In a March 18, 2011 press release regarding the Liberty Dollar case, the FBI admitted to waging a secret war against any private currency system that competes against the US Dollar. In the press release, the FBI equates the use of sound money to an act of domestic terrorism. The FBI states that it uses methods of infiltration and disruption against private citizens engaged in the use of voluntary currencies.
The FBI writes:
“Attempts to undermine the legitimate currency of this country [ie. unconstitutional Federal Reserve notes] are simply a unique form of domestic terrorism,” U.S. Attorney Tompkins said in announcing the verdict. “While these forms of anti-government activities do not involve violence [ie. they are voluntary systems with no victim], they are every bit as insidious and represent a clear and present danger to the economic stability of this country [ie. their widespread adoption may collapse the corrupt banking system],” she added. “We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.” [ie. we will engage in acts of domestic terrorism to prevent the voluntary trade of private property.]
I think this open admission by the FBI that it engages in acts of domestic terrorism against private currency systems bears a particular importance for users of the Bitcoin monetary system. If we look at the history of Bitcoin since it gained notoriety, we see a slew of hacking attacks against major exchanges that have indeed disrupted and undermined the currency system.
Of course, no matter what the FBI does, short of breaking the underlying Bitcoin encryption (which is impossible even for them), the monetary system will continue to function. However, this message should put users of the monetary system on notice.
Any major exchange or retailer that comes online in the future should be treated as either a potential victim of FBI hacking attacks or as an FBI run operation that will be used to disrupt the Bitcoin market at some future date. This means that people should be especially leery of using new exchanges or wallet sites without having an extremely thorough knowledge of who is involved and how their systems are administered.
Given the above admission by the FBI that it engages in acts of domestic terrorism to disrupt the trade of private property, we should expect any Bitcoin exchange or major retailer to have security systems strong enough to withstand a domestic terrorist attack by a US Federal agency. If they don’t, it is highly likely that they will suffer a crippling domestic terrorist attack perpetrated by our own government.
For end users, this means you should not entrust the bulk of your coins to anyone but yourself. You should operate your own Bitcoin client and keep any major holdings of coins off line in a file that is replicated and backed up on an encrypted drive. All exchanges, wallet sites, and retail outlets should be presumed to be compromised.
That is not to say people should stop using the currency… far from it. It is simply a warning that people should note when doing business in Bitcoins. The reality is that the Federal government is waging a war of infiltration and disruption against systems like Bitcoin, so we should expect to see more highly sophisticated attacks like the one which was perpetrated against Mt. Gox recently.