Abstract:
The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power
costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost
of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result
is a breach of Gresham's Law: stolen electricity will drive out honest mining. This has unfortunate effects for the
stability of the Bitcoin economy, and the result is inevitable collapse.

Conclusion:
The security of Bitcoin relies on a single party or cartel of parties not being able to dominate the capacity for mining.
Therefore Bitcoin relies on a large and diversified network of miners. Yet, the proof-of-work mechanism, the
existence of free entry and no limits to honesty ensure that botnets will cause a breach of Gresham's Law: stolen
electricity will drive out honest miners. Once botnets take over, criminality increases, honest users decamp and
collapse follows.

Hence, the requirement of diversification is broken by Bitcoin's very mechanism to make diversification work fairly:
proof-of-work. Attempts to repair the design generally result in the replacement of Bitcoin with some other
architectural base.

The Bitcoin economy is highly vulnerable to attack. If an agent were to decide to attack Bitcoin, he has several
strategies available. One could operate a mining botnet and slowly lower the Bitcoin market price by regularly selling
small amounts of bitcoins with a declining price. As the honest miners are squeezed out, further manipulations of the
Bitcoin system are possible. A second strategy is to pump & dump to generate volatility. Both strategies result in the
honest mass market decamping for other fields. Once the market takes on the taint of criminality, the Feds are
encouraged to shut it down by targeting the exchange makers; fear of criminality and the appearance of the Feds
work together to cause the collapse.