Bitcoin has been talked about as a replacement to cash that could withstand an economic crisis and provide a new financial framework for the world. As a current trend, bitcoin is interesting and comes with innovative technology, but as a doomsday investment it will ultimately fail and end up a major loss. Here is why.
The reasons I have identified in this post identify why bitcoin does not deserve priority over gold, and cold hard cash, should a ‘grid-down’ event occur where we are temporarily left without access to modern systems. This event could be caused by a number of threats such as an EMP, a grid-based cyber-attack, or an economic collapse that has resulted in unaffordable power prices, an unreliable power grid, and a lack of connectivity to a network. Should anything worse happen, any form of currency would come second to more essential tradeable items that people can eat, drink, and use.
For the moment, enjoy the crypto world all you like, but do it responsibly. And don’t count on it when the sh-t hits the fan. It raises alarm bells to me when I see ‘coin-bias’ sites claiming that bitcoin is the safest form of investment for doomsday preppers. In fact, a lot of those sites are targeting mums and dads to sign up for a crypto account in the hopes that their life savings are safe, and that they fall into the big wave of FOMO that drives most people to buy bitcoin.
Sites such as Coin Telegraph (clipping above) state “Among their stores of canned food and bottled water, there are more and more instances of Preppers stockpiling Bitcoin, rather than other valuables – such as the traditional gold”.
Sure, I have bitcoin and consider myself a survivalist, but this is primarily because I enjoy riding the hype of trending technologies. I say this because I am not completely against bitcoin. I enjoy the fact that it stands alone as what was originally intended to be a peer-to-peer system where no single entity controlled the processes and flows of an economic system. I like the idea of a system such as finance being decentralized. That’s why I bought bitcoin. And yes, perhaps the overnight millionaire stories also peaked my interest.
But I never purchased bitcoin as a safe investment to hedge any potential future losses against cash. No way. It is not a doomsday investment or an ‘apocalypse-proof’ commodity. Here are eight reasons why bitcoin is not for survivalists:
1. Without power or a network, there is no bitcoin
When a grid fails, so will bitcoin. There’s no way to access it, trade it or see how much you have. Even though I cover the issue of mining in #3, without power, mining cannot take place which verifies transactions, meaning transactions simply won’t continue. This should be the most obvious for anyone that is considering bitcoin as a doomsday investment. There is a term brandished around the halls of survivalists and economists which goes: Cash is King, and it has been echoed for many years. Sure, we haven’t seen many apocalyptic Mad Max scenes actually happen in the past, but what we have seen is what an economic collapse looks like. In fact, most of us have lived through an economic collapse already.
In a bid to stem overdraw of an economic system, banks can close down, and yes that means we can’t withdraw money as well, which is an argument bitcoin-pro survivalists use. This is why grandma kept cash under the mattress, it was a safety net she developed when banks were closed. That very cash, despite hyperinflation, which might, or might not, set in, is something you can use to trade. Cash has always been a trade item to represent a country’s economic health and prosperity. It’s why we have our nation’s leaders on it. When you buy an apple, a loaf of bread, or milk, you give a certain level of exchange valued in that tangible item of cash respective of your country’s economic strength. But when you are trading in bitcoin, you don’t have an item to give, you have to send a set amount to the buyer’s address, whether that be via a string of characters, or a QR code – again, this is unachievable without power, a functioning grid, or a working cell network, and don’t forget that the miners need to be working as well. Essentially, there is no tangible item to hand over in exchange for that milk or bread.
There is the argument that even if the grid collapsed, your bitcoin would still be there when the grid was restored and that you could still accept bitcoin by carrying a ‘paper wallet‘. This is correct, to an extent. In the past, the most trusted investment in a financial downturn has been gold. It is what investors hedge their money on as we slide into a recession. For many investors, gold is a safe-haven. For any that have bitcoin investments, the majority will sell bitcoin and buy gold, just like many share traders do with shares – dump and buy gold. This will drastically lower the price of bitcoin, leaving you with a very poor commodity.
Preppers and survivalists are about being self-sufficient and looking into alternative methods of self-reliance so that, should the power grid go down and should supply lines stop, we can still survive. And these ‘Doomsday’ events aren’t fantasies, they do happen, whether they come in the form of:
- Natural disasters
- War
- Economic Collapse
- When a government controls the internet (countries limiting crypto transactions)
- Cyber-attacks on the grid
When you are in one of these situations, bitcoin is the worst-alternative to cash you could have. And for many, in economic collapse situations such as Venezuela and Zimbabwe, cryptocurrencies are a luxury item by the rich. For the majority of the people in those areas there is no interest in cryptocurrency, instead, it is a fight over real issues such as finding where the next meal will come from, or to get your children medicine. This is the economy of a collapsed system, essentials such as food, fuel, water, nappies, condoms, medicine, and everything else we take for granted in a prospering nation.
This moves us to the second reason why bitcoin will fail as a doomsday investment, is that it is not a helpful item.
2. Trading with bitcoin post-collapse
You cannot eat bitcoin, you cannot burn it for warmth, you cannot hold it in a waterproof bag until you come across someone that has food and trade it. If you are looking to do some doomsday shopping, you simply cannot do anything with bitcoin. And most of the time, you probably won’t even be able to see how much you have.
The story might be different in a financial collapse where you are only suffering mild downturn symptoms. You still have working internet and a shaky power supply at expensive power rates. The store around the corner is empty and your street market where a gardening-savvy seller is selling corn, tomatoes, apples and whatever else you desire. The problem is you don’t have cash. How are you going to pay? With bitcoin? Why would he want cryptocurrency when he can’t withdraw it from a bank or spend it anywhere else? He would more likely accept a PayPal transfer, WeTransfer, or one of the many instantaneous banking payment options out there.
In Venezuela, citizens are dying from starvation as as there is an immense shortage of food, and extreme corruption limiting the supply in the country. The value of money has become worthless. They trade in items, such as food, clothing, fuel and other essentials. They do this as a method of survival and adaptation to a new system of living. Bitcoin has no role in a situation like this. The only possible means of use it could have is as an investment for when society begins to recover, but that, as mentioned in #1, is possibly much less than you expected, after scared investors might dump their crypto investments and pump their savings into gold. For many of the loyal bitcoin investors out there, holding onto your investments is sound for the moment, but when a financial downturn happens and you lose your job, you might have to sell those investments. If half of the market did this, bitcoin’s value would be back to square one.
I don’t consider myself the best prepper in the world, but what I do know is that there are some investments that are much more logical and sound than bitcoin if you are preparing for a financial collapse. Gold is a great investment item, and it is not a survival item to be ‘traded’ for a loaf of bread. It’s something you hold onto so that you can cash it in as the economy picks up. However, any survivalist’s real investment should be in bettering themselves to survive a financial downturn. The investment should be in time learning new skills such as gardening, permaculture, cooking without gas and electricity, learning how to filter your own water and having a small stockpile in seeds for your urban farm. These are essential skills and needs you learn as you start prepping. Why would these skills help? Because when you have a flourishing self-sufficient garden providing more food than you know what to do with, you can sell some tomatoes to the people that have invested only in bitcoin as an ‘apocalypse-proof’ currency.
3. Bitcoin mining is energy intensive but necessary
If you know anything about bitcoin you will know that it takes an immense amount of power consumption to mine it, and it is necessary to mine as it keeps the currency in circulation. If power supplies were limited, or non-existent, bitcoin miners could not verify future transactions, meaning that transactions would build up a backlog. This is already a problem bitcoin poses.
The Bitcoin mining process involves verifying transactions with bitcoin mining hardware. The hardware machines used are known as Application-Specific Integrated Circuits (ASICs). In addition to having the right ASIC machine, a bitcoin miner must also have a software program to help solve specific math puzzles. With the right hardware machine and software program, a bitcoin miner competes against other miners to earn the right to verify a bitcoin transaction. The ASIC machines miners use to identify a genuine transaction by constantly guessing from a list of complicated math puzzles. It takes on average 10 minutes to verify one bitcoin block. Once a block is confirmed, it is added to the blockchain where it cannot be altered.
Since the mining process is a random guess, miners spend a lot of energy attempting to verify a block. In most cases, the mining machines fail more often than they succeed in confirming a transaction. Each ASIC machine consumes a certain amount of energy every time it goes through these processes, so as you can imagine, the overall impact of bitcoin mining is mind-blowing.
It is a constant balance of power cost and profit for anyone engaged in the mining and hashing process of bitcoins. In fact, a small-scale bitcoin mining project barely makes enough money to pay the power bill it racks up. According to a study by Digiconomist, bitcoin mining accounted for 29.05 terawatts of electricity in 2017. That equates to 13% of all energy consumed by the world as of November 2017. In the developed world, bitcoin mining consumes more power than the whole of Ireland. On a global scale, bitcoin mining consumes much more power than 159 countries.
Individually, each bitcoin mining rig consumes 215 kilowatt-hours to validate a single bitcoin transaction. That 215 KWh used to confirm a bitcoin transaction is the equivalent of what an average American home spends in a week. For a small hobby miner, the power cost alone to run bitcoin mining equipment, such as the Antminer S9, could be the average monthly power bill for an American home. Although, these are advancing as time goes on. For instance, the Antminer is one of the newer brands and is able to make a small profit in bitcoin mining each month if you calculate the loss in power. As time goes on and technology progresses, this window of profit may grow as miners become more effective.
There are new methods to provide a solution to the immense power use, such as the introduction of a proof-of-stake system which would limit a miner to mining a percentage of transactions based on how many coins they owned. For example, someone who owns 1% of bitcoins available in circulation can only mine 1% of bitcoin transactions. There are also alternative cryptocurrencies that use more sustainable methods to lessen their mining impact on power consumption.
If you consider hedging that power supply by using solar power for if the power goes out, you are out of luck. To make an effective mine run you would need an exponential amount of highly efficient solar panels (as mentioned above on the power consumption to mine one bitcoin). The only possible solution to keep transactions running would be to use the HAM radio mesh networkcapability to connect and keep the blockchain ledger up-to-date in that manner, however, this is largely power intensive and would need a network of HAM radios running consistently to manage an operation like this.
Should we stand on the brink of an economic collapse where cash is about to dive and you’re looking to throw all of your money into bitcoin, think again.
4. Bitcoin has no leadership and no chance of development
In past economic downturns, there has always been assistance that has saved a country’s currency. This is either from the assistance of other countries or by methods of Treasury control. This is why currency has recovered in the past. Despite seeing a Great Depression, or a Global Financial Crisis, cash has always had a little help to recover. But throughout those times, it has been the symbol of finance as it has adapted to its situation, whether in poverty or economic prosperity. Bitcoin, however, has no help as it has no leader, or assisting body.
There are already problems with bitcoin becoming an international currency, whether it be its limited availability, its security concerns, or its huge power consumption. But the biggest issue is its lack of leadership and zero chance of further development. This is because bitcoin’s creator, the unidentified Satoshi Nakamoto, has cast his peer-to-peer finance out into the world like an orphaned child, to be a currency without rule and without leadership. But what if the currency comes in risk of its own collapse? Who will save it?
We have seen this attempt in the past with the bitcoin community trying to arrive at a way to steer the direction of bitcoin. But instead of coming to an agreement it turned into a bidding war over bitcoin and other competing currencies and has since divided bitcoin followers into factions. This just proves that even though it operates as a decentralized form of currency, that should bitcoin ever need development to suit its environment, or should it need to evolve to fit a possible financial downturn, there is no way for the currency to really adapt, other than to be replaced by another cryptocurrency.
5. Laws and regulations against bitcoin
So, you made an investment and are stocking bitcoin for the end-of-the-world. Should you be able to make a transaction (unlikely as mining will not be as effective in a collapse meaning increased transaction wait times), and should you have power and phone signal, what shop or trader is going to accept bitcoin? Already, in a healthy economy, there is a very short list of stores that accept bitcoin payments.
There are also a number of banks, financial institutions and countries that prohibit the trade of bitcoin due to associations with fraud and security concerns. Of course, it can be easily argued that these are cash-based institutions, but in order to buy bitcoin, you still need to make a transaction from a bank account and buy it online through sites such as Coinbase.
It is restrictions such as these that could only grow as law enforcement agencies increase their investigations into cryptocurrencies being used to facilitate financial crimes, money laundering, and other more severe crimes. There are a number of cases where bitcoin has been attempted to be used as a means to conduct extreme crimes that require an element of anonymity, such as its alleged use as a means to auction for kidnapped girls on the dark web. This was found after a London model was kidnapped (below) with the intention of being sold to the highest bidder last year. As more of these crimes surface, and the police find more links between bitcoin and serious crime, this will, without a doubt, impose further restrictions on its legal validity.
6. Bitcoin is a highly volatile stock with excess risk
Bitcoin’s value is largely due to its popularity. And so it should be. It’s a new and exciting piece of technology that came with what is becoming a revolutionary method of system management in its own right, the blockchain. At the end of 2017 and beginning of 2018, we saw bitcoin take a plunge as volumes of investors rallied together to try to drive the price of competing cryptocurrencies. This crypto war became public when investor mums and dads started to notice their valued bitcoin stocks plummeting dangerously below their initial investment.
For preppers, this type of investment is very dangerous. Why? Because bitcoin does not sleep, and it can plummet significantly in a matter of days. Should we be headed to a financial collapse and investors suddenly sell all of their crypto stock overnight in a bid to safely invest in gold, you are going to wake up with a very significant loss on any investment. All it would essentially take is one significant article from a big publication to cause panic amongst investors and bitcoin’s value could drop by a few thousand dollars overnight – and it has happened. Do you consider that a safe investment?
Sure, this is a risk with all investments, but unlike gold’s value, or that of many blue-chip shares and real estate investments, bitcoin is a highly volatile stock and should be treated as such. Just take a look at the dates of bitcoin’s market fluctuation between March 16 and April 15, 2018, below from bitcoin’s leading trading site Coinbase:
7. Bitcoin is not a high liquidity asset
If bitcoin is not the best digital currency, then it is at least an interesting investment. This is why I bought bitcoin some time ago. I made that purchase completely out of the hype and that possible fear-of-missing-out that I had at the time. I expect many other bitcoin owners bought for the same reason (even though many would never admit it). However, I will never keep much money in it, as it is not a quick liquidity stock, which when it comes to warning signs of an economic collapse, is a very important thing to have.
High liquidity basically means you are able to exchange it for your cash very quickly, should you need to. Some investments take time to liquidate. If an economic collapse was to set in next week, with whatever prior warning I might have had, I would want to liquidate any of those assets and ensure they are in more safe avenues.
The other side of why high liquidity is important is that because something is of high liquidity, it means it is widely accepted around the world. Gold is quite possibly one of the most liquid assets you can own. It is internationally accepted, and there are many places that you can simply walk into, off the street, and will accept a trade of gold at the current market value for whatever the local currency is and receive that cash in hand. Sure, bitcoin is making waves as a new form of value, and is growing in its list of accepted countries and businesses, but it still has a long way to go before it comes anywhere near the acceptance of gold.
8. Bitcoin does not beat gold as a safe investment platform
Market cap value comparison of bitcoin and cryptocurrencies and gold.
Many say that bitcoin is an alternative investment to gold. It’s not. If they say that, they’re either lying or they have failed to look at the numbers above, representing the market cap of the two (with bitcoin represented with the rest of the 1100+ cryptocurrencies).
Yes, bitcoin is a rapidly changing commodity. Its price has fluctuated so much so that original investors of $10 or $100 are now millionaires. This is why the hype is so strong with bitcoin. It is essentially a roller coaster ride for anyone that hops on board and invests, and it ‘rewards’ anyone that holds on for dear life (known in the crypto world as HODL).
But it is not comparable to gold, and definitely not when considering financial downturns and economic stresses. Gold is the whale to the crypto fish and will be like that for the indefinite future. This is proven by a simple comparison of the market cap of the two. For gold, according to the World Gold Council in 2017, the world’s gold supply has a market cap of $7.8 trillion dollars. The cryptocurrency market cap totals $161 billion, and that is split among more than 1,100 cryptocurrencies. That makes the gold market more than 4740% bigger than the entire cryptocurrency market. The two aren’t even comparable.
I am not anti-bitcoin, but…
In a systemic downturn, bitcoin will fail. There is no way it will survive. Whether it be for the reasons that people will dump their crypto investments and pump their money into gold, or whether bitcoin miners will fail the system and stop transactions from running, there are a number of uncertainties about bitcoin’s system that will not ensure its survival in a disaster such as an economic collapse.
That being said, I am not against the cryptocurrency industry. I thoroughly believe the blockchain technology it uses to verify its transactions has amazing applications in a number of industries that need more data friendly accountable systems, and that are prone to corruption, whether they be the fresh food industry, diamond, mining, or medical fields. I also encourage anyone that is interested in cryptocurrencies and bitcoin to research and get to know the various startups and alternative currencies that exist.
Sure, if you want to invest in bitcoin and try your luck go for it. But as a survivalist, do not invest in bitcoin with the idea that it will be your safe-haven when the sh-t hits the fan.