Cyber Security

Bitcoin and by extension, Bitcoin mining, face cybersecurity challenges from both nation states and cyber criminals. As we will explore in detail in a later blog post, governments derive power from their monopoly on the issuance of money. And as the world’s leading non-sovereign currency, Bitcoin arguably represents a threat to this crucial aspect of state control.

From a cyber perspective, governments have several potential tools at their disposal to arrest Bitcoin’s continued adoption. One possibility is to shutter the data centres of major miners through a state-sanctioned cyberattack (likely through a third party for deniability).

Another option is a sustained ‘51% attack’, which could allow a government to censor new transactions or reverse completed ones, undermining confidence in the Bitcoin network over time. The top four mining pools account for more than 51 percent of Bitcoin’s hash rate – a level of concentration which makes these attacks theoretically possible, even if operationally difficult to execute.

A more credible threat is a government (or coalition of governments) banning all cryptocurrencies on the rationale that they play an essential role in facilitating cybercrime. Bitcoin, particularly, is a practical and cost-effective option for cyber criminals to facilitate darknet transactions, conduct ransomware attacks or launder proceeds of crime, given its

anonymity, ease of use and ability to circumvent national boundaries.[4] Illegally generated Bitcoin wealth may already be allowing criminals to outspend even the best-funded security firms and government agencies, helping perpetuate ever greater incentives for cybercrime.[5]

Like any financial instrument, Bitcoin can be used for legitimate or illegitimate reasons. A compelling counter argument is that Bitcoin’s immutability provides an unmatched opportunity for governments to track criminals as they move around the web. As a result, authorities might be able to come back in five years’ time to prosecute criminals conducting ransomware attacks today.[6]

Finally, Bitcoin’s increasing acceptance as an asset class by Wall Street makes it difficult to see how a democratic government would ever be able to muster the political capital to ban an asset worth US$713 billion (as of 4 August 2021).