You'd be crazy to put serious money into bitcoins. Not because it's fundamentally flawed as a currency (I don't have the expertise to know if that's true or not), but because if bitcoins ever become more than a sideshow governments around the world will make their use illegal (de facto if not de jure). People left holding the currency will be out of luck.
Controlling a currency is a politically easy route to tax everybody who uses it, and governments will not give up that privilege even if it means intrusive new controls on internet traffic.
Most money in the Eurozone flows through banks, and I think we've seen recently just how much control Eurozone countries have over their banks (pretty much as much as they want).
Because drugs are physical items that must be exchanged in person or sent across distances. For bitcoin transactions, literally all you need is two people on the planet with computers that are connected to each other on a network.
Do you expect all governments of the world to collectively agree on a ban of digital currencies? When was the last time all governments of the world agreed on anything?
Bitcoin's future is certainly uncertain, but I doubt its demise will stem from this angle.
How hard do you think it would be for the US or Chinese governments to amass the computing power needed to maliciously fork the Bitcoin block chain? You are looking at what, $20 million of ASICs? $30 million? Let's be completely unrealistic and say $100 million.
That is less than a tenth of what the government spent on the NSA's new datacenter in Utah. It's pocket change, barely even a blip on the budget of the US government. It requires a very small commitment of personnel and no fieldwork at all, and no real agreement from any other countries. If we called Bitcoin a money-laundering scam, if we attacked under the guise of evidence gathering (just reversing transactions so criminals won't get paid by our cops), I doubt many countries would object even if their citizens lost money in the process.
That is just with the known, well-documented polynomial time attack on Bitcoin. Given that there is no security proof and little formal analysis of the Bitcoin protocol, and not even the kind of heuristic analysis we rely on for block ciphers and efficient hash functions, I seriously doubt that an attack would even require that much effort.
The original argument was about governments making bitcoin de facto illegal. That's quite different from a deliberate attack.
As said, I agree that bitcoin may be heading for trouble, I just disagree it will happen through legislation.
And more generally I disagree it will happen by a third party deliberately disrupting it (either via legislation, the 51% attack or by other means). For a simple reason: A collapse of bitcoin (for any reason) will inevitably spawn a new, more resilient crypto-currency. The exact opposite of what the attacker was looking to achieve.
Why bother doing that when you can just hack or seize exchanges? If MtGox and the next 20 largest bitcoin exchanges get shut down how much more difficult would using bitcoins be?
Child pornography isn't even on the top ten list. It doesn't threaten anybody's rice bowl. A crusade against child porn might get you elected, but actually doing something about it doesn't matter to governments. If it did they would have shut Tor down already.
CP is hardly "government enemy #1." Terrorism is. You do not see one hundredth the attention or money of anti-terrorism activities directed towards 'protecting children.'
VPNs can be made illegal if necessary. That's already the case in some countries.
I think people generally grossly underestimate the reach of the government when it comes to the internet. Ultimately they can change the very foundation of the net if they see a compelling reason.
A cryptography cat-and-mouse game would be very, very interesting; secure channels can be used to secretly architect new channels, whereas broken channels can uncover secret methods and identify nodes in order to break more channels. (I suppose it's not much different than the Drug War or WW2; most wars revolve heavily around information.)
It would take some serious marketing effort to convince most Americans that encrypted communication must imply criminality, but sadly, it could be done.
Why do intelligent HNers spread this constant FUD that "governments will make Bitcoin illegal"? Seriously WTF?
Fact: there are plenty of currency/commodity markets (1) that the US government does not control and (2) that are used sometimes for illegal activities such as laundering, and yet the US government is perfectly fine with these markets existing and being legal because they are necessary for a healthy economy and are mostly used for legal activity. Two examples: gold (obviously the US does not "control" worldwide gold trades, and yet gold is often used for laundering), and foreign currencies (perfectly legal to hold and trade in the US, even those from countries with strained relationships with the US such as the Iranian rial, Burmese kyat, etc).
Supporting my viewpoint, the US Treasury Department, through FinCEN, has recently tacitly approved Bitcoin: http://www.businessinsider.com/is-bitcoin-legal-2013-4 It is obviously in the US' interest to let the Bitcoin economy grow, and merely get revenues from it by taxing trades, capital gains, etc.
It's not primarily about income. It's about issuing new currency. Let's say the US government doubles the number of outstanding dollars. All other things being equal, once things settle out your dollar is going to have about half the purchasing power it had before the extra money was issued. It's a wealth tax.
But let's say you saw this coming and put your money into hard assets or stable foreign currencies. When you sell those assets or currencies, you have a huge paper gain which the USG is going to expect you to pay income taxes on even though you haven't made anything at all in constant dollars. Again, a wealth tax.
Controlling a currency is a politically easy route to tax everybody who uses it, and governments will not give up that privilege even if it means intrusive new controls on internet traffic.