Bitcoin and Cryptocurrency Threat to US Government – Hundreds of Experts Hired to Figure Out How by Defense and Intelligence Communities

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In May 2013, Liberty Reserve, a centralized digital currency service that allowed users to register and transfer money to other users with only a name, e-mail address, and birth date, was shut down by United States federal prosecutors under the Patriot Act after an investigation by authorities across 17 countries. On January 2016, the central figure, Arthur Budovsky pleaded guilty to one count of conspiring to commit money laundering and on May 6, 2016, Budovsky was sentenced to 20 years of prison. The site had over a million users when it was shut down by the United States government and US legalites argued that due to lax security, alleged criminal activity largely went undetected, which ultimately led to them seizing the service.

Bitcoin was the central currency on Silk Road, the infamous and anonymous marketplace that was only accessible over the TOR anonymous browsing network on the deep web, and which was closed by the FBI in October 2013. Silk Road was a haven for drug sales, hitment, dodgy porn and other illegal goods.

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This prompted US Senator Charles Schumer to call for the site to be shut down, explicitly linking it to bitcoin, which he called a “surrogate currency” and then the US DEA  seized bitcoins from a US resident for purchasing a controlled substance in June 2013.

In August 2013, 22 bitcoin companies involved in bitcoin were subpoenaed by the state of New York, a US judge ruled that bitcoin is a form of money; and the Bitcoin Foundation received a cease and desist letter from the state of California.

Spin three years into the future and turn to a recent article in Newsweek, Leah McGrath Goodman reports that hundreds of experts inside the nation’s defense and intelligence agencies, as well as private-sector researchers in finance, technology and various think tanks across the country—some of them under contract with the U.S. government—are now investigating how virtual currencies could undermine America’s long-standing ability to disrupt the financial networks of its foes and even permanently upend parts of the global financial system.

“There is a real danger and a challenge here with respect to virtual currencies,” says Juan Zarate, a senior adviser at Washington think tank Center for Strategic and International Studies and on the board of advisers for San Francisco’s Coinbase, one of the most popular virtual currency exchanges in the world. “And it runs contrary to the very fundamentals of the transparency and accountability that we’ve tried to build for the last three decades to tackle terrorism, human trafficking, money-laundering and many other types of criminal activity.”

In 2003, Zarate led an elite team at the U.S. Department of the Treasury who engineered the model used today to target, block and freeze the finances of America’s enemies through their personal bank accounts—from Iranian money launderers to cronies of Russian President Vladimir Putin. This is how it works: Treasury’s Office of Terrorist Financing and Financial Crimes puts individuals and organizations on a blacklist, which is sent out to the world. Once on the blacklist, those targeted can no longer do business in U.S. dollars, which are involved in roughly 88 percent of the world’s foreign-exchange transactions, according to Switzerland’s Bank for International Settlements. In other words, they cannot bank at most financial institutions.

This ability to financially disrupt, disable and dismantle nefarious networks, is crucial to U.S. national security, Treasury officials say. It has proven effective for more than a decade and is often strongly preferable to deploying troops. “We have made it very difficult for members of the Islamic State to raise or move money around the world these days,” Zarate says. “Even Iran had a hard time finding safe havens.” In fact, years of financial pressure from the U.S. and its allies helped force Iran to negotiate with the White House and sign a landmark nuclear deal last year.

The biggest concern the U.S. has about virtual currencies, Zarate says, is that terrorists and other enemies might create one so powerful and so untrackable, that they’ll no longer need the global banking system, which the U.S. uses to financially starve them. This has yet to happen, but America’s defense and intelligence agencies are already trying to figure out how they might infiltrate or block such a malicious financial network.

Computer Sciences has hired hundreds of technologists and experts across the banking, insurance and health care sectors to examine how to “scale up” Blockchain technology for faster banking, trading, clearing and settlements. With all the trepidation bitcoin has brought, it’s underlying framework, the Blockchain, has begun to spread like wildfire as more and more imagineers, developers, scientists, cryptographers, mathematicians etc. begin to build new concepts around the decentralisation of trust itself, which Satoshi Nakamoti, the founder of bitcoin revolutionised. 

The more projects built on top of cryptocurrencies such as bitcoin and ethereum, the more complicated it will become for any authorities to take them down. If that’s even possible.  

Bala Venkataraman, global chief technology officer of banking and capital markets for Computer Sciences Corp., a digital information-technology company whose sister firm, CSRA Inc., runs the IT backbone of the National Security Agency (NSA) comments: 

“In a cryptocurrency world, you know who becomes the bank?” he asks. “You and I. You become not just the bank, but the central bank. And that can have enormous ramifications for things like sovereign authority. By 2040, I think we may be fully transitioned over to cryptocurrency. I don’t think anyone can stop it from happening.”

“With the introduction of Blockchain, a disruption of the global banking system is inevitable,” he added in the article. 

No one can stop it from happening? No one except the Americans perhaps – and very likely under the banner of Homeland Security and the Patriot Act.

One significant terrorist act on US soil, alleged or proven to be funded by Bitcoin or another cryptocurrency is very likely all it will take. 

Benjamin Franklin once wrote:

“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”

With it’s 12 billion dollar market cap, bitcoin is nowhere near a trade threat to the U.S. dollar with its busiest week near a tiny $2 million, compared with the massive $14 trillion of average daily U.S. dollar transactions.

But it does pose a bigger threat – and that’s it’s threat to sovereign authority – or the power power of the state to regulate the monetary system and as such, the value and credibility of a sovereign currency are intrinsically linked with the ability of the state to support that currency, on which the the legal concept of money is also based on. 

About Richard Kastelein

Founder and publisher of industry publication Blockchain News (EST
2015), a partner at ICO services collective Token.Agency
($750m+ and 90+ ICOs and STOs), director of education company
Blockchain Partners
(Oracle Partner) and ICO event organiser
at leading industry event CryptoFinancing (Europe's first ICO event now
branded Tokenomicon)
– Vancouver native Richard Kastelein is an award-winning publisher,
innovation executive and entrepreneur. He sits on the advisory boards
of some two dozen Blockchain startups and has written over 1500
articles on Blockchain technology and startups at Blockchain News and
has also published pioneering articles on ICOs in Harvard Business Review and Venturebeat.  Irish Tech News put him in the top
10 Token Architects in Europe.

Kastelein has an Ad Honorem - Honorary Ph.D. and is Chair Professor of
at China's first Blockchain University in Nanchang
at the Jiangxi Ahead Institute of Software and Technology. In 2018 he
was invited to and attended University of Oxford's Saïd Business School
for Business Automation 4.0 programme. Chevalier (Knight) - Ordre des
Arts et des Technologies at Crypto Chain University and an Advisory
Board Member of International Decentralized Association Of
Cryptocurrency And Blockchain (IDABC) as well as Advisory Board Member
at U.S. Blockchain Association. Over a half a decade experience judging
and rewarding some 1000+ innovation projects as an EU expert for the
European Commission's SME Instrument programme as a startup assessor
and as a startup judge for the UK government's Innovate UK division.

Kastelein has spoken (keynotes & panels) on Blockchain
technology in Amsterdam, Antwerp, Barcelona, Beijing, Brussels,
Bucharest, Dubai, Eindhoven, Gdansk, Groningen, the Hague, Helsinki,
London (5x), Manchester, Minsk, Nairobi, Nanchang, San Mateo, San
Francisco, Santa Clara (2x), Shanghai, Singapore (3x), Tel
Aviv,  Utrecht, Venice,  Visakhapatnam, Zwolle and
Zurich.  His network is global and extensive.

He is a Canadian (Dutch/Irish/English/Métis) whose writing career has
ranged from the Canadian Native Press (Arctic) to the Caribbean
& Europe. He's written occasionally for Harvard Business
Review, Wired, Venturebeat, The Guardian and, and his work
and ideas have been translated into Dutch, Greek, Polish, German and
French. A journalist by trade, an entrepreneur and adventurer at heart,
Kastelein's professional career has ranged from political publishing to
TV technology, boatbuilding to judging startups, skippering yachts to
marketing and more as he's travelled for nearly 30 years as a Canadian
expatriate living around the world. In his 20s, he sailed around the
world on small yachts and wrote a series of travel articles called,
"The Hitchhiker's Guide to the Seas' travelling by hitching rides on
yachts (1989) in major travel and yachting publications. He currently
lives in Groningen, Netherlands where he's raising three teenage
daughters with his wife and sailing partner, Wieke Beenen.

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  1. “With it’s 12 billion dollar market cap, bitcoin is nowhere near a trade threat to the U.S. dollar with its busiest week near a tiny $2 million, compared with the massive $14 trillion of average daily U.S. dollar transactions.”

    Interesting article, but Bitcoin traffic is between 1 BILLIONS and 4 BILLIONS USD every day.

  2. The fact is that nobody can shut down the internet nowadays.
    No country would do it unless under the ruling of insane minds looking for global war at all costs. And luckily Trump reattached strings with Russia, so that danger is at least several years away.
    USA surely can’t shut down the internet without losing their front line position in world industry. Also, people wouldn’t allow it to happen.
    Shutting down a country’s internet is only “allowed” to very poor countries where it’s not very used.
    And even if one country or two would shut down internet to avoid Bitcoin taking place of national currency, Bitcoin would still climb to its position, leaving those two countries in deep shit with worthless currency.
    Nobody can stop Bitcoin.

  3. Trump is an idiot who has dragged half of Goldman Sachs into his government. You think he’s going to change anything? As for Russia – it’s only because they own his ass because he’s borrowed heavily from Russian money sources.

    And do you honestly think that the government can’t shut down Bitcoin if they really want to? You don’t need to shut down the Internet .

    The NSA or some other entity with both the budget and experience create a VLSI project to both develop and deploy an ASIC design that would result in a 51% attack – $320M could purchase enough hardware to match the current hash rates for the entire network.

    International regulation is developed that significantly inhibits one’s ability to exchange Bitcoins for local currencies. Essentially forcing the Bitcoin underground like a drug cartel.

    A mathematician discovers how to break ECDSA.

    The media alongside a covert multi-government effort conduct several propaganda campaigns to sway public opinion that the Bitcoin is either a massive scam or somehow bad cumbersome regulations are adopted to monitor and control Bitcoin exchanges.

    Persistent DDOS attacks occur on the major exchanges and also the supporting infrastructure.

    One way to attack Bitcoin would be to have large amounts of money alternately pushed into Bitcoin and pulled out of Bitcoin, thereby massively increasing volatility. These market fluctuations could be aggravated by a covert government programme of destructive funding and public dis-information. This would make doing business in Bitcoin more difficult.

  4. Exchanges deal with DDoS attacks themselves, they are not really the core of Bitcoin.

    “One way to attack Bitcoin would be to have large amounts of money alternately pushed into Bitcoin and pulled out of Bitcoin, thereby massively increasing volatility. These market fluctuations could be aggravated by a covert government programme of destructive funding and public dis-information. This would make doing business in Bitcoin more difficult.”

    I agree with this, and in fact it’s one option I wrote in my book.
    However, keep in mind that this game would also make traders more greedy, and swaying the Bitcoin value this way would also have a concrete cost.

    That would surely give a hit to the Bitcoin value and community, but I am really sure that after an attack like that, a huge number of people would start mining and many more pools would spawn, multiplying the number of mining nodes so that another 51% attack would be impossible.

    The real danger is if somebody, as you wrote, would manage to break the encryption system.
    I am no expert in this, so I can’t say.
    Also quantum computers could screw up the keys.
    I guess this is again a question of trust in the system.

    And the fact that not even the USA has taken due measures in these regards suggests that, at least for now, they really don’t know what to do.

    Regarding Trump, I don’t care WHY he reattached strings with Russia, the fact is: no cold war, for now. This means: free internet.

    Regarding the government other measures to shut down Bitcoin: well, you have MANY options to SLOW DOWN Bitcoin adoption.
    But the more you tighten the screw, the more people that want to use Bitcoin will pump its price up in the Black market.
    The USA government could ban Bitcoin adoption, mining, payment, but rich people and criminals would still have little problem in using it and reconverting it into another currency before converting it into USD.
    You want to ban me from converting USD into Bitcoins?
    That’s ok, this means two things: other countries will still manage to convert their currencies into BTC, thus increasing their wealth, and, I will just convert my currency into another currency, and then buy BTC, thus giving that currency more traffic, thus more importance, thus more value… before finally giving again more value to Bitcoin.

    In other words, a country that bans Bitcoin, will finally ban itself a growth in value. Yes, they will retain control over population, but meanwhile the rest of the world will be able to buy everything in that country with the ever growing increasing value of Bitcoin.
    Unless the whole world will ban Bitcoin, Bitcoin won’t be banned.
    And the world is also composed by countries like Venezuela, Bolivia, India, you name it, that are in deep trouble and which poorness is due in good part to economic and currency wars. These countries wouldn’t ban Bitcoin, not with people starving and on the verge of revolution (like it’s happening in Venezuela).

    In all this game, the USA and central banks (Rotschild) are the ones that are losing ground day by day, and any action they can take AT THE MOMENT wouldn’t solve the problem.
    Any reaction from them would not be really effective, and it would instead CERTIFY that their empire is under attack, and it would also certify that Bitcoin is money, GOOD REAL MONEY. That is, in fact, the reason why USA and Europe governments didn’t take real measures up to now, and kept a very low profile in not publicizing Bitcoin in any way apart “money of terrorists”, so that people are scared of it, that it could be banned, so people don’t invest in it.
    But you can tease everybody for some time, some people forever, but you can’t tease everybody forever.
    The user base is growing, and some countries like India and Venezuela are knowing Bitcoin better.

    I won’t say “it’s done”. But it depends on a lot of factors, and it’s really difficult to catch what could be done against Bitcoin in the future.
    One thing is sure: for now, at least, Bitcoin is a good refuge for countries with troubled currencies, while it’s not so important for countries with USD, GBP EUR currencies.

    I wouldn’t underestimate it that much however: if Bitcoin will become the currency of the future, the USA is tremendously behind, China and Japan will rule the world. Not that this is a bad thing: I prefer them in place of the Rotschild psychos and the USA crazy establishment of economic powers.

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