Security Notes: An Open Letter to President Elect Trump

Digital money may turn out to be the biggest global story of the first half of the 21st century. The phenomenon was launched by Bitcoin, and its promise only begins to unfold.

Payments, loans, credit, growth, innovation, charity, and efficiency are already showing the welcome impact of the new form of money. Cross-border payments, device-autonomous payments, money tethered to its declared purpose, micro lending, digital collaterals, smart contracts—none of this was possible before. You are right, Mr. President Elect, to pay attention to this unfolding blessing.

Bitcoin, which started it all, and whose value exploded the morning after the election, would seem to be the coin to run with. My aim with this open letter is to argue that it is not.

Stock prices rise and fall on crowd psychology. When Pfizer delivered its Covid vaccine, the crowd rushed to buy the stock. And you may recall that, back in 2001, crowd psychology sent Enron’s stock into a dive. The assets in both cases had a reality to them, and the crowd acted on its expectation of that reality.

Which is exactly what Bitcoin is missing. No gas fields and no medical labs are there. No portfolio of patents that may become a basis for recovery. Indeed, Bitcoin is 100% carried by crowd psychology. When in 1929 crowd psychology crashed the market, the factories, the stores, the collapsing services did not vanish. They became the launching pad for the turnaround. Alas, once crowd psychology goes south for Bitcoin, there will be a deafening, hissing nothingness coast to coast.

If I were an enemy of the United States, I would push the U.S. to pour more and more of its treasure into Bitcoin, and then take a series of steps to bring it down. The simplest step is to rapidly dump many Bitcoins on the market and start a price drop. I’d combined this with social influencers’ calls to sell “before it is too late,” and thereby start a wave that would turn crowd psychology into mass panic.

If I were part of a large enough government, I could blackball certain accounts and make it a criminal act for my citizens to accept any Bitcoin with a trading history linked to the blackballed accounts. This would shut down those accounts.

I could also insinuate myself into the back rooms where the code is being tweaked, and taint its fairness. I could unleash a Bitcoin duplicate, with an alluringly low price,  expecting to match the original.

There are numerous deception protocols with a non-negligible chance of success. Underlying all these is the math attack. Bitcoin’s silent premise is that its designers are better mathematicians than its attackers. If this proves to be hubris—goodbye Bitcoin!

The promise of Bitcoin should be delivered by clean digital currency that does all that Bitcoin promises but is protected against Bitcoin attack scenarios. There are several options, equally digital, more secure, and much more reliable in every way. Mostly, there are digital currency options that robustly preserve payment privacy while empowering the government to go after financial criminality and terrorist money flows.

Among these, I have a favorite. But I will not cite it here because it is important that this letter not be seen as a slick promo trick. This is not a message about your best choice for digital money. It is a message about Bitcoin in particular being a ticking bomb.

Mr. President, you are charting a broad, optimistic vision for our country. To make it work you need robust, frictionless, stable, and resilient digital money. Choose well!

—Gideon Samid gideon@bitmint.com