There was a recent comment by Joseph Stiglitz in which he expressed his desire to “shut down the cryptocurrencies”. This prompted me to seriously consider how one would go about shutting down or seriously damaging Bitcoin. This is not an easy problem because Bitcoin is designed to be a remarkably resilient system, however, I do think with coordinated international action a significant amount of damage could be done. My proposed plan relies partially on how Bitcoin does difficulty adjustments.
Every 2016 blocks (~2 weeks) the difficulty of Bitcoin mining adjusts so that blocks continue to come approximately every 10 minutes. This is important because the hashrate dedicated to mining Bitcoins has varied significantly over time, and so this helps keep block time relatively stable. However, major swings in hashpower can significantly change the time between blocks.
Furthermore, it is important to remember that Bitcoin mining tends to run with a pretty narrow profit margin, and as such major swings in price can significantly affect the profitability of miners on the network.
So knowing these things, how do we attack Bitcoin? Step 1 is to start buying up old mining hardware. Because mining demands a high level of efficiency to be profitable old generations of miners are rapidly abandoned as miners with access to more efficient technology can reap larger rewards. However, if you do not care about profitability you can acquire these miners. Now make sure you keep them off the network, you do not want people to know that you are acquiring hashpower as it would cause suspicion. Right after a difficulty adjust bring all of your hash online and wait until the next difficulty adjustment.
The next step is to try to negatively affect the price as much as possible in as short of a time as possible. These steps need to occur right after the difficulty adjustment after you brought your hash online. You will accomplish this price with drop with two primary techniques. The first, as a major state level actor you have seized and safeguarded Bitcoin and other cryptocurrencies in the normal course of law enforcement actions. You will now sell it all, or as much of it as humanly possible. Instead of trying to maximize your potential monetary gains from these sales you will instead try to sell them on the lowest liquidity places you can access, with the goal of throwing off indices and inciting further selling from major holders. While you are doing this you will simultaneously try to pull a major source of liquidity from the market. If there exists for example a poorly regulated exchange and stablecoin who combine for a significant portion of the liquidity in the market you will seize them right as you begin to sell. Allow as many people as possible to stampede for the exits.
Now we must do everything we can to reduce hashpower on the network. Turn off all of the hashpower you brought onto the network, and simultaneously coordinate with China to convince them to cutoff as many of their miners as possible. Seize any mining hardware you reasonably can and keep it off the network for now. This drop in hashpower, combined with a major drop in price will cause many previous profitable miners to now be mining at a loss. Many will choose to turn off their machines rather than lose money continuing to mine. The lower the hashrate goes here the less usable the network is. Block times will lengthen and people will grow increasingly frustrated and apt to sell, perpetuating the cycle. Whenever anyone sells mining hardware buy it.
Now you wait for the next difficulty adjustment. This will take longer than it normally will because the time between bloks has vastly increased. However, Bitcoin is a stubborn beast and there are likely some people who have isolated themselves reasonably well from state intervention and will mine to keep it alive. Once the difficulty adjusts again, you will again deploy your hash which should now be even more. If you control the majority of hash you will mine empty blocks making the network entirely useless. The only transactions you will allow through are those meant to help you sell your block rewards. You will sell your entire block rewards with the goal of continuing to push the price even lower.
If you do not control the majority of hash, but do control >25% you will selfish mine and continue to try to identify other miners on the network and seize their hardware.
Regardless of whether or not you are controlling the majority of the hash the next difficulty adjustment should come quick, in less than two weeks. Again you will withdraw your hash and let block times lengthen, but now transactions will be going through, giving desperate people a chance to sell.
Lather, rinse, and repeat. Eventually you will control the majority of hashpower and once this happens you will force the community to make incredibly tough decisions. These could include changing the hashing algorithm or changing how difficulty adjustments work. These decisions are likely to be contentious and will therefore further fragment the community. If these contentious issues result in forks you will see people on each side of the fork trying to dump the other side of the fork, further depressing the price. Even if some vague semblance of a Bitcoin is left standing after this attack it will be a shell of its former self and you will have demonstrated to people that it is more vulnerable than they have ever believed. Enjoy your continued monopoly on money printing.
Note: Typos have been fixed from an early edition of this article
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