What will you do for the war?
Zoltan Pozar previously wrote in “War and Interest Rates”:
The war led to rising inflation.
War takes many different forms. There are cold wars, hot wars, and, as Pippa Malmgren puts it, “hot wars in cold places” in cyberspace, space and the deep sea. Great powers are waging hot wars involving the flow of technology, goods and commodities—economic hot wars—that have been a major cause of inflation of late.
His essays all succinctly describe the global war that the current centers of political power are engaged in. While the showdown between Ukraine and Russia may be the only immediate high-profile dynamic conflict taking place right now, there’s no doubt about it: a full-scale economic war is quietly waged between the world’s major flags.
To underscore the gravity of the current conflict, here’s a harrowing chart documenting major conflicts between old overlords and challengers in the past.
Of the 16 instances listed, 75% resulted in war. History is not on our side if we hope to avoid a major kinetic conflict.
In Dale Copeland’s masterpiece “Economic Interdependence and War”:
Admitting that the economic stimulus provided by rearmament could never form the basis of a sound economy in the long run, Hitler further elaborated on the supply dilemma:
“There is a clear military weakness in those countries that depend on foreign trade for their survival. As our foreign trade is carried out through British-dominated sea lanes, it is a transport security issue rather than a foreign exchange issue, which in wartime sheds light on our grain The overall weakness of the situation. The only remedy that seems to us to be visionary lies in getting a huge living space.”
When war breaks out, the nation takes precedence. No matter what the laws and regulations were before the war, in wartime, whatever the state needs, the state will take it. Because 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 can’t do this just because it’s a wartime expedient. I want to remind these readers that the pandemic is also a war – who among us is not restricting our individual liberties in the just fight against an invisible virus? Dai Put on a mask, give the body a hastily approved “vaccine”, stay at home, basically stay home. While everyone complains and groans, they end up — in most cases — doing what the state tells them to do.
When the domestic economy cannot 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 supply of fiat currencies, which become more difficult to obtain as the war progresses and the goods become more difficult to obtain. The value is getting lower and lower. During previous world wars, shortages of milk, bread, butter, sugar and labor abounded with nowhere to hide. In the current iteration of the global economic war, we still have shortages – and they look a little different. We’re 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 were either open or closed. In wartime, when you wanted to travel, you either had the proper stamp on your passport or you didn’t. In wartime, channel is key and price is secondary. Therefore, the price curve for all essential goods and services is inelastic.
So, as we enter World War 3, fighting in unconventional corridors, how can we, as ordinary citizens, protect ourselves and our families from the “all or nothing” dichotomy that prevails during wartime? In the absence of traditional legal protections, how do we protect ourselves from countries that need our resources because of…war?
Previously, many believed that the best way to save money was in 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 low prices.
And some of the more industrious civilians began exchanging their money for more “hard currency” fiat currency and storing it abroad. But the government also has an answer: capital controls (ie, the imposition of 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 options do we have to protect ourselves from the devastation that might come after World War 3?
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 consolidate their wealth and power. Trying to be one of the participants in this tragic thing we call a global total war.
It’s not dramatic, no matter how rich or powerful you are, any asset with legal title is fair game for wartime confiscation. Your bank account, your stock portfolio, your house, your car—your ownership of these things depends on the state maintaining and protecting your exclusive right to use them.
Let’s go back to World War II and observe how different nations treated the property of their citizens. In this article, I’ll explore how the US, UK, Germany, and Japan deal with wartime rationing, and what this means for capital controls, access to food and its prices, and ownership of “hard currencies” like gold – and then I’ll argue Saying that, under these difficult conditions (which we might see again in some form if World War 3 starts to escalate into a bigger conflict), Bitcoin would be the best means for civilians to protect their wealth.
Before I start, insert a public service announcement – now is the time to buy bitcoin. Because once your fiat assets are frozen or fiat capital controls are in place, your wealth cannot be converted into a harder currency. Back then, your wealth depended on the whim of the country, and you better hope the flag on your passport wins. This is how the state gains support from the masses – it robs them of a way to escape. The only way out is to pass!
The flag that can mobilize most of its citizens’ resources and throw them into war is the one that will win. The government must control these private resources in physical form (i.e. food, machinery, labor) or in abstract form (i.e. financial assets such as money, stocks, bonds, etc. in circulation). Physical routes are more obvious and mentally more destructive. Imagine a government villain knocking on your door demanding that all the food in your kitchen be used to feed starving soldiers, or you’re working 8 hours a day in a converted factory building ammunition for less than market wages. This makes war very real to ordinary citizens.
So instead, we can expect the state to go the abstract route, targeting citizens’ funds and assets. Countries have always had very ingenious ways of imposing monetary patriotism on the people.
Its most benign strategy is to sell its civilian low-yield government bonds to inspire their patriotism and persuade them to patriotically put their idle capital into government. A common example of this is war bonds. War bonds convert citizens into “investors” in the war effort. Now, everyone’s interests are aligned. We win the war and you get your money back.
The yield on these war bonds would not be higher than the domestic inflation rate, because if they did, the government would slowly go bankrupt. But governments won’t stress the fact that their yields are lower than inflation – they’ll be counting on their citizens’ ignorance of how bond numbers work.
No matter how hard the government tries to sell the justice of these bonds to the public, the average person probably understands that war means inflation (or at least realizes it as the war drags on). As long as human civilization exists, there has been war. Countries always use inflation to “pay” for war costs. Ultimately, this could leave citizens scrambling to find a way out of this pernicious vice.
From a national perspective, this is why capital controls—again laws that prohibit or restrict the transfer of money and assets outside the domestic economy—must be in place. Without them, treasonous civilians will turn their capital into hard currency and make war hard to burn. Capital controls make it nearly impossible to escape a 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 prohibited. Once the citizens of the country are financially struggling, they are likely to succumb to the situation – earning a paltry yield and not beating inflation is better than no yield at all. This is how you start the process of turning the people of this land into financial patriots.
Let’s take a look at how countries implemented capital controls during World War II.
public capital controls
Overt capital controls directly restrict the movement of money across borders and between currencies. The end result is a fragile capital pool that can easily be channeled towards “patriotic” purposes.
During World War II, the flow of capital outside the United States was largely unrestricted. The United States has the strongest economy and no actual war within its borders; domestic capital has little reason to flee.
However, the only asset the US does strictly control is gold.
For decades, the Fed has been required to hold 40% of the currency it issues as gold and redeem the gold held by U.S. citizens at $20.67 an ounce. 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 established by President Franklin 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 private owners were obliged to take their coins, bars or gold certificates to a bank and exchange them for dollars at the prevailing exchange rate of $20.67 an ounce. Over the next year, the president then raised the official gold price to $35 an ounce, effectively devaluing the dollar by 40% in a bid to boost inflation and stimulate the economy. It was part of Roosevelt’s larger effort to get America off the gold standard. The ban on personal gold continued until President Ford legalized private ownership in December 1974.
Let this chart take your breath away: Gold capital controls lasted 41 years, during which time the dollar lost 80% of its gold purchasing power. Trapped capital is dead capital.
The UK has extensive capital controls – covering most exports and imports as well as private portfolio and retail investment. These policies were implemented as part of the Emergency Powers Act 1939. It was later updated to the Foreign 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 sell securities, do foreign exchange, or send funds out of the country only if the government deems your reason for moving your finances abroad according to their rules legitimate.
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 has allowed successive UK governments to combine the maintenance of fixed exchange rates with their commitment to demand management policies. in harmony.
During the war, Germany imposed capital controls so that funds could be used to “invest” in government bonds. The next section covers these measures in more detail, in particular the yields on German government bonds.
After the war, in the early days of the Federal Republic of Germany, current account deficits and a lack of foreign exchange reserves led residents to strictly prohibit any capital exports. The legal basis for these controls is contained in the foreign exchange regulations of the Allied-occupied territories. By the early 1950s, however, West Germany’s current account turned into surplus, and the country’s war-related foreign debt was finally settled. Restrictions on foreign direct investment abroad began to be eased in 1952, and residents were allowed to purchase foreign securities from 1956.
I don’t have a good document detailing the capital controls faced by Japanese citizens. However, I found this illuminating paper discussing the various ways in which basic goods were produced in the Southeast Asian countries Japan occupied during the war. The following is the abstract of the paper:
This article analyzes how Japan financed its World War II occupation of Southeast Asia, the transfer of resources to Japan, and the monetary and inflationary consequences of Japanese policies. In Malaya, Burma, Indonesia, and the Philippines, the issue of paying for resources and occupying forces in military terms greatly increased the money supply. Despite high inflation, hyperinflation barely occurred due to the continued demand for currency exchanges, Japan’s hard-line enforcement of its currency monopoly, and Japan’s declining military ability to bring resources home. In Thailand and Indochina, occupation costs and bilateral clearing arrangements created near-unlimited Japanese purchasing power and allowed a third of Indochina’s annual GDP to be transferred to Japan. While the governments of Thailand and Indochina have largely financed demand in Japan by printing large amounts of money, inflation has only risen with currency expansion as money continues to be used as a store of value in rice-surplus regions.
If Japan “transferred” a third of Indochina’s annual GDP to fuel its war effort due to a lack of basic goods, do you think the country would allow ordinary citizens to escape their patriotic financial responsibilities by allowing capital to flee abroad? If you believe they allowed Japanese civilians to escape, are you bodoh or what?
After the war, the focus on economic reconstruction 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 an executive decree. It was not until the early 1960s that these restrictions began to be eased, and even then, only for certain flows closely related to foreign trade transactions.
Post-war global situation
The chart below shows the prevalence and persistence of postwar capital controls after the Bretton Woods agreement came into force.
Let’s take a quick step forward and understand what overt capital controls look like in the world today. Russia has taken some steps to shore up the ruble as the conflict in Ukraine rages. Most notably, Russia imposed a $10,000 withdrawal limit on consumers and required companies to convert their foreign exchange reserves into rubles. The expected results of the strengthening of the ruble have been achieved, and the government believes these restrictions are necessary to avoid financial pain and will be lifted once the risks subside.
Going back to World War II, these countries now had capital controls in place, their domestic capital was trapped within the distress, and their civilians had limited investment options available. What did the nation do next to seize its citizens’ inland capital and turn it into a war effort? They happily offered 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. Treasury Department wrote an excellent report on the history of how World War II was financed. While I don’t have similar reports for other countries, please note how the funds were raised and the rationale provided. Below is an excerpt from that report, with comments in true color added.
By early 1941, public debt was expanding rapidly. The danger of price inflation is growing as defense spending injects money into the economy and moves consumer goods out of the market. There is clearly a need to take surplus funds out of the spending stream and store them for future use, helping to reduce inflationary pressures during this critical period.
This is Economics 101 – government spending crowds out the private market. If the government needs a water tank, you can’t have a washing machine.
The government created new bureaucracies to market newly issued war bonds. Art created by famous artists helps persuade ordinary citizens to give up their scarce capital.
America’s entry into the war brought many new problems to the government that could only be solved with the help of the public. Rationing – protection – manpower – distribution of scarce materials – these are just some of the key programs that require public cooperation (beyond the purchase of war bonds).
Clearly – I couldn’t have said it better myself.
Even when the sale of small bonds to small investors was going well, people were aware of this, which raised a thorny question: Will a voluntary bond program really work, or must a mandatory loan to the government be devised (i.e. compulsory savings)?
Only Treasury Secretary Morgenthau, supported by President Roosevelt, opposed the plan (a plan to force ordinary citizens to hand over their savings to the state). His point was that the voluntary way was the “democratic way” – but even he was forced to admit that some form of mandatory savings might indeed have to be considered if the upcoming war loan campaign failed to produce the expected 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 fund the war, even if it means stripping its citizens of their property rights.
The chart below shows the US $186 billion worth of war bonds issued between 1941 and 1945.
Are War Bonds a Good Investment? It depends on your definition of “good”. If by “good” you mean that bondholders are earning more than inflation, then the chart below counters any notion that these are “good” investments.
The bonds have maturities of 10 to 12 years. Assuming you bought the bond at issue and held it until maturity, the graph above is how much you actually lost. This is really shocking.
But from the government’s point of view, the war bond movement was a huge success. During the war, the public voluntarily handed over hundreds of billions of scarce capital. This capital was used to arm and feed the army, not to compete for limited consumer goods and fuel domestic inflation.
The British Conssol bond is the longest issued of any modern nation-state, lasting from 1756 to 2015/16. But here, we’ll focus on the real yields of 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!
In an insightful paper titled “Financing the German Economy During World War II,” author Zdenka Johnson says the following about measures to seize capital and finance the war effort point:
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 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 once—the government gets very favorable loans, reduces cash outlays, and doesn’t have to issue as many government bonds. After half a year of regulatory validity, private companies “lent” the government nearly 5 billion marks.
Opportunities to invest in private securities are limited by success. For banks and private investors, in fact, there is 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 recipe for how to finance the war. Lock up capital and then force it to lend to the state at negligible interest rates.
As mentioned above, the seized capital of individuals and businesses is forcibly lent to the state. While I couldn’t find reliable data sets on bond yields and consumer price indicators, here’s a graph detailing how public debt ballooned during the war. One data point I did find on yields stated that yields averaged 3.9% in 1939 and dropped to 3.5% in 1942. Yields fell, but public debt rose 4.5 times. Usually, when supply increases dramatically, 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” idle capital in the state, as yields are lower.
We don’t have wartime bond or inflation data.
While no government bond yields above inflation, the winners at least get their principal plus interest back. German bondholders faced outright default and serious legal challenges in collecting their debt after the war. It shows – it pays to be a winner.
So far, no major power has started selling “war bonds”, mainly because the US/NATO and Russia/China are not technically at war. However, in today’s era of more mobile capital, keep an eye on the rules and regulations on how public and private pension/retirement accounts must be invested. Global baby boomers have trillions of dollars worth of “savings” in these management pools. The government has deliberately made rules so that this capital can only go into “approved” investments. Note, more restrictions on how you can invest your retirement savings, prioritizing the state over everything else.
The last major form of economic control exercised by government during wartime – food rationing – and its impact on prices and citizens’ wages during World War II will now be presented. Before I begin, I should point out that in the context of World War III, the food rationing situation may not be the same as what happened during World War II. I think we’re more likely to see food shortages than direct food rationing. However, I expect the price and cultural impact of food shortages will be similar – so it’s still useful to look back at what happened to food rationing during this period.
Official rationing was first introduced in 1938 and gradually expanded to include “almost all basic necessities” by 1942. As Junko Baba points out, rationing is carried out under the slogans “Luxury is the enemy” and “Don’t crave until victory is achieved”. Rations are systematically controlled, monitored, and distributed to a limited extent to each household through neighbourhood associations (tonari-gumi) in each community throughout the country.
In 1939, rice supply 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, the black market—or, rather, the free market—has flourished, facilitating the exchange and sale of various consumer foods.
Below is an example of how big the price difference can be for a basic commodity.
Rice prices during WWII
If you’ve been to Japan (or all of Asia), you know how important rice is to the general diet. During the samurai era, the samurai class was paid with rice (called koku).
As you can see on this log chart, the “real” price of rice is sometimes 10 times higher than the official price. Given the large rations of basic food items, if you want to consume as much as you like, or even none at all, you have to pay a premium price for rice.
Unless your income has increased tenfold since the war broke out, the fiat paper money you hide in your mattress has shrunk by 90% in the purchasing power of rice. I ask you, what is the value of fiat currency when you can’t even buy a bowl of rice?
I don’t have such a graph to illustrate the free market prices of basic food items in the US, UK, and Germany, but I’ll briefly describe the food rationing systems in other wartime countries.
The United States rationed extensively to aid the war effort. Tires, sugar, meat, milk, coffee, etc. can only be purchased using government-granted ration points. 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 commodities to discourage hoarding And ensure fair distribution of scarce resources. Managing rationing is a complex bureaucratic system 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 their own food when possible.
If you think going to the Department of Motor Vehicles is bad (for non-Americans, imagine your frustrating visit to the offices of a government bureaucrat), imagine trudging through a bureaucratic swamp to feed your starving children.
Britain began war rationing in 1939, administered by the Ministry of Food. Basic goods (meat, sugar, cheese, etc.) and most products (cereals, crackers, rice) are split by coupons. While fruits and vegetables were never rationed, long queues and shortages made supplying household chores 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 growing crops at home, which they call “victory gardens”.
Rationing in Germany began in 1939, shortly after the start of hostilities. Individuals get cards (updated every 4 weeks), and food points are allocated. While strict rationing didn’t take effect until 1942, shortages have been seen throughout grocery aisles in meat, eggs, milk, bread and more for the past three years. Germany also differentiates rations by individual (labourers, mothers, Jews, etc.). Unsurprisingly, the country has also experienced a thriving free exchange market.
The United States, Europe, Russia and China have not started rationing food. But remember, history is an imperfect guide to the future. While food rationing previously helped the hungry with food in search of glory, today’s food rationing – for all countries that ended up embroiled in World War III, or all countries that depended on the food exports of these great powers – could be different .
Come to think of 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 use our industrial chemistry knowledge to produce fertilizers at 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 rival countries. Imagine a world in which countries that are “world’s workshops” refuse to export critical components needed to build and operate industrial mechanized agricultural equipment. Imagine a world where the flow of energy is so disrupted that the fossil fuels needed to power agricultural 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 no millions of people fighting on the battlefield who must be fed, I expect that shortages caused by restricted exports and low agricultural yields will replace the more immediate shortages caused by feeding soldiers during World War II. At this point, as Logan Roy eloquently asks, “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 lacking the necessary ingredients for modern agriculture, and no amount of money printing can 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 risk trying to solve this problem when the government ends up confiscating their property and feeding the people?
At this point, the free market will spring up like mushrooms. The free market used to be physical, but if physical cash were banned and only electronic forms of money were accepted, free market goods would be priced in electronic money that the state could not confiscate. I predict that the currency of the free market will be Bitcoin.
If you took anything away from the previous section, it should be that the government has a variety of tools to strengthen financial loyalty and limit your ability to invest – history shows that this control (plus other effects of war) usually Causes considerable harm to the personal finances of civilians.
With this in mind, the best time to get rid of wartime capital controls is before they are enacted. Remember, at the moment, your legal net worth is zero and you can access your bank account, stock portfolio and real estate at your own discretion. But the game is over when the state says Nyet wants capital freedom.
In this digital age, we have to be very thoughtful 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 Euro bank balances to CHF bank balances, you are missing the point. Any digital assets held within the banking system, regardless of currency, are fair game for confiscation. You must log out of the system completely.
Bitcoin’s value and transmission network does not depend on government-chartered banking institutions. Therefore, it is outside the system, “outside the money”. Of course, the government can shut down the internet and the grid. 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.
The government could also easily ban the conversion of fiat currency into bitcoin, and doing so could prevent capital from escaping its control. However, it may not be able to confiscate bitcoins from those who already hold them – here’s why.
Intrinsic Value of Bitcoin
At any time, there is no mathematical way to prove that a particular public bitcoin address belongs to me, or that I am able to spend the bitcoins contained in that address. Only when I sign a message that spends bitcoin output can I be reasonably certain that I have access to that address on that particular date and time. This is revolutionary and not fully understood by most people.
For 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 gold. If you say your bank balance is $1 million, I can ask the bank to confirm. If you say you own the 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 in that address.
Also, Bitcoin has no physical representation and I can commit my Bitcoin private key into memory and spend the funds at any time without anyone knowing. There is no outwardly visible clue as to how much bitcoin I own.
The point is, you can convert fiat assets into Bitcoin unobtrusively. Bitcoin has no quality. $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. Protecting tons of gold from the greedy eye of the state is extremely difficult. A gold bar in the bank, fiat currency in the bank, or your home can also be stolen without your consent.
For someone to take “your” bitcoin, they either need to know your private key (i.e. your password), or they need you to sign a transaction for them. But what if you “forgot” your Bitcoin wallet password? Well, then funding will be completely unavailable. So while states can enforce laws that grant themselves ownership of specific public addresses, enforcing those laws will be quite difficult – since states cannot control the bitcoins contained in these wallets without your consent.
Of course, they have a very easy way to get your consent. State agents armed with blunt weapons or firearms can visit your residence and ask you to sign a transaction to transfer bitcoins to the state. You may 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. At that point you might remember your private key – but you might not. If not, you could be permanently disabled, or your life could be extinguished, depending on your decision, but they still won’t be able to get your bitcoins.
How Bitcoin will survive
a total world war
With these two assumptions, how can Bitcoin 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 could 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 believe 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 fragile relationship, and if at any point the state decides that mining Bitcoin has served its purpose, it may ban and confiscate any associated machines.
Alternatively, in any conflict there are always neutral nations – these neutral nations reap significant economic rewards by allowing warring parties to coexist within their borders. Switzerland did not participate in either of these two world wars, although it was rowdy in central Europe. Switzerland is not inherently rich in natural energy, but imagine another country with abundant natural energy such as hydro or geothermal decides to take a Swiss neutral approach. This would be an ideal place for Bitcoin miners to operate. Miners will be heavily taxed, but they will at least be allowed to exist. Bitcoin can go on and on, neutrality will be the birth of a safe haven for crypto capital.
Finally, keep in mind that prior to 2013 – when ASICs were first commercialized – Bitcoin mining could be performed profitably by hobbyists using personal computers. It goes without saying that the network hash rate was much lower at the time, but the beauty of the self-correcting nature of the Bitcoin network difficulty is that it creates the possibility of recovery for Bitcoin mining to revert to a Profitable activities can be carried out by ordinary computer users, not just very well-capitalized mining enterprises. 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 the digital people’s currency.
Readers may also be frustrated that I am not providing a price forecast if the economic war escalates. The moment when the war becomes “complete” for both sides is when you lose all options to protect yourself financially. The fiat price of Bitcoin is no longer the same thing. Who cares how many USD/EUR/JPY/CNY/RUB etc. buy one bitcoin and you are banned from exchanging fiat currency for anything other than domestic government bonds?
At this point, I would expect the Bitcoin price to shift from fiat to oil. Oil is the energy that drives modern civilization. The ownership goal of Bitcoin is to maintain continued purchasing power over oil. “Bitcoin per barrel of oil” will be the new exchange rate.
The goal is to maintain financial flexibility in the face of vagaries of war. 100% of your financial capital should never be parked in just one monetary instrument, be it Bitcoin, domestic fiat currency, bonds, stocks, real estate, commodities or gold. However, your opportunity to move fiat assets into Bitcoin and other “real” assets exists only today, and probably not tomorrow. Remember this.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/arthur-hayes-blog-post-bitcoin-in-time-of-war/
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