Bitcoin Expert Explains How and Why Governments Might Censor Apex Crypto
Giacomo Zuco, a famous Bitcoin BTC/USD maximalist intimately familiar with blockchain network infrastructure, offered his perspective on the world’s first cryptocurrency and how governments around the world could shut down or limit its operation.
What happened: Bitcoin is arguably the most decentralized and trusted blockchain, with over 15,509 public nodes at press time, and an uncompromising community that fights tooth and nail to ensure its protocol upholds its cypherpunk ideals. ‘origin.
This blockchain is not infallible, and powerful actors such as nation states might be able to severely restrict the freedom of its users, or even render it completely useless. But the Bitcoin community is not defenseless against such attacks.
See also: How to earn free crypto
Asked how governments could force Bitcoin miners to censor network transactions, Zucco explained two distinct ways to write their rules. The first would require compliant miners to exclude transactions involving blacklisted unspent transaction outputs (UTXO) – or, simply put, balances – in the blocks they mine. In the second case, governments could force miners to “orphan” any new blocks containing illegal transactions.
The first scenario
If miners were forced to exclude only UTXOs from their blocks, the impact of such legislation would be relatively limited. This is because even if compliant miners controlled most of Bitcoin’s hashrate, occasional non-compliant blocks would still be produced, meaning blacklisted UTXOs would simply move slower than non-blacklisted ones.
Such a setup would also mean that those sending non-compliant UTXOs would pay higher fees to compete for the reduced block space available for such transactions.
This, in turn, would increase the incentive to deal with non-compliant transactions. Zucco suggested it would be difficult to verify whether even regulated miners temporarily change the way they handle non-compliant transactions.
This threat is particularly relevant now that a rapidly growing portion of Bitcoin’s hashrate is controlled by publicly traded companies. In April, Benzinga reported that nearly one-fifth of Bitcoin’s hashrate was controlled by publicly traded US companies, many of which anticipate rapid expansion. It is not unlikely that most of Bitcoin’s hashrate is controlled by publicly traded and tightly controlled companies.
Another question worth asking is what happens when a blacklisted UTXO is moved from one address to another: will it remain blacklisted when it changes hands? For how many passes? If sent with other parts, should these also be considered tainted and blacklisted?
Some of these scenarios also allow for very effective dust attacks, where a malicious actor sends minute amounts of blacklisted UTXOs to a large number of addresses to taint their holdings.
A workaround would be to set a minimum amount of blacklisted bitcoin an address can hold without being tainted, but how much “dirty bitcoin” would be too much? Would it be defined as a percentage or an absolute value?
Zucco explained that a particularly harsh implementation of these rules, coupled with dust attacks, would force compliant miners to mine empty or near-empty blocks, while non-compliant miners include any transaction they can put the hand. This would create an economic incentive for non-compliant miners, who earn higher and higher fees than their regulated counterparts, which could make smaller-scale operations more competitive than industrial mining operations.
The dangerous scenario
In the second scenario, if compliant miners are also forced to orphan new blocks that include blacklisted UTXO transactions, they would invalidate those blocks and continue building on the blockchain as it was before.
If less than half of the hashrate was compliant, then compliant miners would incur lower transaction fees, but their blocks would be considered valid by the rest of the network participants.
As the portion of the hashrate they control increases, the incentive to comply would increase as well as the likelihood of non-compliant blocks being orphaned (resulting in the withdrawal of all mining revenue from miners).
If most of the hashrate were compliant, non-compliant miners would be forced to comply or shut down, as their blocks would be periodically kicked off the blockchain, which would mean their fees and block rewards would also be removed.
Non-compliant UTXOs would effectively be frozen and there would be no way to move them as any block with a transaction involving them would be orphaned. Bitcoin was reportedly successfully censored through what would effectively be a government-mandated soft fork.
Still, Zucco suggests that achieving such a government-mandated soft range might be more difficult than it first appears. He explained that while compliant miners would likely have transactions with lower fees than what we currently see, non-compliant miners would have a long list of often outrageously paid transactions waiting to be processed.
It’s not hard to imagine that in desperation, blacklisted UTXO holders would offer a fee of 10 BTC to move 5 BTC, or perhaps more to process a transaction and thus significantly exceed the overall reward. In such a situation, the incentive for non-compliant miners to invest as much as possible to regain control of the majority of the hashrate would be quite significant, making it likely that the government-mandated soft fork would not last long.
Does Regulated Bitcoin Make Sense?
Zucco suggests that the value proposition of a regulated Bitcoin blockchain would not be particularly high as there would be little reason to use it in place of fiat currency for compliant transactions.
This is also why he expects compliant miner transaction fees to be even lower than what we are seeing now.
Speculative use of Bitcoin does not produce many transactions, with most activity taking place on exchanges or by trading derivative contracts. When this happens, the chain’s tolerance for slow transactions suggests that it is a long-term investment and such activity will not generate many transactions.
In addition to pointing out how most Bitcoin-related activity happens off-chain, he asked, “If I’m paying for a good or service or setting aside money in a completely legal way, so why don’t I use fiat money?”
Zucco noted that avoiding inflation is one possible answer, but there are fiat-based ways to do so. He also expects the use of Bitcoin to prevent inflation from becoming illegal in the future, pointing out that the apex cryptocurrency was meant to go against politics and monetary laws, not address the technical limitations of fiat-based money transmission systems.
That’s why most of its proprietary use cases are illegal, Zucco said, adding that the value of regulated Bitcoin is rare and the incentive to maintain it as an unregulated system is great.
Zucco quoted Eric Voskuil, a bitcoin-centric software programmer and author of “Cryptoeconomics: Fundamental Principles of Bitcoin,” who detailed a government intervention scenario in his book. In the first “honeymoon” phase, regulators fail to understand how monetary policy is being eroded by Bitcoin and keep it legal. Then comes a phase of “black market”, the possession or the exchange of Bitcoin being illegal. The third and final phase involves governments preventing the proliferation of Bitcoin by funding a large-scale, publicly funded mining operation to ensure that the blockchain only mines empty blocks and is useless.
The first scenario could be avoided by improving Bitcoin’s anonymity, as governments could not blacklist coins if they could not link them to illegal activity. In the second scenario, miners forced to block “orphan” blocks containing illegal transactions can overcome the problem by deploying more hashrate than governments – motivated by a large economic incentive.