How Governments Can Try To Undermine Bitcoin?

9 minute read

Posted by: Doug Roberts July 14, 2014

It could be argued that the government’s ability to issue, control and tax a nation’s currency is necessary in order to maintain control and power over that nation. Bitcoin’s decentralized nature effectively dismantles that power and control structure. If Bitcoin were to become, for example, the default internet currency, it could – from a governmental point of view – be seen as a direct threat to their power and control structure, along with the economic security of the U.S.

History shows us that if a government feels threatened by something – particularly the U.S. government – a number of tactics can be used to undermine that perceived threat. In the past, these tactics have included waging preemptive war under false pretenses, intentionally destroying reputations using covert tactics, and launching all out cyber attacks against the threat.

The point is, being the most powerful nation in the world, if the U.S. government is worried that Bitcoin is a threat to its power and control structure, or worried that Bitcoin could destroy the U.S. economy, a number of tactics could be implemented to undermine the cryptocurrency.

The Federal Reserve said that they do not have the power to regulate Bitcoin in any way. This means that they can’t regulate the Bitcoin protocol or network itself. There are, however, various restrictive regulatory actions that could be taken to attempt to prevent the use of Bitcoin by citizens and companies. How effective such regulation would be at preventing people from using Bitcoin is up for debate.

If Bitcoin was determined to be a threat to the economic welfare of the U.S., an executive order similar to the one passed in 1933 by Roosevelt could be issued. This executive order, titled Executive Order 6102, officially forbid “the hoarding of gold coin, gold bullion, and gold certificates within the continental United States,” effectively criminalizing the possession of monetary gold. The reason for this being signed into law was due to gold hoarders “stalling economic growth and making depression worse.”

Laws could also be passed prohibiting companies from associating with Bitcoin. For example, if banks are prohibited from interacting with Bitcoin exchanges, Bitcoin growth would be significantly stalled in the U.S..

As demonstrated by the Snowden revelations, the U.S. government can get away with just about anything if they claim they are acting to protect the nation from terrorism.

Considering the known collusion between nearly every major tech giant and the NSA, the NSA could conceivably demand that Bitcoin developers and organizations work at the behest of the NSA. By serving Bitcoin developers and organizations with National Security Letters, the NSA could legally require a number of detrimental acts be committed to undermine Bitcoin. Possibilities include inserting backdoors into Bitcoin exchanges and applications, or even demanding that all Bitcoin related operations be shut down, in the interest of national security, of course. If someone refused to comply, they would face serious jail time.

A recent Pentagon memo stated, “The introduction of virtual currency will likely shape threat finance by increasing the opaqueness, transactional velocity, and overall efficiencies of terrorist attacks.” It’s common for those in power to use crisis situations such as terrorist attacks to further political agendas. A good example is the 9/11 terrorist attacks and the ensuing invasion of Iraq and Afghanistan – two countries who had little to do with the attacks. The 9/11 terrorist attacks also provided the U.S. government the chance to pass constitutionally detrimental laws such as the Patriot Act and National Defense Authorization Act, and justified the NSA’s domestic surveillance program under the guise of protecting the population from terrorism.


If the government wanted to discredit Bitcoin and/or enact widespread bans on the use of Bitcoin, it’s conceivable that they could use a terrorist attack to their advantage by claiming that Bitcoin was used to fund the terrorists. If the public believes that Bitcoin has a clear association with terrorism, many businesses will disassociate themselves from the cryptocurrency. Banks would then have the ability to, or may be forced to block all Bitcoin related transactions. Anyone associated with Bitcoin could be considered to be aiding terrorists. In what’s referred to as a false flag attack, the U.S. government could even engineer the terrorist attack themselves, blame it on radicals funded by bitcoins, and then work to dismantle support for Bitcoin. Such covert attacks have a documented use throughout history to further political agendas. But they wouldn’t even necessarily need to associate Bitcoin with a terrorist attack. The U.S. government or their allies could simply claim, or use covert PR to claim that Bitcoin is being used to fund terrorists worldwide. Such claims are difficult to disprove, and over time, Bitcoin could become known to the general mainstream media-watching public as the currency that funds terrorists.

One suspicious article titled “Global Jihad Could Be Funded With Bitcoin” was recently published by Britain-based Sky News, and spread widely throughout the media. The article stated, “A new blog associated with the Islamic State in Iraq and Syria (ISIS) has said that bitcoin could “enable jihad on a large scale.” The problem is, there is no proof that this blog is associated with ISIS. For all we know, any number of people aiming to discredit Bitcoin could be behind this WordPress blog. Critics have pointed out how the blog, while seemingly directed towards Muslim terrorists, is written in English, as if crafted for a Western audience, also pointing out that many common Muslim terms are defined in the footnotes, which seems odd. It seems somewhat suspicious that pro-ISIS blogger would use English to try to convince his muslim terrorist friends that they should use Bitcoin. Many in the Bitcoin community believe the blog post and article are fabricated hit pieces designed to discredit Bitcoin by associating it with terrorism.

Another possible method that could be used to undermine Bitcoin is through the use of propaganda. The U.S. government has a documented and self-admitted history of maintaining close relationships with various media agencies and journalists, and these relationships could easily be leveraged to discredit Bitcoin. Operation Mockingbird was a famous CIA operation that worked to spread propaganda through various media outlets. The CIA admitted during the Church Committee hearings in 1975 that they pay-rolled a network of several hundred journalists who worked for national news agencies such as the Associated Press and UPI. It was also revealed that the CIA employed journalists who worked at various national TV news stations.

In her book “Static,” Democracy Now host Amy Goodman talks in detail about the close relationships maintained between the government and media. Starting in 2002 various governmental offices began creating feature news reports promoting the Bush administration’s accomplishments in Iraq and Afghanistan, along with promoting the case for war. “The videos cleverly disguised their origins, offering journalistic-like narration and sign-offs,” wrote Goodman. The U.S. government then distributed these videos around the country and world, where various media outlets ran them, often without identifying that they were created by the U.S. government.

It’s also been revealed that various U.S. government agencies operate networks of sockpuppet accounts on various internet websites, including most social media sites, which are used to spread propaganda.

In addition to a widespread network of sockpuppet accounts, Snowden leaks revealed that another U.S. agency named the Joint Threat Research Intelligence Group actively “manipulate and control online discourse with extreme tactics of deception and reputation-destruction.”

Glenn Greenwald reported:

“Among the core self-identified purposes of JTRIG are two tactics: (1) to inject all sorts of false material onto the internet in order to destroy the reputation of its targets; and (2) to use social sciences and other techniques to manipulate online discourse and activism to generate outcomes it considers desirable. To see how extremist these programs are, just consider the tactics they boast of using to achieve those ends: “false flag operations” (posting material to the internet and falsely attributing it to someone else), fake victim blog posts (pretending to be a victim of the individual whose reputation they want to destroy), and posting “negative information” on various forums.”

That being said, it’s easy to see how the government could use propaganda and other covert manipulation tactics to undermine Bitcoin. They could quite simply use the media, their internet propaganda techniques, and carefully crafted PR campaigns to assist them in their efforts. Media agencies could be advised not to report on Bitcoin, or could be fed carefully crafted propaganda pieces aimed to discredit Bitcoin. Widespread misinformation could be posted to the internet about Bitcoin. The government could even hire influential economists to spread misinformation.

In what is referred to as COINTELPRO, government agent provocateurs could infiltrate Bitcoin communities and stir up controversy or commit illegal acts. They network their way into all of the big Bitcoin organizations such as Blockchain, the Bitcoin Foundation, Coinbase, etc. These agents would actively work to corrupt the Bitcoin protocol and community. Some agents could even work as developers who purposefully release flawed software or install malicious code into software associated with Bitcoin.

Even government-backed cyber attacks against the Bitcoin network should not be ruled out. The Stuxnet computer worm which destroyed nearly one-fifth of Iran’s nuclear centrifuges is widely believed to have been created and deployed by the United States and Israel. The worm is considered by experts to be the “largest and costliest development effort in malware history.”

Perhaps the biggest security threat to Bitcoin is a 51 percent attack, in which the attacker can “for the time that he is in control, exclude and modify the ordering of transactions. This allows him to: Reverse transactions that he sends while he’s in control, prevent some or all transactions from gaining any confirmations, and prevent some or all other generators from getting any generations.”

The U.S. government could conceivably covertly highjack, or hack into, a large Bitcoin mining pool and use their super computing power to conduct 51 percent attacks against the network. Large scale DdoS attacks could also be conducted against mining pools with the intentions of taking them offline indefinitely.

Another potentially useful tactic to kill Bitcoin would be to spend time mining and acquiring large amounts of bitcoins, which could then be used to manipulate the market into oblivion. Or the government could acquire a large amount of bitcoins and hold on to them indefinitely, which, if they decide to work with the Bitcoin technology instead of against it, could place them among the most influential and powerful bitcoiners.

Considering the technological breakthrough that is Bitcoin and the block chain, I personally believe that the U.S. government will attempt to incorporate Bitcoin and its technology into their existing system. It seems that they have more to gain from figuring out a way to use this innovation to their benefit, rather than wage a war against it. However, the above scenarios are absolutely within the realms of possibility.

Updated: 2014-07-14