I’ve been flailing recently on twitter trying to point people’s attention to attack vectors in Bitcoin, which have more clearly revealed themselves in light of the western world’s descent into tyranny. Below, I further shed light on my perspective and provide some solutions.

My intention is not to FUD or concern troll. I’m simply here to work towards a future where truth and goodness emerge from sound money and free markets. All of the wonderful things Bitcoin offers only come about if we keep its monetary principles and network integrity intact.

The rhetoric from those that control the apparatus of power and influence in the US and EU has become increasingly hostile. This signifies new territory in Bitcoin’s adoption cycle. We are in the “then they fight you stage” and western nation states will be a formidable menace.

Governments are making their moves and positioning themselves to clamp down through regulatory controls. Bitcoin exchanges, mining operations, and pools will face incoming regulatory pressure. In fact, all companies which have a presence in the West will face a new top down regulatory landscape.

It would behoove those who have an interest in Bitcoin succeeding as a global sound monetary system to take these threats seriously, pay attention, and think of the ways in which they can be mitigated. Bitcoiners need to take action and make the necessary adjustments to strengthen the network for the upcoming regulatory battle.

Regulation and its impact on mining

Many Bitcoiners will say regulation won’t affect their node and the software they run. They’re right, but on a practical level regulation from hostile nation states has the potential to significantly stifle the ecosystem and prolong the transition towards a sound monetary system.

Bitcoin mining is particularly susceptible. In North America, the trend in mining is towards centralization. Large corporate mining farms the length of two football fields with racks 30 feet high are being built to harness excess power from the grid. The sheer size and scope of these farms make them completely exposed to regulatory co-option.

Bitcoin hash rate doesn’t have to come under the control of the government directly; it could come by regulatory proxy. The diagram below is from a report on a MIT project called ChainAnchor from 2016 which outlines one of the mechanisms in which miners could go about creating “whitelists” and “blacklists”. These lists would effectively create a registry of government approved transactions for the mining farms to include in blocks. I’m willing to bet they haven’t given up on the idea.

The counter argument I hear to this is miners will just pick up and move to other jurisdictions to avoid these regulations. This viewpoint ignores the huge sunk costs of initial capital expenditures, transportation, and downtime. It also dismisses the fiduciary duty these corporations have towards shareholders.

The hard truth is mega mining corporations will not only bend the knee to regulations, they will actively seek them out. This happens in every industry with economies of scale. Large players always create a regulatory moat to keep competition out. 

You may be thinking that corporate miners will lose out on fees from non-approved transactions, this is true, but these corporate miners will effectively be in a partnership with the government. Favorable treatment such as subsidies, tax breaks, and tax credits will make up for any fees which they forgo by mining regulatory compliant blocks.

It has been said that nodes would reject blocks from corporate miners, but this ignores the rest of the network including all major exchanges and institutions. They still hold all the economic gravity. Nodes will either accept their block or you’ll be on the minority side of a chain split.

To quote @martybent in his recent article This is what a real attack on Bitcoin would look like:

“this could be bitcoin’s first true existential crisis. It would make the fork wars of 2017 look like a three-year old soccer league. Having nation states put this type of pressure on businesses is a massive test.”

Changes in the regulatory landscape

In a free market, Bitcoin will outcompete all Government currencies, but we don’t live in a world of free markets, we have to contend with nation states, and they are more than eager to interject themselves in other people’s business. The entire purpose of Bitcoin is to challenge the central banks monopoly on money printing. It shouldn’t be a surprise governments won’t take kindly to this.

Regulation is not here yet, but we should not underestimate how fast that can change. We live in an era of narrative driven crises . It’s not hard to imagine heavy handed Bitcoin regulations will be presented as a “reasonable solution” in reaction to any that arise. This will be particularly persuasive in the aftermath of a ‘climate crisis’ or ‘cyber pandemic’.

https://www.youtube-nocookie.com/embed/kvP3sYfb-KY?rel=0&autoplay=0&showinfo=0&enablejsapi=0

You don’t have to take my word, this battle has been predicted decades ago in the book “The Sovereign Individual”. The old guard doesn’t like young bucks moving into their territory and claiming it for themselves. We should expect every point the network interfaces with the legacy fiat system to be attacked via regulatory controls.

Solutions:

• Orange pilling nations in jurisdictions outside the western world.
• Build out privacy tools and circular economies
• Initiatives that distribute and decentralize mining. 
• Decentralize mining pools.
• Political coalitions.

Nation State Orange Pilling

The network needs more countries embracing Bitcoin in the same way El Salvador has. This will distribute mining globally away from the western world and lessen its influence. What @Excellion is doing is a good example of the effort it will take.

As individuals, we are incredibly powerful. Do not underestimate your butterfly effect. A surfer turned a sleepy beach town in El Salvador into a Bitcoin economic zone, which has now morphed into a full fledged international monetary movement. This is the time to try big things.

Privacy tools 

Bitcoiners should support and actively use privacy tools. The open ledger of the blockchain becomes a major liability when operating in an adversarial environment. I understand the trade-off, transparency is needed to verify the supply cap and ensure the network is acting honestly, but that doesn’t change the fact that privacy was always a hurdle we would have to overcome.

Nation states with their corporate partners have effectively weaponized the transparency of the blockchain, and are using it as a tool of financial surveillance. Until we’ve exited fiat completely, this is a huge obstacle in its use as censorship resistant money.

Most of the issues stem where the Bitcoin network interfaces with the fiat legacy system. In particular, exchanges where KYC is required create the risk of having your coins identified and put in a registry.

The Bitcoin vision shouldn’t involve it existing with fiat third party rails as an intermediary. We are in a transition period where we’re going to have to maneuver carefully, and privacy tools are going to play a huge role in doing so effectively.

Circular Economies

Another solution to privacy is to create circular economies. The whole point of Bitcoin is to be peer-to-peer. In El Salvador, one can transact on-chain or on lightning with a large spectrum of the economy. It’s a closed loop where businesses accept Bitcoin directly, just like they would with cash, and avoid a lot of the privacy concerns created by KYC regulatory requirements.  

Building a parallel economy that operates on-chain or on lightning gives those that want to live outside the current fiat surveillance system the ability to do so, and starts the transition to an economy built on a Bitcoin standard. Orange pilling businesses to accept Bitcoin and stay in Bitcoin, as well as spending your coin when you have the ability to do so, are vital initiatives to the health of the network.

Decentralize mining

Plebs should take it upon themselves and get into mining . As @SGBarbour points out in his substack post “The Elephant in the Grid”, having a distributed network of plebs mining is a heck of a lot harder to control than centralized mega mines.

Making mining more accessible to your everyday laser eyed maxi is going to be key in distributing and decentralizing mining. Initiatives like the Blackbox is a cool project in the right direction. 🏔Adam O🏔 @denverbitcoinThe 28-inch #BlackBox makes it realistic to mine #bitcoin at home w/o the nightmare of dedicating indoor space & solving for ventilation. Can’t wait to show you all the 48-in/96-in industrial models 🔥 It’s an honor to be a part of the creation + production of this product! 🔊 March 7th 202216 Retweets184 Likes

Orange pilling your local utility company is going to be another key initiative. On grid mining can be spotted by energy usage. Developing relationships with municipalities and energy providers will help in creating a cooperative environment for independent Bitcoin mining. 

The best solution to mining centralization is to have more development in small scale distributed off-grid mining. Currently we’re seeing that happen by tapping natural gas flares. This allows miners to utilize otherwise stranded or wasted energy and convert it into has power. Not only does this add to the security of the blockchain, but it also adds to the robustness of the network by bringing miners off a regulated grid and to a more independent environment.

Decentralize Mining Pools

Mining pools are important to independent miners, but currently they serve as a point of failure. Centralized pools will come under regulatory pressure, which will create additional hurdles and restrictions for small scale independent mining. To the extent that mining pools can be decentralized, it should be considered an initiative that will strengthen network integrity. @brian_trollz wrote an excellent piece that explains the problem and possible solutions in more detail you can find here.

Political coalitions

I’m not a fan of national politics. It feels far removed from any accountability to the people, but as far as you think you can influence what comes out of DC any resistance to the coming regulatory crackdown is welcome. Ultimately, I think we can only slow the inevitable, but having people on the federal level advocate for Bitcoin to remain free of harmful regulations can’t hurt. 

A better approach in my opinion is local initiatives. We are seeing a trend towards states and counties reclaiming their sovereignty and asserting their independence. Orange pilling local governments can provide valuable barriers to encroaching federal regulation. @LibertyBlitz  wrote a series that describes the process and its benefit that is well worth the read. You can find it here.

To conclude

I’m interested in Bitcoin for its potential to reorient civilization to an existence rooted in truth. If adoption comes at the cost of that goal all the “Number Go Up”  euphoria means nothing and most of what gives Bitcoin value will be lost.

The Bitcoin protocol may be unstoppable. The honey badger is indeed durable and tenacious, but in practical terms it can still be limited in its potential impact in shaping the world. Our biggest tests stand before us.

The control of money is a great power. Those who wield it won’t give it up easily. We should not be naive about that. To the extent they can stop it, they’ll try. To the extent they can co-opt it, they will try.Patrick Bet-David @patrickbetdavidOnly the paranoid survive. Always trust the enemy will do everything it can to slow down your progress. The enemy of Bitcoin = traditional investors heavily relied upon fiat currency + law makers. You need true believers in office. The war hasn’t begun yet. MAX💙🇸🇻 @maxkeiserI was on @patrickbetdavid trying to 🍊💊 him with #BTC at $8,000 then POMP went on around $20,000 now Saylor is trying at $40,000 At what price will this guy capitulate? https://t.co/3twRr8a6usMarch 7th 202211 Retweets112 Likes

Ultimately I feel the Bitcoin system of sound money will prevail, but the length of the struggle to get there will depend on our actions today. Running a node and sitting on our butts won’t cut it. We’re going to have to take active measures to strengthen the network.

“Like it or not, everything is changing. The result will be the most wonderful experience in the history of man or the most horrible enslavement that you can imagine. Be active or abdicate. The future is in your hands.” ― Milton William Cooper, Behold a Pale Horse

We’re entering a chaos phase where changes will happen rapidly and at times life will become disorienting. Bitcoin just needs to make it through with its monetary principles and network integrity intact and it will have won. We can celebrate on the other side, but right now we have work to do.

This article is written by Michael Ruiz and first published on substack