Bitcoin & Gresham’s Law & Botnets

Philipp Güring and Ian Grigg have e-published Bitcoin & Gresham’s Law – the economic inevitability of Collapse (PDF):

Abstract. The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result is a breach of Gresham’s Law: stolen electricity will drive out honest mining. This has unfortunate effects for the stability of the Bitcoin economy, and the result is inevitable collapse.

via Financial Cryptography.

Previously: Checking In With Bitcoin (10/25/11).

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One Response to Bitcoin & Gresham’s Law & Botnets

  1. This paper is a joke.

    How does the fact that botnet operators may be illegally profiting by mining bitcoins miraculously turn into Federal prosecution of all Bitcoin users? That’s a major stretch right there.

    Further, how does federal prosecution of all Bitcoin users create a collapse of the currency? Bitcoin is international, so it would take international cooperation between all nations to even come close to making a ban effective.

    Further, if botnet mining is so profitable, why isn’t it being done in large right now?

    The Feds might be able to shut down domestic exchanges, but they are going to have a hell of a time stamping out the currency. Bitcoin trades would simply move to anonymous websites and be conducted in an over-the-counter type system if the exchanges got shut down. If an exchange got shut down in country A, people could simply transfer money to country B and use an exchange there to acquire coins.

    Efforts to stamp out the currency would work about as well as the drug war has worked stamping out drugs. Because there is a market demand for anonymous digital currency, the market will provide a means of acquiring it.

    Further, botnet operators who mine bitcoins run the risk of destroying their own botnets because of the massive resource consumption that mining exerts on a users machine. Botnets rely on users not discovering that their system is compromised. Users who have active mining going on would most certainly notice the fact that something wrong is going on with their machine.

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