Letter Re: Digital Currency

Hugh,

Here are a few additional comments about Bitcoin that might be of interest to SurvivalBlog readers:

Bitcoin is the best bet for digital currency that’s outside the banking system; it has the largest market cap and network of developers/miners. There is no Know Your Customer or Anti-Money Laundering with Bitcoin, which means you don’t need to show any ID to get it if you buy it in person. In the U.S., the Bank Secrecy Act, Patriot Act, and other bank/money-related U.S. laws keep Bitcoin from being a legally compliant currency. As these laws are written, they also apply to digital currency.

Bitcoin has a number of other problems. First, it’s not as secure as people believe; key generation for wallets is weak. This encryption has no doubt been broken by security agencies, and there are short cuts that can make guessing an early Bitcoin key a modest computing problem (48 bits). Second, the decentralized network is extremely slow to process transactions, and the network is subject to attacks that can prevent transaction processing. Transaction processing is now about 50% in communist China, where they are using stolen power for the mining (that’s how they confirm transactions). Some mining operations are located inside power plants, where local communist party officials and plant managers are cut in on the action. Denial of service attacks that flood the network with bogus transactions have proven to cause problems. Third, many of the use cases for Bitcoin have attracted criminal elements, which will become a target for law enforcement. I have been told, personally, by two people in a position to know that if Bitcoin becomes successful it will be shut down and forced underground. Finally, the value fluctuates with rumors, which makes it difficult to use as a stable exchange of value and payment medium.

Even with all these problems, it’s probably a good idea to keep a little Bitcoin around on a memory stick as a hedge, as it’s difficult to send silver coins around the world. However, it will only work when the Internet continues to operate and electricity is available. – C.K.

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