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Why Bitcoin’s Rules Are Enforced By Physics

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The laws which govern our physical realm are the foundation upon which Bitcoin is built, as immutability would require.

The following article is an expanded, longer version of the original Medium article of the same name by the author, Tomer Strolight, in his series of articles on Bitcoin entitled “Why Bitcoin,” covering many aspects of Bitcoin, each with an average reading time of only three minutes.

No Speed Limits Lead To Faster, Safer, More Reliable Cars.

The German Autobahn highways have no legally-enforced speed limits. The laws of physics are the only limitations as to how fast automobiles can travel there. As such, Germans have figured out how to make very fast cars. Fast small cars, fast family cars, fast SUVs, fast trucks, etc.

They have also figured out how to make very safe fast cars, because nobody wants to die getting somewhere fast. German automakers pioneered advanced safety features, like crumple zones, that make high-speed collisions less dangerous to vehicle occupants.

The lack of legally-enforced constraints is what makes German cars faster, safer and better than those engineered in countries where speed limits and safety standards are prescribed by government edict.

Consider the challenges faced by German car engineers compared to those in a highly-regulated country where speed limits are far lower than the speeds observed on the Autobahn. German car engineers need to compete to figure out how to make cars both faster and safer than their other German competitors. But their regulated peers in other countries can stop improving their cars once they can safely hit the local speed limit. German car engineers become interested in understanding and solving challenges brought about by high speeds affecting reliability, aerodynamics, stability, fuel efficiency, high pressures, braking, acceleration and more. Their regulated counterparts simply do not have any interest in these considerations, nor are they given any budget to research them.

No Man-Made Laws Lead To Stronger, Safer, More Reliable Money

This same reasoning is remarkably why bitcoin is the best money the world will ever see. Just as automobiles are an engineered form of transportation, bitcoin is an engineered form of money.

Bitcoin’s first engineer, Satoshi Nakamoto, designed it to operate no matter what the universe could throw at it. He did not build it to only work under a constrained set of limits dictated by humans. Thus, the mechanisms that Satoshi built into Bitcoin to enforce its rules are nothing less than the laws of physics themselves. No government told Satoshi what rules to apply or how to enforce them. (And now, interestingly, no government can.) Bitcoin’s rules were chosen to ensure that Bitcoin would operate no matter what happened.

Strong, Safe Money, Guaranteed

Like the safety and speed goals of German cars travelling on the Autobahn highway network, there are safety and speed goals too for Bitcoin as it functions atop worldwide digital networks.

Bitcoin provides the monetary equivalent of safety, which is protection of private property. Bitcoin lets owners of its units of currency store them where only the rightful owners can find them. It does this using astronomically large random numbers as the storage location of these satoshis (satoshis being the base unit of currency in the Bitcoin system).

The laws of physics dictate that over the entire foreseeable future of the universe, nobody can be expected to guess one of these astronomical numbers where satoshis are being stored. Not even if they converted the whole planet into a giant computer making endless guesses.

If you HODL satoshis, you are guaranteed they will not be stolen by a thief guessing where they are stored (as long as you generated your astronomically large random number properly). Who guarantees this to you? Not some politician. Not some businessman. Not some company. Not any person. The guarantor is none other than the universe itself. As long as the laws that hold the universe together hold, your satoshis are safe.

Steady, Reliable Money, Guaranteed

When it comes to speed, Bitcoin doesn’t try to go as fast as possible. Instead, it seeks to maintain a constant speed, or pace. That steady pace that Bitcoin is after is to ensure that one block will be added to the blockchain, on average, once every ten minutes, forever. (This is perhaps why “timechain” is a better descriptor than “blockchain” and is being increasingly proposed as a substitute term.)

Once again, Satoshi utilized the eternal, unchanging laws of physics to engineer Bitcoin to always achieve this pace. He did so by combining proof of work* and a difficulty adjustment to that proof of work to ensure this pace even in the most extreme physical circumstances.

If all the world’s energy or even all of the sun’s energy was directed toward trying to accelerate this pace, Bitcoin would “slam on the brakes” within 2,016 blocks at most, slowing down the block discovery rate to one block every ten minutes. Conversely, if efforts were made to slow Bitcoin down by withholding energy from its miners, Bitcoin would, again, within at most 2,016 blocks, reduce the work requirements, effectively “stepping on the gas” to speed itself back up to one block being discovered, on average, once every ten minutes.

No government law can change this fact. Government laws cannot, after all, supersede the laws of physics. Nothing can. No billionaire, no hacker, no protester, no banker, no corporation, no army. Not even the pretentious arrogance of a bow-tie wearing, award-winning economist, eating Russian caviar at a cocktail party for New York’s elites and claiming that Bitcoin “has a fundamental value of zero” can change the actual laws of physics. Thus, Bitcoin runs, without interruption, regardless of what anybody thinks of it or tries to do to it. Bitcoin’s reliable, uninterrupted operation is as pure and as real as reality itself.

Tougher Standards Lead To The Better Money

As we did when comparing German car engineers to their peers in countries with low speed limits, let’s consider the results of the engineering efforts of Satoshi and other Bitcoin contributors with those of the designers of the incumbent monetary system — fiat money. The rules of the fiat system are dictated by regulators, legislators and bureaucrats. These rules can easily and at any time be changed by a mere change of dictate.

Whereas nobody can steal or seize satoshis, fiat money is stolen and seized so often that we don’t even keep count of how many times this happens or how much fiat money is affected. Whereas Bitcoin continues to issue its currency units reliably and predictably on a predetermined schedule, the fiat money supply goes through wildly unpredictable shocks whenever the people running that system decide to alter it.

History shows that fiat systems collapse. The monetary units of these systems become worthless upon those collapses. Science shows that the laws of physics do not collapse. They are eternal. 

To summarize, by relying on the eternal and unchanging laws of physics, Bitcoin guarantees perfect reliability that its promises of property protection and continued operation will always be in force. This frees Bitcoin, and more importantly its users, from having to trust any temporary and fallible short-lived entities like people, central banks, political parties and even nation states.

In the final analysis, it is ultimately a voluntary decision for each individual to choose whether they prefer Bitcoin and the reliability of physics over fiat money and trust in politicians. That is a decision to choose science over politics. Bitcoin itself is in no hurry for anyone to make that choice, however. Like the laws of physics themselves, Bitcoin is forever.

*Proof of work requires that someone (a ‘miner’, in the case of Bitcoin) be able to produce a very improbably low number as the output of running input data (a block header, in the case of Bitcoin) through a function (SHA256, in the case of Bitcoin) that produces unpredictable, random-looking numbers, but always the same output for the same input. If the miner can show that the result of the output from their input is lower than the threshold set by Bitcoin’s difficulty setting, it is very likely the case that they put in the expected amount of work required by running the algorithm time and again with slightly modified inputs, until they finally arrived at a result that met the proof-of-work criteria.

This is a guest post by Tomer Strolight. Opinions expressed are entirely his own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

What Is The Ideal Bitcoin Culture?

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It is up to us as Bitcoiners to decide what values we want to represent in the community and the industry.

Teggy Altankhuyag is the COO and Co-Director of Coinfloor.

This is a time of great change and great opportunity — both for the finance sector and, more widely, for society. We in the Bitcoin industry are actively participating in the evolution of money. There’s no denying that our current financial system has its benefits, such as affordable and fast banking and payment processes for some consumers, but it also has many drawbacks that, until recently, were not possible to address. The current financial system is centralized and enables inflation and exclusivity. The users don’t have choice or power over the impact it has over them. Furthermore, these standards have a wider, graver influence. As humans, our actions became more inflationary and more exclusory. In my view, this is evident in how we consume resources without regard to the impact we have on other species and our planet.

Bitcoin is already contributing toward changing this by providing us with an alternative system. Public blockchains encourage everyone to rely less on central parties and be more independent and responsible with their money. By reducing inefficiencies in the current system, it also allows us to concentrate on more important societal matters like reducing financial crime, achieving better financial inclusion and, perhaps most importantly, promoting values designed to empower its users to be more responsible.

Driven By Values

In my opinion, this last goal is something that everyone involved with Bitcoin should aspire to — for the promotion of a financial system that will benefit all of humanity and our environment. Our industry is new, and its culture is still developing. We have the chance to shape its culture into something that’s driven by values; something that encourages and enables us to act in a more sustainable, reliable and inclusive way than anything that’s gone before.

Indeed, the basis for such a culture is embedded in the Bitcoin code: Bitcoin doesn’t discriminate on the basis of race, creed, gender or nationality. It’s up to us to work from this base and apply it to our everyday work and life. We can encourage, collaborate and appreciate — even celebrate — our differences. We can stop competing against each other and start competing against poverty, injustice and unsustainable practices instead.

The Next Step

Some people may think this is a little idealistic, but I’m confident we can bring about these cultural changes and become a truly great industry. After all, collaboration and our ability to work together successfully have already brought us to where we are today.

Taking the next step requires us to identify the values and principles we want to live by then sharing and acting on these. Evangelizing and taking deliberate actions — however small — will help us make sure we’re continuously growing as an industry and progressing toward achieving our goal of a values-driven culture.

We’re not there yet, of course, and there are obstacles in the way that we need to overcome; I’ll explore these in more detail in my next post. For now, I’d ask you to consider what your ideal Bitcoin industry culture would look like, and which areas you could tackle as part of this ongoing evolution. Each of us has an opportunity to contribute to our combined success — which action will you choose?

This is a guest post by Teggy Altankhuyag. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

Why Anthropologists Are More Interested In Bitcoin Than Economists

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Mainstream economists are renowned for bashing on Bitcoin. Anthropologists, on the other hand, are becoming more interested in it. Why?

I am an anthropologist and economist who went down the Bitcoin rabbit hole. I wrote this paper to clarify my thoughts about why these two disciplines respond so differently to Bitcoin.

What Is Anthropology?

Anthropology is a social science that is concerned with understanding culture through participatory observation, or ethnography: cultural immersion in the social worlds being studied. This research method is at the heart of the discipline, and it forces practitioners to “get out there,” to expose themselves, and to experience the culture being studied as a local.

This might explain why anthropologists often end up in heated debates with economists, who instead understand the world through numeric aggregates and abstract models. Mainstream economists take a top-down view of the world based on deductive reasoning stemming from their models and assumptions, which are heavily influenced by classical Newtonian physics and its notion of “equilibrium of the heavenly bodies” and lack the “systems perspective” that emerged from thermodynamics and influenced engineering (Alizart, 2020).

In contrast, anthropology, which involves both deductive and inductive logic, is mostly focused on the latter. Observed and experienced real-life evidence leads to the formation (and recalibration) of theoretical frameworks: first comes the evidence, then comes theory, and so forth (more on this in the Limitations section).

Another key element of anthropology is its concern for the “emic” (people’s subjective beliefs and experiences of the world) above the “etic” (objective truth). So, anthropology takes the view that objective measures such as various economic growth parameters can mean very little when abstracted away from people’s experiences and lived realities. Looking at the emic gives anthropology a superpower: the ability and need to be open to alternative belief systems, challenge its own mental models, take in additional insights, and craft a more nuanced and holistic view of the world as a result.

Anthropologists are not scared of dealing with people’s belief systems because it relativizes them. That means that each culture must be viewed as “a truth” that must be understood as a rational system on its own terms, which is why judging a culture from an external point of view often leads one to miss the point.

In anthropology, emic truth is multiplicitous and relative rather than universal and absolute. What does this mean? “Cultural relativism” doesn’t mean that “2 plus 2 does not equal 4” (these claims by self-proclaimed anthropologists are bogus). It just means that a particular belief system may have come to that conclusion, and that in itself may reveal something about that culture. Anthropologists recognize that math and physics have more adequate tools, languages and frameworks to assess the etic (and to establish that 2 plus 2 does equal 4 — for that we need mathematicians).

Why Are Anthropologists Interested In Bitcoin (And Many Economists Aren’t)?

Anthropology has a long tradition of writing about the alien “other,” and bitcoin certainly represents a new type of exotic “other” for the majority of the world’s population. So, anthropologists have approached the culture of Bitcoin as it would approach any other: with no judgment and with openness to challenge its own preconceptions of it.

Anthropologists have ventured to study the world of bitcoin miners, holders, speculators, and local bitcoin merchants, among others. This has allowed them to understand the communities’ beliefs and points of view by going beyond their own perspectives. Many anthropologists have come out of the studies inspired by the ethos and beliefs of these communities, as I will explain in more depth in the next section.

Source: “The Simpsons”

In contrast, mainstream economists continue looking at Bitcoin from the comfort of their ivory towers. Nobel Prize-winning economist Paul Krugman, Nouriel Rubini, Steve Hanke, and many others have systematically dismissed bitcoin as a bubble, tulip, or speculative asset with little regard to how people actually use and view it today.

Economics as a discipline is locking itself in an echo chamber, siloed from other perspectives and receiving little feedback from the outside. It also lacks the methodological tools to make sense of cultures. No wonder it mistakenly reduces Bitcoin’s meme culture to an irrelevant tribal phenomenon.

But the core of economist’s fallacy is epistemological: what is recognized as truth, and where does truth come from? Does it come from the “top” (meaning the state or god), or the “bottom” (the local popular beliefs)? When it comes to money, who decides what is money (the truth of money)? Mainstream economics lives off the assumption that money is money by “fiat,” meaning that its value is determined by the state’s ultimate judgment and formal decree. In contrast, anthropology, being interested in people’s views and beliefs, has no problem accepting bitcoin as money because ultimately, people believe that it is, and that is how they use it.

Source

At the core of economists’ fallacy is the belief that money is money by decree (because the state and its expert economists say so), which means they don’t fully recognise the power held by people’s collective decisions.

Anthropologists are also interested in Bitcoin because it is not a threat to the discipline’s status quo. Anthropology is mostly a descriptive discipline, concerned with making sense of things as they are rather than “messing with things.” In contrast, economics is all about prescribing and “intervening” in the economy: the economy needs to be “stimulated” and then “stabilized,” and employment needs to be “maximized.” As a result, Bitcoin, which cannot be controlled in terms of monetary policy, massively limits the scope of economics to act on the economy. Bitcoin may well be challenging economists’ core beliefs, and perhaps, their relevance (ouch!). Having said that, this is not true of all of economics. For example, there are heterodox approaches that take more of a systems perspective, such as the Austrian school, which flips the episteme around: truth and economic activity come from the economic actions of the individual rather than the state, the latter of which are not seen as fundamental to economic life.

So, What Are Anthropologists Saying About Bitcoin?

After looking at anthropologists’ foundational methods, theories, and epistemologies, it is worth checking what anthropologists are saying about Bitcoin.

1. Bitcoin is money

Anthropologists have no problems admitting that bitcoin is money, first and foremost “because people call it so, [and] many use it as money” (Kavanagh et al.).

2. Bitcoin leverages people’s ethos

Research on Bitcoin miners has revealed the degree of excitement and creative energy that surrounds the Bitcoin space (Calvão), and it is this ethos and ethic of the Bitcoin community that may infect the world.

3. The values and rituals of the Bitcoin community are important for Bitcoin’s success

A study by Kinney demonstrated that Bitcoin adoption by individuals follows a distinct process: first, adopters discover the value of Bitcoin on their own terms. Next, they reflexively overcome challenges to these initial perceptions of its value. Finally, they reaffirm their embeddedness in the system through rituals of commitment (Kinney), such as today’s “Laser rays to $100,000!” phenomena on Crypto Twitter. This reaffirms the importance of group identity to the social construction of Bitcoin as money.

Thus, the Bitcoin community’s value systems and rituals make bitcoin mature and have helped to establish it as money. As the Bitcoin community has also clarified, Bitcoin is backed not only by technology and numbers, but also by memes.

4. Bitcoin is not just speculation

Anthropologists reject the notion that Bitcoin is just about speculation. Bitcoin is an asset for owners to hold for the long term.

Bitcoin is sustained not only by greed, but also by community, beliefs, and a sense of belonging (Morucci).

“Balinese Cockfights & Bitcoins”

5. Bitcoin is a mirror

The meaning of Bitcoin is “loose enough to mean many things to the members of the community, but specific enough to bind that community together.” The facts that this community is a new type of organism (Quittem) and that bitcoin’s valuation is difficult to establish mean that each person can project the meanings and desires of their choice on them. Bitcoin tells us all what we want to believe, and that is true of both lovers and critics (Kavanagh et al.).

6. Bitcoin is highly political

So, Bitcoin has the ability to create political bodies. It has the ability to project our primitive human passions, even in ways that are destructive to the current political, economic, and social systems (Caldararo).

For example, to the Bitcoin community in cyberspace and offline, hodling is a way of countering state-controlled debasement of the value of money (Morucci). Furthermore, a study of a Bitcoin coffee shop in Slovakia showed how the staff supported the initiation of Bitcoin “newbies.” Bitcoin provided a great degree of power and freedom from the state’s “Big Brother techniques” of control to the coffee shop (Tremcinsky).

Interestingly, others have come to the conclusion that Bitcoin can help us to overcome corporate power entrenchment caused by the centralisation of new technologies, which is currently in the hands of a few tech corporations (Caldararo).

7. Bitcoin is not just dependent on the math and is not entirely “trustless”—its social layer is essential to maintaining it and giving it value

Anthropologists have criticized the Bitcoin community’s belief that Bitcoin is totally trustless and entirely “run by numbers.” According to anthropologists, this would be impossible because we are social creatures, which means that Bitcoin’s sociocultural layer plays an important role in determining whether it has value, and what that value is. The formation of democratic communities in the digital economy remains embedded in social relations. So, the idea that Bitcoin is not mediated by any institution is seen as an illusion (Tylor and Bill Maurer).

A similar stance has been echoed by Giacomo Zucco, who proclaimed the importance of maintaining a puritan Bitcoin-only stance whereby all cryptocurrencies besides Bitcoin are declared “shitcoins” and not worthy of holding.

This further highlights that the “social layer” of the Bitcoin protocol is just as important as the technical one.

8. The nature of money is changing, and Bitcoin will play a critical role in the future

Anthropologists have noticed that, thanks to Bitcoin, serious questions are being raised about the nature of money, which has important implications about society and humanity at large. Even if it fails, Bitcoin is a fascinating “‘breaching experiment’ that helps to reveal how money is implicated in the social order and how particular values and practices come to emerge” (Kavanagh et al.).

In his book “The Social Life of Money,” Dodd wrote that what is considered money has changed through time, and that we are on track to see it change again. Money is becoming increasingly fragmented, and Bitcoin is likely to play a role in the future of money.

Anthropology’s Limitations In Understanding Bitcoin

Anthropology is far from perfect, and it has some challenges as a framework for understanding Bitcoin:

  • Anthropology lacks the quantitative toolkits needed to be able to understand and research on-chain activity, from which one can gain many behavioral insights. We need to push anthropology to be able to understand the technological backbones of our digital world so that it can remain relevant and engage in broader discussions with other disciplines.
  • Anthropology has always been a highly diverse discipline, welcoming perspectives, theories, and approaches from very different viewpoints and other disciplines. However, in the last few decades, it has been undergoing increasing homogenization towards hyper-reflexive, highly theoretical, and overly philosophical schools of thought, which often lose touch with people’s everyday lives.
  • Anthropology lacks a systems view of macroeconomics and does not do enough to understand the basics of the current monetary paradigm. This leads many anthropologists today to view the market as simply dysfunctional and the system as simplistically capitalistic or neoliberal with little awareness of the extensive role that central banks play in economies.

Like the rest of academia, anthropology has no (or little) skin in the game, so not only can it afford to be wrong, but it can continue being wrong and pretending that it is right. Anthropology does not need to be scared to become more applied in praxis, and by doing so, it can grow its methods and frameworks. This is what the hybrid discipline of design anthropology is doing today.

Conclusion

The key takeaway here is that anthropologists have many interesting things to say about Bitcoin. In contrast, economists’ commentaries are often very stale and uninformed.

Anthropologists recognize the important role that Bitcoin is playing in leading us to rethink what money is, which in turn has many consequences for social life. At the same time, anthropologists also recognize that the social dynamics and community surrounding Bitcoin, its memes and the socio-cultural elements of the Bitcoin phenomenon are critical to its success.

Anthropology may not be the best discipline to understand Bitcoin as a whole, but the same can be said about every other discipline on its own. Bitcoin is complex, and to fully understand it would require an understanding of engineering, cryptography, incentives, culture, social psychology, network systems and much more. In other words, it is not a one-discipline job.

The cultural and social aspects of the Bitcoin phenomenon cannot be understated and overlooked, as therein lie answers to many questions (such as the why). Why do people care about Bitcoin? Why should we care about Bitcoin? Well, for many anthropologists, this technology may well be brings money back in the hands of the people.

Notes:

  • I am aware that the disciplines of anthropology and economics are highly varied and complex, more so than I am picturing here. I am therefore guilty of making generalizations. I do not purport to speak for all economists or anthropologists out there.
  • That said, this article does not aim to be a criticism of economics as a whole, but of its current state: it has lost touch with reality because of its command-and-control approach, top-down methods, models, assumptions, and the lack of a systems perspective.

Acknowledgements:

Thanks to the following thinkers and writers for the invaluable feedback: Martin Tremcinsky, Emil Sandstedt and Paula Magal.

This is a guest post by Michele Morucci. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

You Need To Withdraw Your Bitcoin

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There are various reasons why you should withdraw your bitcoin and utilize self-custody.

A Bitcoin ETF is coming, whether you like it or not.

You might be excited at the stamp of approval this gives bitcoin from the old guard. It will also allow many investors to much more easily gain exposure to bitcoin through current accounts at big banks. These are huge positives for a new commodity that’s rapidly gaining recognition as a revolutionary instrument for storing value over time.

However, as with many financial products on Wall Street, the people of Main Street should tread with caution. Big banks are not known for having the interests of the average Joe in mind.

The biggest hidden danger of a bitcoin ETF, though, goes deeper than the big banks. It goes all the way to the most powerful governments and the source of the world’s current reserve currency.

We all need to ask ourselves before we buy any bitcoin ETF: At the end of each day, who actually holds your bitcoin?

This question may seem innocent today, but history tells us it could be very important in the near future.

Where Are Your Assets Held?

For all the evolution in “fintech” over the last decade to make investing easier — from robo-advisors to gamified trading apps — the underlying structure has not changed.

Why? Mostly because regulation stipulates who can hold what assets and how that ownership is proven and governed, leading to a lack of innovation in old, paper-based processes. The banking industry does not have much incentive to upgrade the back end of their systems. Most of the supposed innovation in fintech just hides the old world behind a digital veneer.

The assets you buy and check in your brokerage apps — stocks, bonds, ETFs — are held by regulated custodians for you. Most of the time, this is not a problem; it’s actually more convenient for you. Can you imagine if you had to bring a stock certificate to a bank branch every time you wanted to sell a share? Using regulated custodians in the back with a digital interface on top makes trading much more convenient for everyone, but it does mean someone else holds your assets. We’ll get back to why that’s so important later.

Bitcoin, as a digitally native asset, is a bit different. Most places where you can buy bitcoin also allow you to withdraw that bitcoin to your own wallet. Since everything is digital, the whole process of buying and withdrawing to your wallet can take mere seconds. Bitcoin on an exchange is a bit like cash in the bank, except without the physical part where you have to go to the ATM or branch to withdraw the cash then cut a hole in your mattress to tuck it away. Whenever we withdraw bitcoin (or any asset) from the exchange or custodian that holds it for us, we call that taking “self-custody.”

Bitcoin’s purely digital nature makes it vastly easier to self-custody bitcoin than it is to self-custody dollar bills or stocks. Holding bitcoin yourself takes a few taps on your phone, not a trip to the bank or a gargantuan fight to change the regulated custodial model of most investment assets.

So most investment assets are held by a custodian, but in many cases, it’s very easy to self-custody bitcoin. So, why would you want to hold bitcoin, or any other asset, yourself?

Why Does It Matter Who Holds My Assets?

In a first world country where institutions work well, it’s hard to see why this question matters. If you live in one of these countries, you’ve probably never had a problem selling an asset or withdrawing cash from a bank.

However, if you work in an industry that’s “on the margin” of acceptability for banks and the governments that govern them — think adult entertainment or gambling — you may be familiar with the hassle and anguish of frozen bank accounts or seized funds. If you live outside the first world bubble, you may know the importance of self-custody through experience: bank failures, government seizures or corrupt institutions causing your assets to vanish.

Unfortunately, there’s a much deeper danger at play here; one that affects everyone equally, especially those in first world countries carrying heavy debts in both the public and private sectors.

To understand that danger, we need to walk through how it played out in the past, in the richest country on Earth.

When Governments Steal The Savings Of Citizens

In the early 1930s, the U.S. government was in deep trouble. The Great Depression drove the government to print money, but their ability to flood the market with cash and prop up prices was reaching its limit. At that time, every dollar in circulation (Federal Reserve note) needed to be backed by at least 40 cents worth of gold at the Fed. The Fed had maxed out the dollars they could print against the gold they had, so they needed more gold to print more dollars.

However, the Fed’s money printing created another problem: By debasing the value of cash, they destroyed existing savings and made holding cash a bad way to save up for the future. American citizens struggling to make it through the Great Depression now faced a threat to the value of their savings and wages. They needed an asset that could not be debased. Back then, all they had was gold.

Both the American government and American citizens chased after gold. What happened next?

The American government seized the gold of its citizens.

President Roosevelt signed Executive Order 6102 on April 5, 1933, using wartime powers still in effect to order all persons to deliver their gold coins and bullion to the Federal Reserve on or before May 1 of the same year and to bar any further purchasing of gold by private citizens.

Of course, the Federal Reserve would give everyone dollars in return for their gold, at the current market rate of $20.67 per ounce of gold. Feels fair, right? Well, less than a year later the dollar was revalued at $35 per ounce of gold through the Gold Reserve Act of 1934, devaluing those dollars by almost 50% against the gold everyone traded in.

The Federal Reserve was thus able to continue devaluing the dollar, but private citizens were barred from holding the very asset that could protect their savings from that devaluation.

Those Americans who held gold coins under the floorboards of their house had some chance of protecting them from seizure. Gold kept in banks, however, was far easier for the government to seize — the authorities knew exactly where to go to get it.

Who had custody of your gold mattered a lot during this period.

Still, this was a very strained and extreme time in American and world history. What indications, if any, do we have that this little bit of history might repeat? How might bitcoin be involved?

Do Governments Have Any Reason To Want To Seize Bitcoin Today?

First, it’s important to understand that bitcoin was designed purposefully to combat the inflationary tendencies of governments and central banks. When economic downturns occur, governments are always tempted to print more cash, saying they are “satisfying demand for cash.” In reality, they are debasing the value of cash for all who hold it and reallocating value to whoever the government pays with that newly printed cash.

From Satoshi Nakamoto’s thread unveiling the Bitcoin white paper:

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.

[Bitcoin is] more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes.

This is why bitcoin has come to be known as “digital gold.” It provides the same protections for savers that gold provided in past inflationary periods, with vastly improved accessibility and portability. This is due to bitcoin’s supply not responding whatsoever to changes in demand. Precious metals are the only other assets on Earth with a total supply that acts similarly, though not as predictably, as bitcoin.

When governments decide to spin up the printing presses for their fiat currencies, store-of-value assets like bitcoin and gold serve as exits from fiat debasement.

The Conditions For Seizure

For governments to have any reason to seize Bitcoin — or any other store-of-value asset — there would need to be a major crisis at the end of a long accumulation of debts, like in the 1930s. Governments would need to respond to the crisis by devaluing their currencies through money printing — just like in the 1930s.

This would punish those who hold or receive salaries in fiat currencies by debasing their savings and earnings. In turn, people (everyone!) would run for the exit, selling their sinking fiat currency for other assets that cannot be debased.

Governments can either watch their currency — and the power that comes with it — evaporate faster and faster as a result of their own debasement and the selling it caused, or they can use the power they have left to do what Roosevelt did in 1933. They can seize store-of-value assets and stop further purchases by force, essentially blocking the exit and keeping individuals from protecting their savings.

Do The Conditions For Seizure Exist Today?

Do we have a major crisis on our hands at a time of record debt levels, causing unprecedented money printing? Are we seeing rising prices for store-of-value assets?

Major crisis: check. Thanks, COVID.

Record debt levels: check.

Unprecedented money printing: check.

Rising prices for assets: check.

During a year when most of the world was in a recession, stock prices grew in value tremendously. This is a classic marker of “running for the exit” — anyone with cash is looking to buy anything else that’s a better store of value than cash. From January 1, 2020, to the time of writing, the S&P 500 is up almost 40% and bitcoin is up almost 500%. Even lumber is up 230%.

Still not convinced? Ray Dalio studies markets and economic cycles for a living — and he’s damn good at it, as the founder and CEO of the world’s largest hedge fund. In a recent piece covering the current financial climate, Dalio compares today to the 1930–1945 period, stating:

“If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other store-of-wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g., gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.”

In times of crisis, who has custody of your assets matters most. Will you leave your bitcoin on an exchange or with a custodian, or will you hold it yourself?

Withdraw Your Bitcoin

We are living in unprecedented times, in a situation that the vast majority of us have never experienced before in our lives. History and logic point to a repeat of events at the end of the last major debt cycle, where governments seized assets from citizens to solve a problem they created and save a system they benefit from.

This time, the people have a far more powerful tool to escape this seizure. However, that tool needs to be used correctly. Owning bitcoin but failing to hold it yourself is like buying a helmet but refusing to wear it when you ride. It’s not there to protect you when you need it most.

Storing your bitcoin on an exchange or owning it through an ETF product exposes your coins to seizure in the very scenario where bitcoin is most valuable and necessary: an unwinding of the current monetary system.

Thankfully, it’s still simple today to purchase and securely store your bitcoin. You might want to get on the lifeboat now before the captain cuts it away.

This is a guest post by Captain Sidd. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.

If You Don’t Buy Bitcoin, You Can’t Be Rich

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Rich is a subjective term, yet it is apparent that those with no bitcoin unknowingly lack the freedom necessary for true wealth.

Undoubtedly, fiat millionaires will read the title of this article and laugh. Languishing in mansions with foundations of debt, materialism and the physical world of fiat rich people is deceptively luxurious. Assuredly, the great empires of Rome, Venice and Constantinople also had many rich people enjoying the various splendors of wealth.

Indeed, turkeys live happy lives — until Thanksgiving.

If we can consider the fiat ice cube melting, it would be wise to conceptualize that, until the ice is fully melted, the water feels cold. It isn’t until this ice is melted that the water left behind rapidly warms relative to the temperature of the space the water is in.

This describes the stuffed bank accounts of wealthy Americans across the country. Many believe that they are keeping themselves safe by investing their money into various assets, such as equities and real estate. The problem with these markets is that they fundamentally rely on the currency system that bitcoin works to fix.

The stock market continuously reaches all-time highs because the Federal Reserve maintains low enough interest rates and a liquid enough credit market to keep it afloat. Without this third party injection of funds, the current market conditions would rapidly evaporate.

A stock market crash would eliminate much of the wealth that upper-class Americans enjoy. The difference between poverty and opulence for many is FAANG stocks that carry with them the responsibility of keeping America “rich.”

If You Do Not Buy Bitcoin, You Cannot Be Rich

Rich, as I will define it, is the freedom and ability, as enabled by one’s wealth, to do as one wishes. Perhaps there are people who feel they have enough fiat currency stored to fit in this definition. I wager that if they simply witnessed the shifting sands beneath their castle, they would immediately retract their feeling of freedom and ability.

How can one have freedom with a looming stock market cycle permanently on the horizon? Credit cycles have forced Americans into being okay with programmatic recessions in the economy, despite the drastic ramifications these busts and booms have. How come people continuously pursue real estate as a store of value despite the previous market crash of 2008?

Buying real estate as a store of value right now is like jumping at the end of an elevator falling down its shaft.

You will still be subject to the same crash and burn that all fiat is destined to experience, albeit with the extra padding your 12-inch vertical provided.

The only way to assuredly be rich, to enable one’s freedom and ability to do as one pleases, is to have an immutable noncontrolled computer program as the basis of their money. Only through the decentralized nature of the Bitcoin network can one feel secure in the maintaining of their wealth. Rich, it must be, to entrust one’s entire net worth in the only financial settlement system incapable of liquidity injection.

Inflationary monetary keeps rich people happy, but only in the same sense that alcohol keeps a college student with a paper due that night happy. The deflationary monetary policy of bitcoin is the choice to stay in and study — the safest choice, the secure choice and the smart choice.

It is with the regret of a hangover that wealthy Americans will come to realize their mistakes in ignoring this path of stability.