I have not written a blog post for a while. However lately I had some thoughts that I wanted to share. It has to do with gold, Bitcoin and war.
The war rhetoric was slowly gaining steam and for a moment some comments politicians were making were very alarming. Things seem to have calmed down slightly, but they may flare up again. In fact at some point we may even end up with a war.
Unfortunately history is not in our favour when it comes to war. As Ray Dalio explains in principles for dealing with the changing world order. Ray explains that when an empire is on the decline, war is a very real possibility. With the American empire weakening we might get just that.
Asset Prices During War Times
In the past most assets went down in value during war times, like real estate and stocks. On the other hand gold always went up in value.
However what about Bitcoin and war? Since Bitcoin is independent from the financial system, most people expect the same to happen with Bitcoin.
Investors consider both gold and Bitcoin as safe haven assets. Hence they are a way to take cover and diversify away from the rest of the financial system.
Up until now I’m expecting that both gold and Bitcoin will do well if there is a war. In fact I own a bit of both. I’m not one of those that is firmly in one camp or the other.
That is to say even though I partly own the CoinStove website which is dedicated to crypto. I know all the arguments that are for and against gold and the same for Bitcoin.
However todays weapons are far more destructive than the ones used in previous wars. How will both Bitcoin and gold hold up in the case of nuclear war?
Gold, Bitcoin and War: Nuclear Weapons
We already know war is horrific and is something we need to avoid. However just over a month ago this short video clip of UK’s nuclear annihilation was shared on social media platforms.
It is scary to think we as humans have the capability to exterminate an entire country’s population within a few hours. It is not like the world wars in the past. World war 2 bombs affected a much smaller radius where the bomb fell and exploded.
That is not to say that ww2 bombs were not destructive. As you can see from this article about a controlled explosion of an old ww2 bomb on the BBC. This bomb left a crater the size of “three double-decker buses”.
However by comparison nuclear bombs or even hydrogen bombs are far more destructive. We know that not just from the nuclear tsunami video. However also from what happened in Hiroshima and Nagasaki at the end of ww2.
Moreover since ww2 bombs have also gotten much larger and scarily so.
Nuclear Weapons in 1945 and 2020 in Comparison
Governments do not just stock large sized bombs, but they have all sorts of different sizes. Regardless of the bomb size, the main problem for the victims is firstly when the bomb detonates. It affects a large area and the bigger the bomb the larger the area it will affect.
The bomb will burn to ashes anything that is close to it. By close that could mean several kilometres or much more depending on the bomb size.
Secondly there is also the problem of radioactive fallout afterwards. The radiation affects the area for a while. However that would depend on how large the bomb was.
For example in ww2 Hiroshima the radiation did not last long. Survivors were able to start to build the city not long after the bombing. In fact this is not surprising according to Jim Smith who is a Professor of Environmental Science. He says:
The impact of the actual bomb itself would be much more environmentally damaging than the subsequent radiation.Jim Smith, Professor of Environmental Science at University of Portsmouth
That is to say unless the nuclear bomb is huge. Then the land could remain radioactive for a long time like in the case of Chernobyl. However Chernobyl had 400 times the nuclear amount than the 15 kilotonne bomb dropped on Hiroshima.
What This Means For Gold and Bitcoin
In war time we do not know where bombs will get dropped. There are of course some places which strategically make sense to take out and bomb.
However military generals will mostly use smaller bombs. This is firstly because they have many more of them. Secondly, larger bombs will get deployed more strategically. This is because there are less of them and generals need to deploy them where they will have the most impact.
If a nation or nations get completely wiped out, what happens to gold and Bitcoin?
Gold, Bitcoin and War
We know that if people lose their secret seed to their Bitcoin wallet then they have lost their Bitcoins. As a result the other remaining Bitcoin coins other people own become more valuable. This is because the supply pool of Bitcoin shrunk from the already small supply.
We can assume the same is probably true for gold. So for example let us say a small nation gets completely annihilated with a larger nuclear bomb. After that no one would want to go to that nation in search of gold or anything else.
No one would want to risk the effects of radiation poisoning. The trip to the nation could end up costing whoever goes their own lives.
The gold in that nation would be lost for a good while. However can we assume that the price of gold would go up in that case? Would people opt to buy Bitcoin instead if they knew they could potentially lose their gold?
With Bitcoin the best way to store your coins is to have your private keys of the wallet. As a result you will not have third party risk. So let’s say nations get wiped out and the internet does not work for a while.
There is always going to be a computer somewhere that will have a copy of the Bitcoin blockchain. So when the internet starts up you could get access to your coins again.
You could also self-custody your own gold. However there is so much gold you can self-custody. You are not going to want to keep thousands upon thousands in your home. So in fact a lot of people opt for allocated gold.
With gold on the other hand the best way to hold large amounts is by allocated storage. This means that you have third parties that keep physical gold you purchased under lock and key. Additionally the location is closely minded by armed security guards around the clock.
Allocated gold means that it is insured. So if something had to happen to your stash you would get compensated. You would get the equivalent of the current market price at the time.
The businesses that offer allocated storage offer physical gold storage in many different countries. Like for example; the UK, Canada, Hong Kong, Germany, Switzerland, Singapore and the US.
So you can diversify in different locations which is great. The problem is what if the offices of the company managing your investment also gets destroyed? Who is going to process the payment so you can get compensated with insurance?
Gold, Bitcoin and War Conclusion
During war times a lot of assets, things and lives get destroyed. If the internet goes down at some point it should come back up. As a result the Bitcoin network will also start up again.
This is one of the benefits of the Bitcoin network being decentralised. Similarly to cockroaches who have the ability to survive a nuclear war. You cannot get rid of Bitcoin because you will always find copies of the blockchain on some computers somewhere.
On the other hand because gold is physical and centralised it is a bit more tricky. For you to get compensated for your allocated gold that got lost might get complicated.
That is not to say that it would not get frustrating waiting for the internet to come back online. That is because you might need your funds to pay for food or any other basics. So physical gold in your hand is what you need at that point.
The way I’m seeing things at the moment is that I still am keeping both Bitcoin and gold. Although I am slightly concerned about allocated gold to a degree.
However, then again in extreme circumstances and according to Murphy’s law: whatever can go wrong, will go wrong. So I might see one issue right now. However there will be other issues that crop up that I never thought of. In the meantime let us continue to push and fight for peace.