WhiteSites Blog
WhiteSites Blog
When I first started to get into crypto, I had similar feelings about it as others. That the government would shut it down. Then a friend of mine asked how would they do that. When he explained to me how bitcoin really works it made it me realize that the government can't shut it down. But that doesn't make bitcoin immune to bad actors.
In this blog I will go over a few of the ways people think bitcoin could be destroyed, and how it could actually be destroyed. Taking down bitcoin is possible, but not in the way you think.
This is not possible. Bitcoin is not run by a single computer. But by thousands of computers. These computers are also all over the globe. You would have to take down every computer running a bitcoin node at the same time. If just one of these computers stays online then bitcoin network is still alive and well. Bitcoin does not require massive servers. It could even be run on a raspberry pi. Cutting the power or data connections to bitcoin nodes would also do no good. Some of course would have backup power and or redundant carrier lines.
Ok so you plan on shutting down all the bitcoin ATMs, and exchanges. This would hurt the liquidity of bitcoin, but it would not shut it down. Bitcoin would still be operating somewhere, and by using some proxies I am sure you could get around any blocks the government trys to put in its place.
This would prevent larger operations from legally running Mining Farms. But as we have found in China where the government banned bitcoin mining. The people will always find a way. People have found creative ways to run their mining rigs in the basements of factories, where they would run undetected. Also you won't be able to stop some gamer from using their RTX 4080 to mine crypto when they are not playing games.
Bitcoin has to be destroyed within. This also would only work if the developers that maintain the code did not impliment a fix. First understand that on average every 2 weeks Bitcoin's difficulty is readjusted, taking into account the current hash rate of the network. Bitcoin's goal is for the average block time to be 10 minutes. When the network gets faster blocks are mined faster than 10 minutes. Then at the end of this 2 week cycle. A difficulty is adjusted to make it harder to mine blocks. If some of the miners drop off, and it takes longer to mine blocks, then after 2 weeks the difficulty is adjusted to make it eaiser.
Killing bitcoin is not a matter of taking down the network. Its just a matter of destroying it confidence. If a person has their bitcoin in their wallet and they want to sell it, they would need to transfer it to an exchange. In any other market based transaction like this, it might take a day or two to wire the money to your bank, but with bitcoin they can only handle 1 MB of data in each block, which limits the number of transactions that can be processed at once. In a perfect normal world, you could pay a small fee, and have your bitcoin at the exchange in an hour or less. But lets say its not a perfect world. What if the miners are taking a very long time to find a block. At that point the transactions in the mempool start to pile up. The fees to get your transaction in the next block also start to rise. Now lets say no blocks have been solved in a couple days? At this point people start to get really nervous. Their money is stuck in bitcoin and they can't get it out. This would create a crypto style run on the banks.
For such a senario to happen, a person, group, or nation state, would need to aquire some very fast miners. We are talking 100x faster than the entire network combined. Think DOD configures some theoretical quantum computers to mine bitcoin. Immediately after the network reset's its diffcultly. This group would start mining. But instead of taking 10 minutes, they are solving blocks in 10 seconds each. They solve just about every block for the next 2016 blocks ( number of blocks between difficulty resets ). Then before they solve the last block, they sell all the crypto they have mined, and stop mining. At this point the difficulty reset happens, and it increases the difficulty so high that even the DOD mining operation would take 10 minutes to find a block. But the DOD has stopped mining leaving the rest of the world which had only 1% of the DOD's hashing power to mine blocks. It now takes 1 week to find a single block which normally would take 10 minutes. At that point most major mining operations shut down, as its no longer profitable to mine. This further hurts the situation as now with most major mining farms shutting down, there are even less miners to solve blocks. At this point everyone's bitcoin is stuck, the network grinds to hault. All confidence is lost in the network, and with it the value of bitcoin drops to 0.
Now before you run off and sell all your bitcoin in fear of such a senario. This all assumes that the Bitcoin developers do nothing. Its possible that with the network in this kind of state they could impliment a fix, to get the network back in good health, but if they do nothing the damage would be done. So for anyone who things bitcoin is immune. There are ways it can fail, but these are more plots for SciFi Thrillers than real life.