Daniel suggests a nation state could buy enough bitcoin to price out all legit use of the network for a month or 20 by just pegging the fees above $100/tx.
https://twitter.com/csuwildcat/status/1655399304268218369
How realistic or damaging is that? What would happen?
So miners would be happy and expand their capacities for sure but would the price crash? Would adoption drop?
Doubt a nation state would buy at market rate. It would have a longer term purchase plan or some bulk OTC order that didn’t move the price much.
There is a lot of bitcoin on exchanges, enough to easily satisfy billions in purchases.
This attack requires the attacker to buy billions of dollars worth of bitcoin and believe it is worth more to them to burn it in fees than to hold it. This attack strategy will not only cause a massive price spike in #bitcoin spot price but also make miners incredibly rich. This sudden increased profitability will incentivise more miners to enter the market. Increased spot price usually causes retail to enter the market too. Increase news cycle, increase adoption. It sounds like an accelerant to hyperbitcoinization.
Combine these upsides with the fact that the attack would be temporary and I don't see it as a very effective strategy at all.
So that supposed government would have to get BTC at some point. If they speculate BTC to crash in value - after all that is the goal of the attack - they would probably not buy a stash up-front but buy BTC as needed to sustain the attack.
With 4500 tx per block, fees per block would have to be at least $450k.
A significant part of these $450k would have to come from the attacker as it would have to assume that if legit use priced the attacker out, the attack would not be an attack anymore. If 99% of the transactions paid more than $100 in fees, the attacker's transactions would be irrelevant to the mempool and the attacker would have to further up the fees.
A necessity for winning would be that the attacker's transactions would dominate the blocks.
As the attacker is primarily concerned with keeping the fees up - with paying high fees - it could buy its Bitcoin from small sellers assuming at least part of the fees. All the small holders would send their BTC directly to the attacker.
But Bitcoin wouldn't go away. LN would boom. Custodial LN for sure but also Chaumian mints and slightly bigger pockets will maintain their own channels.
This Satoshi guy knew Game Theory well. Almost unbelievably well.
And the adoption curve has been perfect so far as well. Harder to kill over time.
With a printing press, sustaining such an attack is possible. It's $2B/month for a $100/tx price level.
Which level would be too expensive for the printing press though? Cause $100/tx is what I expect in ten years anyway even without any such attack so artificially bumping it to that level now, might just push the development of LN and other layer two solutions.
The profitability to mine will usher in new miners, which will increase network security, which will make #bitcoin more valuable.
From a usability perspective, it will drive more users to layer 2 technologies such as Lightning and Fedimint, thereby driving innovation and opening up new markets, which will also make #bitcoin more valuable.
The genius of Satoshi is playing out in real time 🍿
This would simply push the market towards LN. A $100/tx fee is only a 0.3% if you open a 1 BTC channel. So we all just wumbo and win. Bitcoin is anti-fragile.
Not damaging, if LN keeps expanding.
Daniel replied on the Dog-app and with the feedback here, my conclusion is that such an attack on its own would probably be good for Bitcoin.
* Low stakes Bitcoiners would temporarily lose access to their on-chain funds but they don't dictate the valuation of BTC.
* Miners would have an extra $4-$10 billion, part of which would flow into the development of solutions to prevent their livelihood from failing.
* Low stakers would use custodial lightning. Most already have their funds on exchanges or apps that don't even let them send/receive BTC.
* Whales would run LN nodes and probably let friends and family use them, too.
All the above is bound to happen anyway, except for the low stakers suddenly not being able to use their $100 in holdings.
