only nation-states exist , right? So the nation-states in competition with each other. And I think there are really good reasons for one nation-state to attack Bitcoin, but they are also really good reasons for nation-states to embrace Bitcoin. And so far, we have only looked at the one looked at the former. Even though we are already seeing today that some nation-states embrace Bitcoin in a very big way , both on the mining level and on the asset level. So some countries have created special economic zones for mining, because Bitcoin mining is a way to export locally bound, cheap energy. To take that and export it globally is basically the role that aluminum smelting had before the price of aluminum crashed in the world market.

Mike:

I mean, that's speculation. We don't actually know their intent. That's what they said, but you don't know whether that intent is actually valid. Right?

Hasu:

So, okay. What do you mean by intent? Do you mean that they could create special economic zones with a covert intent, like to strike later on?

Mike:

Well, with the idea of having , market actors effectively build the offensive capability for you , while you subsidize them. Right?

Hasu:

Yeah. Okay. So if the US did this, then I would be suspicious and agree with you.

Mike:

Well, Peter Thiel invested in Layer One.

Hasu:

It kind of fits with how you would expect it to play out, because, so you said, okay, the US has the largest incentive to destroy Bitcoin, because it's the current king of the world financial system and the word monetary system. So, but that also means like when the US benefits by exerting control over other countries by our sanctions and exporting inflation and so on, then that also means that other countries have an incentive to defy the US. And I think it's exactly those countries that we are seeing , embrace Bitcoin today.

Mike:

So I think there is an there's an important reality here, which is that the US spending on defense dwarfs many of the other nations put together. So the problem is that the incumbent power who has the most to lose has orders of magnitude more resources available to them than everybody else. So even if they gang together, they would likely still get blown out of the water by the US. And the problem is that proof-of-work as a game is, essentially in the longterm, if you forget about the timeline that you would have around building facilities to produce asset chips for now, if you just forget about that, essentially in the longterm , it's a game of brute force. It's all it is. It's just, how many dollars can you spend? How many dollars can I spend? That's that's the game. So I think the problem with that is that if there wasn't such a monopolization of , financial dominance in the world, then I think that that point would be more relevant. I think in practice, the US has the most to lose , and it can't really be competed with on that basis.

Hasu:

I think those are good points. but I would say that just focusing too much on the military budget can give a wrong impression, because while the US dedicated huge amount of money to maintaining its military, we are not fighting on military grounds here. And in terms of just GDP, the US does not eclipse , all the other countries in the world. So when it comes to pure spending power, then I think, if you had dozens of smaller, medium sized countries , develop a national interest in Bitcoin, then I don't see why they can't defy even a larger attacker.

Mike:

I think the military budget is a good barometer for a country's capacity to defend its national interests. So that's the only reason that I use it, because it just seems like a good, objective heuristic for figuring out who actually has the financial capacity to engage in what is essentially a form of war.

Hasu:

Well, in the past, I would've agreed with that, but I think today, the US has effectively is like it exports defense to every other nation. Right. And basically in return, they buy US treasuries and so on, and grant the US other kinds of benefits. So I don't think it's representative, I think if other nations stop paying for US defense, then US defense budget would go down.

Mike:

So, I mean, can I make a suggestion, because we've been talking about the motive for quite a long time. And I think we could probably ... I mean, first of all, I feel like this is way above my pay grade. I've never operated high up in the military or in the government for that matter. So I'm a little bit like hand-waving at the moment. So , instead it might be worth, I don't know, moving on to the methods . So if we just leave it the motive for one side and just for argument's sake, let's assume that's a nation-state, like the US will try , and it does have that motive. Then I'd like to discuss it a little bit about the method. Now, I don't know if you're even going to disagree with me about this point, because I know you understand Bitcoin security very well. but a lot of people, and actually I mentioned that talk that Antony gave , that a lot of people don't actually really ...

Richard:

You're talking about Andreas?

Mike:

Yeah, sorry, Andreas. Yeah, I've got it wrong. Not Antony, Andreas. You're right. In Andreas' talk , he was saying , that they would just kick the bastards off the network, to quote him. But unfortunately that's not how Bitcoin works. So Bitcoin is permissionless. And the way that the protocol works in proof-of-work is that the heaviest chain is authoritative. And if you move away from a situation where the heaviest chain is authoritative, you're no longer doing Bitcoin , proof-of-work , you're changing Bitcoin . So the big challenge here is that there is a very very clear course of action for an adversarial nation-state. And the flow of the attack would essentially work something like this. So you would, you would make it as expensive as possible for rebel miners to operate. And so you would do stuff like you would announce your intent to attack, which would reduce the price of Bitcoin, which would ultimately create less revenue for those revenue miners , for revenue, for those rebel miners, you would make mining and transacting in Bitcoin, illegal, which again, just increased their cost of operation. It doesn't prevent them. They could still choose to operate in the dark, but you are making, at least domestically, you're making that kind of activity , more costly. And then you could increase your own hash rate. You would seize large mining operations that are within your jurisdiction, and you could begin manufacturing ASICs, which could have a time lag . As you mentioned, it's possible there could be a time lag associated with that. Seems though likely, they probably just pay a premium to the existing chip providers and they'd ship them over to the US. But at least in theory , that could be , that could be a time lag attached to that. But once they have that mining capacity, assuming that they're able to amass enough capacity so that their hash rate is at least 51%. The way that it works is they would continually mind empty blocks, which means nothing ever gets confirmed. Transactions just stay in the mempool and have no confirmations. Then they would constantly stay three blocks ahead of the chain tip. So they would only use as much hash power as was needed to stay three blocks ahead. But they wouldn't announce it. So it wouldn't be public. They would just constantly be staying in the background quietly, be staying three blocks ahead of whatever was , announced today . And then if a rebel miner announces a block, they would then immediately orphan it by announcing their heavier chain. And this strategy can be continued ad infinitum. The more that they do it, the , less usable Bitcoin is because it's being constantly , there's a constant, "denial-of-service" attack going on, which means you get no confirmed transactions, which means the price is going to reduce more and more, which leads to the revenue for the rebel miners going down and down and down, because unless they want to operate in a way which is economically irrational, then their defensive hash rate will decrease, which makes the overall cost of the attack over time, decrease rapidly. So proof-of-work itself , has this mechanism built into it. It's how proof-of-work works. And if a nation-state has the hash rate capacity, they can execute on this. And there isn't a defense other than undermining proof-of-work itself , moving away to a completely different scheme.

Hasu:

Yeah. Well, like we said previously, you have to spend more money than the attacker does.

Mike:

Yeah. But assuming that you don't, and that they have the resources to be able to do it, they have the incentive and that they're willing to invest the capital. Then if they have 51%, they can execute this attack and it would effectively , it would denial-of-service the network, like no transactions would get committed that would just go into the mempool, and they would sit there forever .

Hasu:

Yup . That's definitely a possible attack. So I guess that's the point where we talk about, okay, what can the defenders do about that, if they don't have enough hash power ? So, I mean, if you're already at the point where , you know, that there's an attacker , that's like more financially motivated than you were, then that's of course not a great scenario to be in, but what you can try is the next step. That Is you can change the proof-of-work or you go to them. And then all of the hardware that the attacker has acquired , can no longer be directed at the Bitcoin network. It would become useless.

Mike:

So just so I'm clear what you mean by that. You mean effectively just change the hash function. Okay. So , that's a common retort . The problem with that, is that, that move will be extremely in and of itself, will be extremely value destroying because, one of the benefits of Bitcoin is that obviously there's this built up , capacity of , on it, quote unquote, honest mining that protects it. So if you move to a fresh uncompromised hash function, you have to start that all over again. And the problem is that it's very unlikely to re-monetize the same way as SHA-256 did , because everybody knows how that game ends. So there's no incentive to invest in the mining because everybody knows where it's headed. So that doesn't really work.

Hasu:

Yeah . Yeah. You touched on an interesting point, because in practice, that's why I said, you already hate life when you have to do this. Because when, you know, you have to switch to proof-of-work algorithm, then that already implies that someone who's willing to outspend you, who was probably prepared to outspend you on the new chain as well. And so in practice, you can never win, but of course, you have still have to do it because the attacker cannot [ inaudible]. Right . So you might also not ...

Mike:

So I've discussed this with Adam Back , and Adam's feeling is that they have some schemes that they will put into play if this happens, that he refers to as bunker mode. And he makes an allusion to part of the Bitcoin client protocol, which is called invalidate block. But invalidate block is essentially where you can mark a block as invalid. So any blocks that , occur subsequently effectively, you just kill off a branch of the chain, and you discard it. And what this would do is this is kind of like proof-of-work, except that it's a permission network. So you have some kind of scheme where , through some mechanism you share what are considered valid and invalid blocks. So mining is effectively a private invite-only game that you have to be allowed to play in , obviously the big problem, or you move to some other completely different sybil-resistance mechanism, like proof-of-stake. The problem with both of these is that the reason that they don't work ... or not that they don't work, I mean, they could in theory work. But they're less functional, are all the reasons that the Bitcoin community has justified sticking to proof-of-work for the last 10 years. So the reason that Bitcoin has been stuck with proof-of-work for as long as it has, is because it's the most economically pure, and it doesn't lead to failure scenarios of centralization, or introduce methods of governance where , people can be compromised through corruption and all these other mechanisms, people like Nick Szabo have written about this stuff at length, because they're defending the investment that's continually made in proof-of-work, right. Because they're suggesting that other schemes wouldn't scale. And so the problem is there aren't really any other schemes, which are , as economically pure as proof-of-work. And therefore there's a big problem in moving away from it in terms of the value of the network.

Hasu:

Yeah. I mean, you describe a scenario where Bitcoin, if you don't move away from it, then Bitcoin dies . So , I think it's a no-brainer in that scenario to just try something different. And maybe the network [ inaudible] in different parts needs to each try different things to survive.

Mike:

If I'm an attacker looking to sabotage it, that sounds like success to me, to be honest.

Hasu:

Oh, for sure. Yeah. I mean, maybe then the new parts do, like, you don't even have an incentive to attack the individual parts anymore. Right. So, yeah.

Mike:

One of the bits that I'm really interested in personally is the effect that "replace-by-fee" has on all of this. So if you want to denial-of-service the Bitcoin network , one of the reasons that's so problematic is because of "replace-by-fee". And the reason that "replace-by-fee" was introduced is because people argue that it's rational for miners to allow people to bid , for preferences on unconfirmed transactions. And therefore "replace-by-fee" is inevitable. And therefore it should be in the protocol. But the problem with it being in the protocol is if you do not let service the chain tip, it means that nothing gets confirmed and it sits in the mempool. But because you have this "replace-by-fee" mechanism in the protocol, it means that nobody can trust the transaction because at any point, anyone can replace any of those transactions that sat in the mempool. Now, if you don't have "replace-by-fee", then you end up in a situation where, okay, somebody can "denial-of-service" the chain, and it will sit in the mempool. But because it's first seen safe , none of those transactions can be mutated even by the sender. And therefore , at some level you could decide to trust the sequence floating around in consensus of the mempool until it eventually, even if that's five years down the line, when the nation-state gives up, eventually it will flow back into the blocks and become reconfirmed.

Hasu:

Oh yeah. So you're talking about this , purge attack thing that we , we had talked about some time earlier , so I don't think it works quite that way. When you have a censorship attack on the network layer, that's an attacker who just constantly mine empty blocks, but you would have to replace some blocks that have already been mined and seen as confirmed by the network. So this, you could only do this once, right. So , then after that censoring, then there are no more chances .

Mike:

Okay . Sorry. I mean, the purge attack is, is another thing which we could talk about, but it's probably, people could just read your blog post.

Hasu:

Yeah ,. I should probably write an update to that because I missed a pretty obvious defense to that, that was pointed out to me later.

Mike:

So, my point was more just that if "replace-by-fee" ... let's just for argument's sake, say "replace-by-fee" wasn't necessary and it didn't exist in the protocol.

Hasu:

Yeah . I don't really see what is the connection to like nation-state attacks. I mean, we already had some very deadly stuff. So this is kinda getting into the weeds a bit, in my opinion, I don't think it adds really what attack makes more dangerous or is cheaper ...

Mike:

It allows the network to still operate within the mempool for transactions of smaller sizes until the attack subsides. So as long as you can trust the mempool and the sequencing and the mempool, you effectively, you can kind of , you can continue to transact on the Bitcoin network just via the mempool. So, that's the impact that replace-by-fee ... So I'm just interested in that, just because it's kind of like a hermit style mode for the network to go into, where the mempool just kind of floats around and people just use it for smaller transactions, but it was just a kind of off point. I mean, ultimately like if, if a nation-state is brute force denial-of-service attacking the network with empty blocks for the next two years, I think the value of Bitcoin is going to collapse so much, that it will become almost unusable.

Richard:

Hey guys, I know that we're now talking about the strategy of nation-state attack, but I want to go back to two other points that were previously raised, which I think are still important. The first one is the fact that I think that there's sufficient amount of American interest at stake that's non-governmental, but on the private sector. So that might make the political capital being spent to attack the Bitcoin sufficiently high, to deter such an attack. And I'm referring to the fact that there's now 30 million accounts on Coinbase, not all of them American, but substantially, many of them are. And then there's also lobbying groups being set up. There are now entities that are, now two thirds of the States passing laws to support the activities, or to at least put more clarity around the activities for cryptocurrency. And then of course, there's just private citizens owning Bitcoin, and maybe some of them are politicians even. And then there's also vocal business executives. And so on, all of them are essentially stakeholders of this country, right? So any kind of overt or covert attack on the Bitcoin would essentially harm their interest . And I think the argument about a covert attack by the NSA or something once uncovered could prove a huge scandal, right?

Hasu:

Yeah. That's exactly what I meant earlier when I said, if you somehow harm Bitcoin in a way that can be traced back to you, then you have to be willing to burn like an insane amount of political capital.

Mike:

Well, okay. So I don't agree with that. And the reason I don't agree with it is because they have a very clear narrative they can use in order to demonize Bitcoin for an attack. And the reason they can do that is because they can just say that it's you, it's a permissionless network that allows extremely antisocial actors to transact on it with impunity. It is used by terrorists. It's used by human traffickers, et cetera, et cetera, et cetera. There is so much political ammunition there . It's unreal.

Richard:

Yeah. But isn't that true for fiat currency? That's also being used for criminal activities.

Mike:

It doesn't really matter whether or not the argument is valid or not. It matters whether or not it's whether it has efficacy. And that argument, if you say to people, this is used by people to avoid the tax that everybody else is fairly paying. Do you think that's okay? They'll say no, they'll say, do you think it's okay that people use this for funding terrorism or for funding human trafficking, people will say no. I mean, generating the political capital to attack the network like the Bitcoin network will not be difficult.

Richard:

I definitely think that sounds like conventional wisdom and the lay person on the street might tend to agree with it without thinking too much into it. But I think it still does not change the fact that this is an attack on the current American interest, right, that's already rooting for the coin in different ways.

Hasu:

I would like to ask Mike something. So I would agree that, I mean, you can probably construct a narrative today where , if you try hard enough, you could kind of sway the American public to take an overall negative stance on Bitcoin. and then you could maybe gather the kind of political support that you need to ban it, but do you see that overt window closing over time? So do you think it's actually the reverse of the question that we are discussing? So it's not a nation-state attack is a ticking time bomb for Bitcoin, but maybe that Bitcoin has a ticking time bomb for the nation-state, in the sense that the window where they can still successfully attack it is getting smaller and smaller.

Mike:

It can be getting, it can be giant, but still getting smaller. So I agree with you. I mean the more ubiquitous it is, I mean, sure it's going to be getting smaller, but if it's enormous, it will be, you know , big instead of ginormous. So , I mean, yeah , fair enough maybe, but I don't believe that window is as tight as it's made out . I mean, there was a point that was raised, which is slightly different than the one that I addressed. I think you raised it, which is the idea. And I like this one it's really funny because I find it kind of a bit ironic, but like people raise the idea that somehow politicians and sort of incumbent powers within the US political system will become so invested in Bitcoin that the sort of machinations of the US political system will result in the US government not attacking it. I mean, maybe, I mean, it's very spurious, but it's just amazing to me that this sort of cyberpunk dream that everyone was talking about in , you know , 2011 , all of these Bitcoin meetups, like there's sort of, it's now somehow the behest of this sort of shady underworld of corrupt politicians. It's like , that's what it depends on. It depends on those, the Man effectively kind of okay'ing the activity. That seems a crazy, crazy place to be in.

Hasu:

No, I think you have to be pragmatic about it in the sense that , Bitcoin, it's a Bitcoin just by its design. It favors people who have assets, right . Have the capital and who also will do something maybe that sometimes crosses the line. So , I think Bitcoin has a very easy way to, to find allies because it's so easy to benefit from its success.

Richard:

Yeah. And then the other two things I wanted to mention. One is that it's possible that Bitcoin gets to be same market cap as gold or same status as gold, but it's not sufficient to topple the status of US Dollars. And, so as not to instigate any kind of retaliation or preventive attack from the government, right. That's point number one. So basically it could coexist with the status quo. And point number two is we've been focusing a lot on America. Suppose the US basically wants to Shung Bitcoin and it could go through an overt attack. It could do a technical attacks, slash a political attack on ramp off ramp sort of thing. But that does not change the fact that there are countries outside of America that want to use it. And I'm not just talking about the ones on OFAC list that wants to circumvent the America sanctioned financial system. Right. So we could be talking about a country like Switzerland, okay , we could be talking about a country like perhaps China or Russia that simply just wants to sort of stick it to the US government's US Dollar dominance.

Mike:

It didn't go very well for Iran.

Hasu:

I would like to take this question because , I think you raise a very interesting point and that is, but just the kind of competition that exists between the international actress. And , you mentioned Switzerland, which is kind of doing a crypto economic zone for crypto. we have Hong Kong, we have , [inaudible]. We have Singapore , Germany to a degree. They are all these countries that , offer special benefits to attract , either Bitcoin miners, especially in the case of Eastern Europe, in the case of China, in the case of Scandinavia or Paraguay, so on, that want to attract Bitcoin miners, or that just offer regular regulatory advantages to attract , crypto related companies. And I think, I think that's due to, on these con on behalf of these countries, they have a huge fear of missing the next big technological wave. And if you think you can't ban it , especially if you're one of the smaller countries that really doesn't have like anywhere near the operational power to do that, then you're way better off to embrace it than just remaining neutral towards it.

Mike:

How many of those countries violate the Iran sanctions and continue to do commerce with Iran, that the US has demanded be made illicit?

Hasu:

Trying to figure out what you're going with this.

Mike:

Well, my point is just that if the US decides it doesn't want it , if it doesn't want the international community to do something, generally they tend to not do it. And they don't even need to resort to force. They just tell them. Yeah .

Hasu:

Can you really exert that kind of power on countries in Western Europe to not host a crypto exchange , or some kind of crypto related business? If we are getting to that stage, then I think all the other countries in the world would just distance themselves even further from the US, and just start seeing US like a rogue state.

Richard:

Not sure if US has that kind of influence, to be honest,

Mike:

The point that you made a slightly before that, which was the idea that , that Bitcoin could kind of be a sort of Trojan horse where it doesn't invite ire of the US by kind of flying under the radar.

Richard:

Right, where it doesn't get so big as to topple the status of the global reserve currency ... Gold is coexisting with the US Dollar.

Mike:

Well, I don't think , many of the OG Bitcoin community would express the original vision as coexisting with the fiat dominance of the US Dollar.

Hasu:

If you read Satoshi, one of Satoshi's first emails said, Bitcoin can buy us a few decades of peace from the ever-turning wheel of nation-state, fiat currencies. So he wasn't as ambitious, maybe as some of his current supporters.

Mike:

Okay. I mean, I think , it is an interesting idea. Like it's, it's actually a Sun Tzu strategic concept, known as the golden bridge. So that's like where you leave an opponent opportunity to , to kind of , to fall back in order to not force them to act out of desperation. So that is a known sort of strategic military concept. But again, I don't know if that how much wriggle room there is there. And I don't honestly think if Bitcoin achieves even half of what it wants to achieve, whether or not the US will continue to not see it as a distinct threat.

Hasu:

Well, Bitcoin itself doesn't have a mind, right. It doesn't decide how far it wants to grow. I just think it's very realistic that it will reach a natural plateau, where we then basically establish [inaudible] and maybe starts growing way slower than right now. And the reason is that the benefits from Bitcoin are that everyone who really benefits from using Bitcoin and owning Bitcoin has already, that's what they already own it at that point. And it's just not that useful to that many people, right. And it also probably can't accommodate that many people just based on its scaling limitations. so I think that's a natural limit for how far Bitcoin can grow. And it's at least, let's say within the next 20, 30 years.

Mike:

Yeah. I mean, if your argument is that Bitcoin is going to remain useless and therefore it's not going to get attacked. I mean, I'm okay with that idea. I just don't think ...

Hasu:

I mean, if you have like a Bitcoin, that's like $2 trillion of market cap and it's very liquid, you can send it , you can send it all across the world , conserve custody or censorship resistance , that's programmable and all kinds of ways. I mean, that sounds very useful to me. It doesn't have to topple the US Dollar to be useful.

Mike:

Sounds like the kind of thing that would enjoy network effects and that would grow exponentially, which is exactly what the US government wouldn't want.

Hasu:

Well, it depends how expensive it already is to use, right. So, I mean, of course the next person would benefit from adopting it. but maybe it's just not realistic because it's too expensive for the next person to adopt.

Mike:

I mean, this did already kind of happen with, I mean, I don't really want to talk about it because it's not really the same thing as Bitcoin, but at the same time, there is stuff to learn from it. And that is when Switzerland announced or what rather when , when Libra was originally announced and it was , it was basing itself in Switzerland. Subsequently, obviously the US government and also European governments have been extremely aggressive in curtailing its progress. And I think one of the reasons they did that is because they actually saw it as a viable sort of exponentially. It's something that could grow. It was something that was viable and it could grow exponentially, so they saw it as a threat. I just think at the moment what we might be in is a little bit of a honeymoon period for Bitcoin. Well , okay. It's growing to not insignificant levels, right? The price is high-ish, but they're still not really taking it seriously. And I think there will be a tipping point at which it does start to be taken seriously. And as you say, there's no, there's no Bitcoin governance council, figuring out when to pull back. It was just keep going and going and going until it goes over the line. And then , and then it becomes subject for an attack.

Hasu:

Yeah. But I mean, the government's had said they can put the screws on , way before that point. You don't have to launch an all out attack. So the kinds of attacks that I am more afraid of, or that I respect more, are the ones that we are already seeing today where, countries start to create, these kinds of frictions around owning and using Bitcoin. And I mean, they have a lot more room to go in that regard. So if Bitcoin starts to grow as to threaten their opinion, then they can also increase the kind of friction that they exert on the whole ecosystem without shutting it down. And that will put, in my opinion, that's another way, other than the scaling limit that , Bitcoin's growth can naturally taper off.

Mike:

They will suppress the value of Bitcoin the asset, and Bitcoin the network. So, I think In a weird way, I can kind of agree with that, right. Like, I mean, fair enough. But if they do manage to suppress its value to the point that their elite can live with it, then obviously ...

Hasu:

Yeah. I mean, but you can still be like way higher than it is today. And with it, the network can be way more useful. It's just not an existential threat to them. That's how I genuinely see Bitcoin's end game .

Mike:

But if you're somebody who wants the price to go to the moon and you're somebody who's building an investment thesis around Bitcoin , that's predicated on it becoming a global reserve currency. I think what you're describing would still be seen as an attack and suppression of the value would still be seen as sabotage. So in a way I'm agreeing with you, because I think you're really making my point for me, which is that it is a serious threat. It will impact the value of Bitcoin. The question is just how much will it be? Will it get to the point where the sabotage has to be so extreme that the attack is a very expensive "denial-of-service" attack, which effectively kills off proof-of-work for good, and makes the value of Bitcoin near zero, or will it just be tolerated and they'll use international money laundering and domestic money laundering law and all the other equipment they have as a government to suppress its value by making it less useful. I mean, okay. Maybe, but it's still an attack, right?

Hasu:

Oh yeah. I'd be the last person to disagree with it. I mean, some nation-states have an incentive to attack Bitcoin, and Bitcoin is already actively under attack by states today. And you would expect that some nation-states embraced Bitcoin. and some maybe , try to oppose it. So the more nation-states oppose Bitcoin, the larger, I think your incentive becomes to embrace it. So I think there will always be , some kind of balance where ... I mean, it's also just the nature of the , the highly mobile nature of a Bitcoin mining, but also Bitcoin related companies, since we are talking about digital services here , it's so hard to regulate , Bitcoin companies. They can pretty much set it up everywhere. And Bitcoin miners also. And that just creates this, in my view, very positive feedback loop, where it gets very hard to regulate them.

Mike:

I mean, it's quite hard to grow weed without your electric footprint giving you a way, at scale. So unless you come up with a way of generating energy, like solar, for example, I guess that's completely off grid, but again, the problem with solar is you could just, you can survey the ground ...

Hasu:

Yeah , I don't mean that Bitcoin would be covertly mined in the US. I just meant in countries that are okay with it. I meant to say, there will always be countries that will be okay with it. Not just okay with it, but they will actively seed the incentives for these companies.

Mike:

Okay. But it's not distributed, right? Like mining selects for centralization. So centralization of energy, because of the economies of scale, centralization of production ... centralized as in production of chips. It is heavily centralized already. And it's likely that as the margins get squeezed in mining, which it should, because it's a relatively perfect market that, that centralization increases, which is also not good from that perspective as well.

Hasu:

Okay. Just energy itself is just very widely distributed around, cheap energy, especially. So I think even in such a scenario, you can still have a reasonably distributed Bitcoin, even if you imagine, half the countries ban Bitcoin, and half the countries embrace it, then like the mining of it, then you can still ... That's like the new optimum, right, then to just have mining in half of these countries.

Mike:

But all it takes is the US to want it to be destroyed and they will invest in making it happen. Right. That still doesn't really solve that problem.

Hasu:

It's so hard for the US to destroy it ... mining farms in foreign countries.

Mike:

Sorry, not destroy the mining farms, but just destroy Bitcoin by investing in a large "denial-of-service" attack by building their own hash rate capacity.

Hasu:

Yeah. Okay. That loops us back around to like the earlier thing. Yeah. Okay .

Mike:

It doesn't matter the way you cut it, it doesn't really look good.

Hasu:

Yeah. I mean, yeah. It's just what we've talked about already. When you have an attack, I was willing to spend huge sum of money, then you better be ready to also spend a huge sum of money.

Mike:

That's good . I should have opened with that because that's the perfect argument. Thanks.

Hasu:

Yeah , totally agree on that. I just think Bitcoin has these defenders. And the larger it grows, the more people will be incentivized in defending it.

Richard:

So the point I want to make here is that my personal view is that the vision that Bitcoin will become a method of payment, I don't actually see that, just because the countries will have their own currencies for tax payment. And as a result, the fiat will still be used for paying major part of operating expenses at these companies. And as such, I think fiat will still have a dominant status. And then the other point I want to make is just that Bitcoin is not inflationary, it's deflationary, and there are countless historical examples of how countries need to temporarily be able to print money in order to get themselves out of a economic fiasco. So great depression being one of the examples, it's only when FDR took the US off the gold standard and started printing it temporarily that sort of got the economy going. So, I think the vision that Bitcoin is going to be used day in and day out and ultimately be used to remit government taxes or something that's not realistic. And as such, I think Bitcoin will remain a digital store of value, it will still be extremely powerful, but it was just be that. And it will just be like gold and therefore the government will have no incentive attacking it. It would just be whatever it is. So that's the point I want to make. I'm happy to invite any kind of critique on it. And then I have one audience question for you guys.

Mike:

I understand your vision. I think , there are definitely people within the Bitcoin community who would listen to your analysis as the Great Depression and they would grind their teeth. I don't really want to get into the economic argument here, cause there are other ways of interpreting what happened in the great depression where , the printing of money itself was a part of the problem. And that Bitcoin would solve that monetary issue. I'm not supporting that point of view by the way. I'm just saying that it's it's worth airing. but yeah, I think , the issue with even it becomes a store of value , something similar to gold , having an asset like that's able to remit globally , within hours, will still have national security implications. It would undermine the SWIFT network. The SWIFT network is one of the primary mechanisms that the US government uses to enforce sanctions internationally. And so if there was another network that had that capacity to move capital of that size at those speeds, that would still have an implication for national security concerns for the US.

Hasu:

Yeah. I mean, the US also did fine before that was SWIFT. So, I mean, I see it as an asset. Right. But it's not, it's not an asset that, that a country would go to any length to defend it.

Mike:

Mark Cuban actually said that countries have gone to war for a lot less.

Hasu:

Yeah, that's true. I mean, yeah. The US routinely goes to war to defend , I guess the reserve status of the US so that's true. So, yeah, I actually would backtrack on that. So, yeah. it's probably one of the best reasons to go to war. Not that I encourage that, but it's one of the most common reasons for the US to have gone to wars historically at least in the last 50 years.

Richard:

Yeah. Fair points. So let me ask the audience question. This is from someone named Last Token. And his point is on attacking the financial rail. So I know this is a point you already touched upon, but maybe this is just one facet of the sort of attack the government can enact. So, what do you think this attack will look like most likely? And what do you think would be the implication both within the US and internationally, if the government were to just sanction the on ramp, off ramp for Bitcoin ?

Hasu:

Well, you would ban, you could domestically ban Bitcoin. So we are talking domestically now, right. So it's a new band , like Coinbase, and , but also the, like the more decentralized options, like , local Bitcoins and so on. You would probably maybe also criminalize the ownership. And then, I mean, it just depends, right. So, I mean , which people would hold Bitcoin offshore? I don't, people didn't stop holding gold when the private ownership of the board was banned in the US. And just when there's demand for anything, then that's the only really so much that States can do , to subvert that. So, I mean, just look at , Marijuana, for example, like other consumption drugs. So when people continue to demand it, then the re will be a market for it. And , yeah, I mean, maybe even better example now that I think about it, it's just the dollarization of other countries. So you just can't keep people in Argentina and Iran and Turkey and so on from using the US Dollar. It's just not feasible.

Mike:

Can I make just a quick comment on that? Because that comes up quite a lot. The idea that , because there was a war on drugs that failed, therefore the government waging war on criminal activity , can't be successful. So the difference between , organized crime like moving drugs into the US, like that is clandestine operation , that's extremely fragmented, it's physical. There are many properties of that activity as something to govern, which make it difficult to deal with. Bitcoin is an open network that is completely out in the open. And the mechanism that you would use , is what the military would call like the center of gravity. So the bit that everything revolves around it is ultimately this mining mechanism. And that is a permissionless system that is out in the open, it is available to anyone. So I don't like those comparisons because they make like a false, they make a false equivalence between those two different challenges for government in terms of censoring the activity.

Hasu:

Wow really, do think that it's easier to ban, like we are just, we're not talking about mining right now. If I understood the question correctly.

Mike:

Sorry. I was only talking about mining. I wasn't talking specifically about financials.

Hasu:

Yeah. Well , I was only focused on the financial. I understood the question is only if the US bands the financial on- and off- ramps.

Mike:

Sorry. I understood. Yeah . Yeah. I agree with you wholeheartedly. Yeah . I mean, yeah, I'll just kind of agree with you on that point. So, I mean, I agree. The existing frameworks for like anti money laundering law and anti terrorist financing, they exist domestically in most developed economies and they exist internationally through international schemes as well. So there are schemes in place that they could expand to encompass crypto activity if they wanted to, they could use to attempt to suppress activity, but obviously, you know, it's not even going to come close to touching the edges in terms of preventing anybody who wants to operate in the gray or black market.

Hasu:

In my opinion, they don't have to go as far as banning all our firms, just because of all the tools that they already have in place that you mentioned. So this platform performing KYC on like a crypto customer, I read somewhere I'd already crossed like $6 for a customer. So, I mean, it's trivial, you don't have to ban something. You can just jack up the cost to like $10 and then to $50. And then you start doing, like give crypto companies more frequent tax audits and whatnot, and throw like subpoena at them, now and then. There are all these kind of ways, in a very like subvert way to just drain this company, and just make business way harder for these companies to go forward in the regular banking system.

Mike:

The cost of KYC is a bit of a weird example, because, for example, KYC is that's determined by , market actors providing KYC services to these cryptocurrency companies that want to comply with the regulations . So I guess they could artificially get involved in the KYC industry, and fix prices so that they will be higher. But the reason that ...

Hasu:

Yeah, I didn't mean to say they are directly fixing prices. Sorry.

Mike:

Yeah. Yeah. But I mean, I guess they could do that. I mean, but ...

Hasu:

I mean, jack up the costs by making like the requirements stricter and stricter.

Mike:

Oh , they could just tax them, right. They could just categorize them as a category of business and then just require them to pay additional tax that would effect to be of the same outcome.

Hasu:

Yeah. That would be the overt way of doing it. So you could do it in this way, or the very roundabout way, like operation choke point kind of way, where you get like the banks to cut off the business and so on.

Richard:

Great. Well, thanks for your insights, Mike and Hasu, so we have now reached the stage of concluding remarks. We would start with, Hasu just tell us maybe a quick synthesization of your thoughts based on this debate and maybe something you've picked up from your opponent.

Hasu:

Yeah. It was a fascinating debate. I think the most interesting arguments in favor of what I argued, were I think that, the cost of attacking Bitcoin and the reward of attacking Bitcoin have to kind of move together, right? So as Bitcoin becomes more attractive to attack, then also the money that is dedicated at defending it, it also goes up. So like Bitcoin may be relatively, it may be possible to kill it today, but it's also not that high of a priority. So that would be the one point that I would like the listener to take away. And the other is just that nation-states also exist in competition with each other and while some countries may have an incentive to ban Bitcoin, that also creates an incentive for other countries to embrace it. And , I think countries really have at least a fear of being left behind, in both the monetization of new asset class, as well as like the emergence of a new technological wave. So if you missed the internet wave, because you discarded it , then I think that left a huge scar on countries that, that, that didn't take the internet seriously. And that's why you see , basically countries nowadays being very afraid that banning , crypto companies are making the environment too hostile for them could just stifle innovation. And because of how these things are played together, I think, we would probably not see like a deadly attack, like the one-off deadly attack by nation-states on Bitcoin. I just think , we would see the kind of friction that we already have, this kind of soft approach to attacking it, and keeping it small and giving somewhat of a disadvantage in the marketplace against fiat currencies. And , then Bitcoin might either stabilize at some price, or not. That remains to be seen.

Richard:

Okay, perfect. Thank you for that summary Hasu, Mike?

Mike:

So , my summary is basically that I think , there is a 50 pound gorilla in the room that is the US government. They are the incumbent , financial power in the world, they have extremely strong incentives to defend that position for obvious reasons, and I think even if there is international competition, ultimately , the resources internationally , at least when it comes to defense spending, which I think is a good barometer for a country's capacity to invest in , what would essentially a war if it came down to it. I think the US is out-gunning everybody by miles. So , there is , in theory, the US could be , concerned about , pushing innovation away from itself , and see that as an opportunity cost. But ultimately I think , if, when it comes down to it, they know that they have this out, which is to ultimately use their political power internationally, and if needed their resources, to actually actively technologically suppress activity on the Bitcoin network, so as to sabotage it completely, I think because they have that out, it's unlikely that they would hold back on , starting to introduce , types of mechanisms , domestically that would , start to curtail it -- if they felt that it was becoming a threat to national security. And I think the biggest defense that Bitcoin has enjoyed for the last 10 years is that it isn't taken seriously as a threat to that power. And if, and when it does, I think the game will change and that , those forces will come into play. Just to finish everything I've been saying, I mean, I kind of said it at the start, but I want to reiterate it like this is in no way as a sort of anti Bitcoin rant. I don't want these things to be true. I'm just sharing what I think is a fairly objective analysis of, and just being realistic. And ultimately if Bitcoin wants to be viable, at least in my opinion, these things need to be taken more seriously by the community and a lot more work needs to be done to figure out what's what the defense would look like in that worst case scenario. So what does the network do? What does the bunker mode look like? All of these things need to be kind of taken out of the domain of hand-waving and people need to tackle them more seriously and think about how Bitcoin would mitigate those kinds of attacks.

Richard:

Sounds good. Yeah. So if we want to take that, be that change you want to see in the world mode. I think if we want to look at things that we can do to sort of prevent that scenario from happening, then things like better PR bunker mode, things like better lobbying getting quote unquote, VIP, more interested in crypto. So that would be your mainstream politicians, business executives, financiers, and so on. And at that point, Bitcoin , so entrenched into the system, that it no longer is easy to obviate.

Mike:

That's it, get the Man involved, get the Man involved, what could go wrong?

Richard:

I realize what I'm saying, sort of goes against the ethos.

Mike:

Yeah. It was very different 9 years ago in the pub. No one really was talking about that, but I guess times change.

Richard:

Yeah. Okay, cool. Well, it was great having you guys on, so how can our listeners get in touch with you guys?

Hasu:

Oh yeah . Just follow me on Twitter. The link will be in the show notes.

Mike:

Yeah. So for me, @mikekelly85 .

Richard:

Great. Thank you. So listeners, we would love to hear from you and to have you join the debate via Twitter. Definitely vote in the post debate poll. Also feel free to leave your comments. We look forward to seeing you in future episodes of the blockchain debate podcast. Consensus optional, proof of thought required. Thank you guys!

Mike:

Awesome. Thank you so much.

Hasu:

Yeah. Thank you. I listened to two episode, apparently , for this, and they were not nearly as, they had nearly as much back and forth as we had to do. I take that as a very good thing.

Richard:

Thanks again to Mike and Hasu for coming on the show for this fascinating and thorough discussion. In conclusion, to expand on a thought I expressed during the recording, despite verbal threats from certain state leaders, Bitcoin might not have made enough of a dent to be on the radar of serious state attackers. At the same time, we're seeing more and more movers and shakers in the old world adopt a Bitcoin friendly tone. Examples include US Senator Loffler from Georgia who previously ran Bakkt; crypto-friendly governors of the state of Colorado and the state of Wyoming; Coinbase Chief Legal Officer now is second-in-command at the OCC; Hedge fund manager Paul Tudor Jones; Tech execs like Peter Thiel and Jack Dorsey. And the list goes on. The adoption by the social elite and wealthy class will serve as headwind for any state effort to undo Bitcoin adoption. Anyway, what was your takeaway from the debate? Don't forget to vote in our post debate Twitter poll. This will be live for a few days after the release of this episode and feel free to say hi or post feedback for our show on Twitter. If you like the show, don't hesitate to give us five stars on iTunes or wherever you listen to this and be sure to check out our other episodes with a variety of debate topics, Bitcoin's store of value status, the legitimacy of smart contracts, DeFi, POW vs. POS, and so on. Thanks for joining us on the debate today. I'm your host Richard Yan. And my Twitter is @Gentso09. Our show's Twitter is @BlockDebate. See you at our next debate.