Arthur Hayes 4D essay: Bitcoin in time of war

Original Title: "For the War"

Original Author: Arthur Hayes

Original Compilation: Wu Shuo Blockchain

What will you do for the war?

Zoltan Pozar previously wrote in his article "War and Interest Rates":

War lead to rising inflation.

War takes many different forms. There are cold wars, there are hot wars, and, as Pippa Malmgren puts it, “hot wars in cold places” in cyberspace, space, and the deep sea. The great powers are waging hot wars involving technology, goods and the flow of commodities — economic hot wars — that have been a major cause of inflation lately.

His articles all succinctly describe the global war in which the centers of political power are currently engaged. While the showdown between Ukraine and Russia may be the only directly high-profile dynamic conflict taking place right now, make no mistake: an all-out economic war is quietly being waged between the world's major flags.

Endangered

In order to emphasize the seriousness of the current conflict, the picture below is Painful chart of major conflicts between past overlords and challengers.

Of the 16 instances listed, 75% resulted in a war. History is not on our side as humans if we hope to avoid a major kinetic conflict.

Dale Copeland's masterpiece "Economic Interdependence and War" writes:

Hitler Acknowledging that the economic stimulus provided by rearmament could never form the basis of a sound economy in the long run, he further elaborated on the supply dilemma:

"Those who depend on There is a clear military weakness of a country that survives foreign trade. Since our foreign trade is conducted through the British dominated sea lanes, it is a matter of transport security rather than foreign exchange, which reveals the full extent of our food situation in wartime Weakness. It seems to us that the only remedy for foresight lies in the acquisition of large living spaces."

State Power

When war breaks out, the country takes precedence. Whatever the laws and regulations were before the war, in wartime whatever the country needs, the country will take. Since states must have what they need to wage war, the private sector is often excluded from a wide range of goods and services.

"But, it's illegal!", you might say. "My country cannot do this simply because it is wartime expedient. I want to remind these readers that a pandemic is also a war — who among us has not limited our personal liberty in the righteous fight against an invisible virus? Dai Put on a mask, inject the body with a hastily approved "vaccine", isolate at home, and basically never go out. While everyone whined and groaned, they ended up -- for the most part -- doing what the state told them to do.

When the domestic economy is unable to produce enough goods and services to support the state and the private sector, the state resorts to making the people pay and the government to increase the fiat currency supply, and as the war progressed and goods became harder to come by, these currencies became less and less valuable. During previous world wars, shortages of milk, bread, butter, sugar, and labor abounded and there was nowhere to hide. In the current iteration of global economic warfare, we still have shortages - and they look a little different. We are already short on semiconductor chips, face masks, baby formula and weapons.

In wartime, you either have a loaf of bread, or you don't. In wartime, banks are either open or not. In wartime, when you wanted to travel, you either had the proper stamp in your passport, or you didn't. In wartime, distribution is key, price is secondary. Consequently, the price curve for all necessities and services is inelastic.

So as we enter World War III, fighting in unconventional corridors, how do we, as ordinary citizens, protect ourselves and our families from Influenced by the "all or nothing" dichotomy that prevailed in wartime? In the absence of traditional legal protection, how do we protect ourselves from countries that need our resources because of... wars?

Once upon a time, many people believed that the best way to save money was in a hard currency like gold. But this line of thinking is common, with states banning private ownership of precious metals and forcing gold owners to sell their bullion to the government at a low price.

And some of the more industrious civilians began exchanging their money for the more "hard" fiat currency and storing it abroad. But the government also has an answer to this: capital controls (that is, laws that restrict the flow of money out of the domestic economy).

So if the government uses all these levers to prevent its citizens from protecting themselves and their wealth, what choice do we have to protect ourselves from a third Possible devastation after a world war?

There are many people who understand the shift in how markets work in peacetime versus wartime and may use this understanding to create, accelerate and/or strengthen their fortunes and power. Strive to be one of the participants in this sad thing we call global total war.

It's not dramatic, any asset with legal title is fair game for wartime confiscation no matter how rich or powerful you are. Your bank account, your stock portfolio, your house, your car—your ownership of these things depends on the state maintaining and protecting your exclusive rights to use them.

Let's go back to World War II and observe how different nations treat the property of their citizens. In this article I look at how the US, UK, Germany and Japan dealt with wartime rationing, and what that means for capital controls, access to food and its price, and ownership of "hard currencies" like gold - and then I argue That said, under these difficult conditions (which we might see again in some form if World War III begins to escalate into a larger conflict), Bitcoin will be the best means for civilians to preserve their wealth.

Before I start, a public service announcement to insert - now is the time to buy bitcoin. Because once your fiat assets are frozen or legal capital controls are established, your wealth cannot be converted into a harder currency. Back then, your fortune depended on the whim of the state, and you better hope the flag emblazoned on your passport won. This is how the state gains mass support - it deprives them of escape. The only way out is through!

capital controls

capable of mobilizing most of the resources of its citizens and sending them to war The flag is the flag that will win. Governments must control these private resources in physical form (i.e. food, machinery, labor) or abstract form (i.e. money in circulation, financial assets such as stocks, bonds, etc.). The physical route is more obvious, and the mentally more destructive. Imagine a government villain knocking on your door and demanding that all the food in your kitchen be used to feed hungry soldiers, or that you work 8 hours a day in a converted factory building ammunition for below market wages. This makes war very real to ordinary citizens.

So, instead, we can expect the state to go the abstract route, targeting citizens' money and assets. States have always had very ingenious ways of imposing monetary patriotism on their people.

Its most benign strategy is to sell its civilians low-yield government bonds, stoking their patriotism and convincing them to patriotically pour idle capital into the government. A common example of this is war bonds. War bonds turn citizens into "investors" in the war effort. Now, everyone's interests are aligned. We won the war and you get your money back.

The yield on these war bonds will not be higher than the domestic inflation rate, because if they do, the government will slowly go bankrupt. But governments won't stress the fact that their yields are below inflation -- they'll count on their citizens' ignorance of how bond numbers work.

No matter how hard the government tries to sell the public the justice of these bonds, the average person probably understands that war means inflation (or at least inflation as the war drags on) aware of this). As long as human civilization exists, there will be wars. Countries always "pay" for wars with inflation. Ultimately, this could leave citizens scrambling to find a way out of this harmful vice.

From a national point of view, this is why capital controls—likewise laws that prohibit or restrict the transfer of money and assets outside the domestic economy—have to be instituted. Without them, traitorous civilians will turn their capital into hard currency and keep the flames of war from burning. Capital controls make it nearly impossible to escape the country's financial system, as all options to convert the national currency into a harder equivalent or to buy financial assets with higher yields than government bonds are essentially forbidden. Once the country's citizens are struggling financially, they're likely to succumb to the situation -- earning a paltry yield that can't beat inflation is better than no yield at all. This is how you begin the process of transforming the people of this land into financial patriots.

Let's take a look at how countries implemented capital controls during World War II.

Overt capital controls

Overt capital controls directly limit the movement of money across borders and between currencies flow between. The end result is a fragile capital pool that can easily be channeled to "patriotic" ends.

Americas

During World War II, the movement of capital outside the United States was largely unrestricted . The United States has the strongest economy with no actual war within its borders; domestic capital has little reason to flee.

However, the only asset the US does tightly control is gold.

For decades, the Federal Reserve has been required to hold 40% of its issued currency as gold and redeem the holdings of U.S. citizens at $20.67 an ounce of gold. But the Emergency Banking Act of 1933 gave the president greater control over banks, international transfers, and gold, and paved the way for Executive Order 6102 — an order created by President Franklin D. Roosevelt (FDR) during World War II promulgated and required Americans to immediately exchange gold with the government or face penalties.

Roosevelt's gold confiscation policy meant that private owners were obliged to take their coins, bullion or gold certificates to the bank and exchange them at the current $20.67 an ounce The exchange rate converts it into dollars. Over the next year, the president then raised the official gold price to $35 an ounce, effectively devaluing the dollar by 40 percent in an effort to fuel inflation and stimulate the economy. It was part of Roosevelt's larger effort to take the United States off the gold standard. The ban on personal gold lasted until December 1974, when President Ford legalized private ownership.

Let this chart stick: Gold capital controls lasted 41 years, and in that time the dollar lost 80% of gold's purchasing power. Trapped capital is dead capital.

UK

The UK has extensive capital controls - covering most imports and exports as well as private Portfolio and retail investing. These policies were implemented as part of the Emergency Powers Act of 1939. It was later updated with the Exchange Control Act of 1947.

The sale of securities, the conversion of sterling into any other currency, and the movement of funds abroad are strictly controlled. Your capital is not yours at all. You can only sell securities, make foreign exchange, or send money out of the country if the government deems your reasons for moving finances abroad to be legitimate under their rules.

Professor Daisuke Ikemoto writes: "Exchange controls were first introduced in 1939 for wartime purposes but have remained in place since the end of the conflict. This makes Successive UK governments have been able to reconcile the maintenance of a fixed exchange rate with their commitment to demand management policies.

Germany

During the war, Germany imposed capital controls so that funds could be used to "invest" in government bonds. These measures, in particular the yield on German government bonds, are described in more detail in the next section.

After the war, in the early years of the Federal Republic of Germany, current account deficits and lack of foreign exchange reserves led to a strict ban on any capital exports by residents. The legal basis for these controls was contained in the foreign exchange regulations of the Allied-occupied territories. However, by the early 1950s, West Germany's current account swung into surplus, and the country's war-related external debt was finally settled. Restrictions on foreign direct investment abroad began to be eased in 1952, and residents were allowed to purchase foreign securities starting in 1956.

Japan

I do not have a good document detailing the capital controls. However, I found this illuminating paper discussing the various ways in which basic commodities were produced in the Southeast Asian countries Japan occupied during the war. The following is the abstract of the paper:

This paper analyzes how Japan financed its World War II occupation of Southeast Asia, the transfer of resources to Japan, and the currency and currency of Japanese policy Expansive consequences. In Malaya, Burma, Indonesia, and the Philippines, the problem of paying for resources and occupying forces in military terms has greatly increased the money supply. Despite the high rate of inflation, hyperinflation was virtually non-existent due to the constant transactional demand for the currency, Japan's hard-line enforcement of the currency monopoly, and Japan's diminished military ability to bring resources home. In Thailand and Indochina, occupation costs and bilateral liquidation arrangements created nearly unlimited Japanese purchasing power and allowed the transfer of one-third of Indochina's annual GDP to Japan. While the governments of Thailand and Indochina financed Japan's needs primarily by printing large amounts of money, inflation only rose with monetary expansion as money continued to be used as a store of value in rice-surplus regions.

If Japan "diverted" a third of Indochina's annual GDP to fuel its war effort due to lack of basic goods, do you think the country would let ordinary citizens Evade their patriotic financial responsibilities by allowing capital to flee abroad? If you believe they allowed Japanese civilians to escape, are you a bodoh or what?

After the war, the focus on rebuilding the economy meant that capital inflows and outflows were tightly controlled. The policy was implemented in the early days of the Allied occupation of the country and eventually derived its legal basis from the Foreign Exchange and Foreign Trade Control Act of 1949. In principle, all cross-border movements are prohibited unless specifically authorized by administrative decree. These restrictions did not begin to be relaxed until the early 1960s, and even then only for certain flows closely related to foreign trade transactions.

Global situation after the war

The graph below shows the post-war situation after the entry into force of the Bretton Woods Agreement Pervasiveness and persistence of capital controls.

Today's Conflict

Let's take a quick step forward and learn about the open world today What capital controls look like. Russia has taken some steps to prop up the ruble as the conflict in Ukraine rages on. Most notably, Russia imposed a $10,000 withdrawal limit on consumers and required companies to convert their foreign exchange reserves into rubles. The expected result of strengthening the ruble has been achieved, and the government believes that the restrictions are necessary to avoid financial pain and will be lifted once the risks subside.

Financial repression

Going back to World War II, these countries have now implemented With capital controls, their domestic capital is stranded, and the investment options available to their civilians are limited. What did the state do next to seize the landlocked capital of its citizens and turn them toward a war effort? They happily offer debt obligations to the Patriots to help fund the fight. Where possible, I have attempted to compile a numerical representation of the real yield on various "war bonds" or other government bonds issued during and after the war.

American War Bonds

Thankfully, the U.S. Department of the Treasury has written a report on Excellent report on the history of World War II financing methods. While I have no similar reports for other countries, note how the funds were raised and the rationale given. Below is an excerpt from that report, with commentary in real color added.

By early 1941, public debt expanded rapidly. The danger of price inflation is growing as defense spending pumps money into the economy and diverts consumer goods from the market. There is clearly a need to take surplus funds out of the spending stream and store them for future use, thereby helping to reduce inflationary pressures during this critical period.

This is Economics 101 - Government spending crowds out private markets. You can't have a washing machine if the government requires a water tank.

The government created a new bureaucracy to market the newly issued war bonds. Art created by famous artists helps convince ordinary citizens to give up their scarce capital.

America's entry into the war created many new problems for the government that could only be solved with the help of the public. Rationing—protection—manpower—allocation of scarce supplies—these are just some of the key programs (besides the purchase of war bonds) that required public cooperation.

That's clear - I couldn't have said it better myself.

This awareness, even when the sale of small bonds to small investors was going very well, raises a thorny issue: voluntary bond schemes Can it really work, or do we have to design a system that forces loans to the government (that is, mandatory savings)?

...

Only Treasury Secretary Morgenthau, backed by President Roosevelt, opposed the plan (forcing ordinary citizens to surrender savings plan). His point is that the voluntary way is the "democratic way" - but even he is forced to concede that some form of mandatory savings may indeed have to be considered if the upcoming war loan campaign fails to produce the desired results .

If the public does not voluntarily give the state what it needs, the state must accept it. While the "mandatory" option was never taken, the U.S. Treasury Department stands ready to do whatever it takes to finance the war, even if it means stripping its citizens of their property rights.

The picture below shows that the United States issued war bonds worth $186 billion between 1941 and 1945.

Are war bonds a good investment? It depends on your definition of "good". If by "good" you mean bondholders earning more than inflation, then the graph below disproves any notion that these are "good" investments.

These bonds have a maturity of 10 to 12 years. Assuming you bought the bond when it was issued and held it to maturity, the chart above shows how much you actually lost. This is indeed shocking.

But from the government's point of view, the war bond campaign has been a huge success. In wartime, the public voluntarily surrendered hundreds of billions of scarce capital. This capital was used to arm and feed armies rather than competing for limited consumer goods and fueling domestic inflation.

UK

UK Conssol bonds are the longest-running bonds of any modern nation-state , which lasted from 1756 to 2015/16. But here, we'll focus on the real yields on these bonds during and shortly after the war.

During the wartime period from 1939 to 1945, holders of Consol bonds actually lost 24%. Thank you for your participation!

Germany

In an article entitled "During the Second World War, Germany's economic In an insightful essay on financing," author Zdenka Johnson has the following to say about measures to seize capital and finance the war effort:

The merchants who traded with the empire then had to accept that up to 40% of payments for goods and services were made in the form of interest-free tax bills (Steuergutscheine). These vouchers could have been used to pay tax obligations to the state in the future and also provided tax benefits. This debt instrument solves several problems at the same time - the government gets very favorable loans, spends less cash, and doesn't have to issue as many government bonds. After half a year of regulatory validity, private companies "lend" the government almost 5 billion marks.

Opportunities to invest in private securities are limited to success. For banks and private investors, there is really no choice but to invest in [government securities]. In 1940, mainly savings banks provided 8 billion. RM to the state, nearly 13 billion the following year. By the end of 1944, two-thirds of savings were in securities, 95 percent of which were state bonds.

During and after the war, Germany followed a standard prescription for how to finance the war. Lock up capital and then force it to lend to the state at paltry interest rates.

As mentioned above, the seized capital of individuals and businesses was forcibly loaned to the state. While I couldn't find a solid dataset on bond yields and consumer price indicators, here's a chart detailing how public debt swelled during the war. One data point I did find on yields stated that yields averaged 3.9% in 1939, dropping to 3.5% in 1942. Yields fell, but public debt grew 4.5 times. Typically, when supply increases sharply, prices must fall without a surge in demand. When bond prices fall, yields rise. So, even with little data, we can observe how the government saves money by forcing the public to "invest" their idle capital in the state because the yield is lower.

Japan

We have no wartime bond or inflation data.

While none of the government bonds yielded more than inflation, the winners at least got their money back plus interest. German bondholders face outright defaults and serious legal challenges in collecting debt after the war. It shows - being a winner pays off.

Today's Conflict

So far, none of the major powers have started selling "war Bonds", mainly because technically the US/NATO and Russia/China are not at war. However, in today's era of more liquid capital, pay close attention to the rules and regulations regarding how public and private pension/retirement accounts must be invested. Baby boomers around the world have trillions of dollars worth of “savings” in these managed pools. The government deliberately sets the rules so that this capital can only go into "approved" investments. Note that there are more restrictions on how to invest your retirement savings, prioritizing the state over everything else.

Food Rationing

The last major economic exercise of the government in wartime will now be presented A form of control - food rationing - and its effect on prices and citizen wages during World War II. Before I start, I should point out that in the case of World War III, the food rationing situation probably won't be the same as what happened during World War II. I think we are more likely to see food shortages than immediate food rationing. However, I expect the price and cultural impact of food shortages to be similar - so it's still useful to look back at what happened to food rationing during this period.

Japan

Official rationing was first implemented in 1938 and gradually expanded by 1942 to include "virtually all basic necessities". As Junko Baba Junko points out, rationing is carried out under the slogans "Luxury is the enemy" and "Don't desire until you have won". Rations are systematically controlled, monitored and distributed to households on a limited basis through neighborhood associations (tonari-gumi) in every community across the country.

In 1939, the supply of rice was controlled by the government, while rationing of consumer goods began in 1940. By 1942, rice, wheat, barley and rye were monopolized by the government. Despite police efforts, a black market -- or rather, a free market -- flourished, facilitating the exchange and sale of a variety of consumer foods.

The following is an example of how big the price difference might be for a basic item.

Rice prices during World War II

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If you've been to Japan (or Asia in general), you know how important rice is to the diet in general. During the samurai era, the warrior class was paid in rice (called koku).

As you can see on this log chart, the "true" price of rice is sometimes 10 times higher than the official price. Given the large rations of basic foodstuffs, you have to pay exorbitant prices for rice if you want to consume as much as you want, or even none at all.

Unless your income has increased 10x since the war broke out, the fiat money you stash in your mattress is worth 90% less in purchasing power than rice . Let me ask you back, what is the value of legal tender when you can't even afford a bowl of rice?

I do not have such graphs illustrating free market prices of basic food items in the US, UK, and Germany, but I will briefly describe food rationing systems in other wartime countries.

United States

The United States rationed extensively to aid the war effort. Tires, sugar, meat, milk, coffee, etc. can only be purchased using distribution points granted by the government. As Laura Schumm notes, "On January 30, 1942, the Emergency Price Control Act authorized the Office of Price Administration (OPA) to set price limits and ration food and other goods to discourage hoarding. and ensure fair distribution of scarce resources. Managing rationing is a complex bureaucracy with more than 8,000 local offices and point allocations are reassessed monthly. Different population groups receive different benefits and everyone gets A non-transferable coupon booklet. Families are encouraged to grow "victory gardens" to provide as much of their own food as possible.

If you think going to the Department of Motor Vehicles is bad (for non-Americans, imagine your frustrating visit to a government bureaucratic office) , imagine wading through the bureaucratic swamp to feed your starving children.

Britain

Britain began war rationing in 1939, administered by the Ministry of Food. Basic items (meat, sugar, cheese, etc.) and most products (cereals, crackers, rice) are split by coupons. While fruit and vegetables were never rationed, the long lines and shortages made keeping supplies a daunting task for most housewives. The distribution varies across populations, with workers getting a larger share, children getting more fat, mothers getting more milk, and so on. The government also encourages the cultivation of crops at home, which they call "victory gardens".

Germany

Ratios in Germany began in 1939, shortly after the start of hostilities. Individuals get cards (renewed every 4 weeks), and are assigned food points. While strict rationing didn't go into effect until 1942, shortages in meat, eggs, milk, bread and more have been seen throughout the grocery aisles over the past three years. Germany also differentiates rations by individual (workers, mothers, Jews, etc.). Unsurprisingly, the country has also experienced a thriving free exchange market.

Today's Conflict

The US, Europe, Russia and China have not started rationing food. But remember, history is an imperfect guide to the future. While food rations previously helped the hungry feed the seeking glory, today's food rations - for all countries that ended up in World War III, or for all countries that depended on food exports from these great powers - could be different .

Think about it, the reason most of us are able to make a living staring at a computer screen is modern farming. We use fossil fuels to power mechanized agricultural equipment and our industrial chemistry knowledge to produce fertilizers on a large scale. This allows very few people to be employed as farmers without any negative impact on our vast modern agricultural output. In short, industrialization and urbanization moved humans from farms to cities.

Imagine a world in which countries that produce a disproportionate amount of global fertilizer restrict exports to hostile countries. Imagine a world in which countries that are the "workshops of the world" refuse to export the critical components needed to build and operate industrial mechanized agricultural equipment. Imagine a world in which energy flows are so disrupted that the fossil fuels needed to power farm machinery simply don't exist. The result would be a sharp drop in agricultural production, followed by famine in some countries.

Given that there are not millions of people fighting on the battlefield, they must be fed, and I expect that the shortages caused by export restrictions and low agricultural production will replace the More immediate shortages were caused by soldiers providing food. At this point, as Logan Roy so eloquently asked, "What's the price of a pint of milk"?

Your domestic fiat currency will not be able to keep up with this food inflation. If you are experiencing food inflation, it means that your country is structurally deficient in the necessary components of modern agriculture, and no amount of money printing will solve this deficit. Governments have always resorted to quotas and subsidies to ease the pressure - but they never work and only exacerbate the problem. Why would a business take a risk trying to solve this problem when the government ends up confiscating their property to feed the people?

At this point, the free market will spring up. The free market used to be physical, but if physical cash is banned and only electronic forms of money are accepted, then free market goods will be priced in electronic money that the state cannot confiscate. I predict that the currency of the free market will be Bitcoin.

Get Out

If you took anything away from the last section it should be Governments have a variety of tools to enforce financial loyalty and limit your ability to invest - and history shows that such controls (plus other effects of war) often take a considerable toll on civilians' personal finances.

With that in mind, the best time to get rid of wartime capital controls is before they are enacted. Remember, at this time, your legal net worth is zero and you have access to your bank accounts, stock portfolio and real estate at your own discretion. But when the state says Nyet wants capital free, it's game over.

In this digital age, we have to think very carefully about what is a fiat digital financial asset and what is a truly decentralized cryptocurrency. If you think you are evading EU capital controls by transferring EUR bank balances to CHF bank balances, you are missing the point. Any digital asset held within the banking system, regardless of currency, is fair game for confiscation. You must log out of the system completely.

Bitcoin's value and transmission network is not dependent on government-chartered banking institutions. Therefore, it is outside the system, "outside the money". Of course, governments can shut down the internet and power grids. But by then, your country has already lost the war. Instead of worrying about your financial assets, you better hope you have another country's passport and escape to greener pastures.

Governments could also easily ban the conversion of fiat currencies into bitcoin, potentially preventing capital from escaping its control. However, it may not be able to confiscate bitcoins from those who already hold them - here's why.

Bitcoin’s Intrinsic Value

There is no mathematical way to prove a particular The public bitcoin address of , or I am able to spend the bitcoins contained in the address. Only when I sign a message that spends a bitcoin output can I be reasonably sure that I have access to that address at that particular date and time. This was revolutionary and not fully understood by most people.

As with all other monetary assets, I can easily determine who owns it without assuming discrete actions by the owner. If you say you have a gold bar, I can see the gold.

If you say your bank balance is $1 million, I can ask the bank to confirm. If you say you own that house, I can ask the government whose name is on the deed. But with bitcoin, just because I suspect a public address might belong to you doesn't mean you can actually access the funds at that address.

Furthermore, Bitcoin has no physical representation, I can commit my Bitcoin private key to memory and spend funds at any time without anyone knowing . There is no outwardly visible clue as to how many bitcoins I own.

The point is, you can convert fiat assets into Bitcoin unobtrusively. Bitcoin has no mass. $1,000,000,000 converted to bitcoin is as weightless as $1 converted to bitcoin, while $1,000,000,000 converted to gold weighs several metric tons. It is extremely difficult to protect tons of gold from the greedy eyes of states. A gold bar in the bank, fiat currency in the bank, or your home could also be stolen without your consent.

For someone to take "your" bitcoins, they either need to know your private key (i.e. your password), or they need You sign a deal for them. But what if you "forgot" your bitcoin wallet password? Well, then funding would be completely unavailable. So, while states could enforce laws granting themselves ownership of specific public addresses, enforcing those laws would be rather difficult - since the state has no control over the bitcoins contained in those wallets without your consent.

Of course they have a very easy way to get your consent. State agents armed with blunt objects or guns could visit your residence and ask you to sign a transaction that transfers bitcoins to the state. You might protest that you "forgot your password," leading to "enhanced interrogation" by agents, such as breaking your knee or shooting you in a non-lethal manner. You may remember your private key at that point - but you may not, either. If not, you could be permanently crippled, or your life could be extinguished, depending on your decision, but they still won't have access to your bitcoins.

How Bitcoin Will Survive

Assumption:

A Full scale world war

Capital controls

With these two assumptions, how can Bitcoin Can it be mined? Remember that mining is necessary to keep the network functioning properly because mining is actually the act of verifying and confirming transactions.

Obviously, any country that enacts a modern version of capital controls is likely to ban bitcoin mining on its territory. So how will the network work if the major economies are all fighting each other?

One party may decide to use Bitcoin as a financial weapon. If a group of flags believes that the operation of the Bitcoin network will economically weaken their opponents, then game theory suggests that they may allow miners to exist. However, this is naturally a tenuous relationship, and if at any point the state decides that mining Bitcoin has served its purpose, it may ban and confiscate any associated machinery.

Alternatively, in any conflict there are always neutral nations - these neutral nations reap significant economic rewards by allowing both sides of the war to coexist within their borders. Switzerland didn't take part in either world war, although it was rowdy in the middle of Europe. Switzerland wasn't born with a lot of natural energy, but imagine another country with an abundance of natural energy, such as hydro or geothermal, decided to take Switzerland's neutral approach. This would be an ideal place for Bitcoin miners to operate. Miners will be heavily taxed, but at least they will be allowed to exist. Bitcoin can go on and neutral countries will be born as a safe haven for crypto capital.

Finally, keep in mind that prior to 2013 - when ASICs were first commercially available - Bitcoin mining could be done by hobbyists using personal computers, thereby profit. It goes without saying that the network hash rate was much lower at the time, but the beauty of the self-correcting nature of Bitcoin's network difficulty is that it creates the possibility for Bitcoin mining to recover to a level of A profitable activity that can be carried out by ordinary computer users, not just very well-capitalized mining businesses. If commercial mining is explicitly or implicitly banned, the network can still function if enterprising individuals still find value in supporting the network that underpins a digital RMB currency.

Price Conversion

Readers may also be frustrated that if the economic war escalates, I No price forecast is provided. The moment war becomes "total" for both sides is the moment you lose all options to protect yourself financially. The fiat price of Bitcoin is no longer a thing. Who cares how many dollars/euro/yen/renminbi/ruble etc. buy one bitcoin when you are prohibited from converting fiat currency to anything other than domestic government bonds?

At this point, I expect bitcoin prices to shift from fiat to oil. Oil is the energy that drives modern civilization. The goal of Bitcoin ownership is to maintain continuous purchasing power over oil. "Bitcoins per barrel of oil" will be the new exchange rate.

The goal is to maintain fiscal flexibility in the face of the vagaries of war. 100% of your financial capital should never be parked in just one monetary instrument, whether it be Bitcoin, domestic fiat currency, bonds, stocks, real estate, commodities or gold. However, your opportunity to transfer fiat assets into Bitcoin and other "real" assets only exists today, not tomorrow. Remember this.

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