Other Means Principle

Bitcoin is an act of resistance, an attempt to "gain a new territory of freedom." Freedom contracts through the constant pressure of compulsory financing of the state. It is typical that freedom is expanded through bloodshed, with the specific objective of reducing state power. Bitcoin cannot eliminate the need for personal risk in achieving this objective. However, through risk sharing it can potentially reduce the inflation tax without spilling blood. This will not eliminate tax generally, however it will reduce state power by making tax significantly more visible.

This conflict between state and individuals for control of money will pass through four phases. These phases will overlap and vary regionally, but are each clearly identifiable.

1. Honeymoon
2. Black Market
3. Competitive
4. Surrender

The honeymoon phase is characterized by a desire of state agencies to retain regulatory control over the movement of money and securities. To this end pressure is applied at points of aggregation. As pressure on pooled miners and centralized merchants increases, cost rises and utility drops. The money then necessarily becomes more distributed to avoid these costs.

As it becomes apparent that controls on points of aggregation are insufficient enforcement, and the awareness surfaces that seigniorage is at risk, transaction in and mining of Bitcoin is outlawed. As states collaborate to protect their monies, this may become a global "war" akin to the "War on Drugs", i.e. the "War on Bitcoin". This may coincide with adoption of an official new money, i.e. Fedcoin. The objective would be to appear to embrace a "safer" money than Bitcoin while retaining the advantages of electronic fiat. The two essential elements of Fedcoin are (1) a hard fork to allow introduction of new units based on the signature of a state agency, and (2) a censorship soft fork with the requirement that all transactions are signed by the state. The former protects seigniorage and the latter facilitates other tax collection.

Assuming sufficient resistance Bitcoin persists independent of Fedcoin as a black market money. At this point the state concludes that the best way to defeat it is to complete as a miner. Given that mining is necessarily anonymous, that there is no way for the economy to prevent state participation in mining. Thus Bitcoin enters the competitive phase, with the state attempting a perpetual 51% attack.

Apart from ongoing black market phase enforcement, the competitive phase is characterized by a peaceful hash power battle between the state and individuals. The state operates at a loss due to the rejection of censored transactions. This loss is offset by tax revenue. Fee pressure on censored transactions rises until the state mining tax subsidy is offset by the differential in fee level. At this point taxes and censored transaction fees both rise until one side of the conflict surrenders. In this manner Bitcoin can potentially win a war by other means. It cannot be assumed that this surrender will be perpetual. The money is very likely to drift into previous phases as the threat level diminishes.