Technology

Bitcoin: Wealth Confiscation Made Easy

Bitcoin: Wealth Confiscation Made Easy by Ted Baumann, The Sovereign Investor.

As a professional guitarist, I’m immersed in an ongoing debate about technology. We guitarists debate thousands of little issues in online forums, on Facebook and in person. What strings provide the best value for money? Are U.S.-made guitars still superior to those made in Mexico? Which “stomp-box” will make me sound just like Jimi Hendrix? You name the issue, there’ll be multiple opinions, all held passionately.

But there’s one overarching divide between the “purists” and the rest. I maintain that it’s preferable to have several guitars and amplifiers to get different sounds — one rig for blues, another for jazz, one more for country, and so on. The modernists say you can just use any old guitar and amp along with a fancy piece of digital “modelling” equipment that will make them sound like anything you want.

More than once I’ve done shows with such “modern” players, only to watch in amusement as their fancy digital toolkit broke down, leaving them stranded. My old-fashioned Fender Telecaster and Deluxe Reverb amp then steal the show.

There’s a profound lesson in there … one that you must take to heart when it comes to your money.

What If the Power Goes Off?

The modern world is a kaleidoscope of electronic gadgets and systems that make possible things we only dreamed about as kids. Thanks to our electronic world, you can buy a house from your cellphone, see what the night sky looks like in real time on the other side of the world, or profit from nanosecond differences in trading times in the stock market. All before you get out of bed.

Just like my “modern” guitar friends, many people seem to take it for granted that the digital systems that underlie these miracles — the Internet, for example — are eternal. So when I hear someone make plans that assume uninterrupted connectivity, I think to myself: “What if the power goes off?”

Which brings me to one of the most frightening ideas I’ve come across in a while.

U.S. tech giant IBM is reportedly working on a software platform based on the infamous digital currency “Bitcoin.” The idea is to make it possible for major currencies like the dollar or euro to operate like Bitcoins. Anyone could transact with anyone else in the world directly, bypassing banks and other archaic transmission mechanisms like Western Union or MoneyGram. Just log on, send your money and you’re done.

This promises a world with no banks, no fees and no hassles … but lots of danger.

Digital Counterfeiting

Everyone knows that counterfeiting is a risk with paper money. That’s why individual bills have serial numbers on them. But the same applies to digital currencies. Unlike physical money, the electronic files that represent digital currency can be duplicated exactly, with no trace. Since spending a digital dollar doesn’t delete the electronic data that represents it, and in the absence of banks and their accounting systems, some other way is needed to prevent that dollar from being used again by the same person — so-called “double-spending.”

Bitcoin accomplishes this by means of a “block chain.” Every few minutes, a group of all recent Bitcoin transactions is created, called a block. This block is then quickly distributed across the Bitcoin system, where it is added to the ongoing chain of all Bitcoin transactions (hence the name). That way, if someone who has already spent a given Bitcoin (and has not received it back legitimately from a third party) tries to spend it again, the system will reject it as “counterfeit.”

Bitcoin accomplishes this by using a distributed system of anonymous “nodes” that keep track of the block chain. But the same thing could be accomplished by a central server. IBM has therefore floated the idea of turning dollars and other currencies into digital form — with the central server controlled by central banks like the Federal Reserve.

What Could Possibly Go Wrong?

I don’t need to tell you what would happen under IBM’s system if the power goes out: No moolah. Of course, the same thing can and does happen now, with so much of our transacting done by credit or debit cards. But at least we have the option of keeping and using cash.

I am paranoid in thinking that, no matter what the advantages of digital currencies — and bypassing banks is really tempting — the real danger isn’t power outages, but rather giving the Fed the power to turn our money on and off? The dangers of digital currency aren’t small. After all, imagine the opportunities for monetary mayhem: digital wealth confiscation … automatic taxation … courts issuing warrants to seize your digital money …

Nope. I’m a realist. I know that if governments have the power to do that, they will use it.

Yet another reason to stock up on gold, my friends … the ultimate store of value. So far, at least, nobody’s come up with a way to turn off its power.

Kind regards,

Ted Baumann

Offshore and Asset Protection Editor

Bitcoin: Wealth Confiscation Made Easy

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  • Garth dangle

    Bialtcoin use the exact same distribution tech as BitTorrent file sharing. As a “pro” guitarist as you clam you ought to have learned by now that all the worlds governments war to stop it spending hundreds of millions of dollars trying to stop it has only made the BitTorrent network 1000 times stronger.

    Why don’t you ponder about that fact next time you see your overpriced music-peace being freely shared world wide. Hehe.

  • scooterdoo

    My identity is not encoded in the blockchain and should I be attached to wallet addresses there are techniques to obfuscate my cash flow (e.g. tumblers, short-lived addresses) I believe. Hard cash has cumbersome physical limitations obviously too. I agree that we need to speak out and insist that we continue to have the right to transact in private. No doubt fear of terrorism will be invoked by the govt again and again

  • John kuhn

    This “article” could have been written by a 6t grader and had more journalistic value.
    If we magically lose all electricity, everywhere, how are banks going to fair any different? I’m assuming the author must not realize that green cash is but a sliver of the total amount of money in the economic system. The total amount of printed federal reserve notes (cash) in the world works out to a little less than $1000 for every American… Considering that 2/3 of those notes are circulated or being saved in other countries, that works out to roughly $300 in cash on hand for every American, and considering that half of all cash in America is in bank vaults, that would be $150 for every American…. Then you have a portion of that cash in the hands of business’s….
    So your talking about every American having on average about $100 bucks at any given time…. How in the hell is that going to be any different than bitcoin if the power grid magically goes up in smoke?
    Besides, if we lost all electricity in this world, the last thing anyone would be worried about is going to be how to exchange value…. Once the world comes to terms with the fact that it cannot broadcast news, can not run gas pumps, cannot run microwaves, cannot run electric heaters, or stoves, or dryers, or factories, or business’s, and so on, people will be immediatly forced to learn how to fend for themselves, or die. Most folks in today’s world don’t even know how to pluck a chicken! If we have no electricity, we won’t have functioning supermarkets, and many in America don’t even have the basic tools with which to hunt or gather! Bitcoin will not even enter the sphere of concern at that point you uninformed idiot!
    Stop publishing propaganda BS!

  • John kuhn

    If the answer is yes, bitcoin is not going to solve the problem either. How can a system of value exchange that’s core competency is it’s PUBLIC BLOCKCHAIN provide users with a private means of exchanging value? With green cash, you can privately exchage all you’d like. As long as you don’t deposit those greenbacks, it’s all private. Once you deposit them, or transact over 10k worth to any mainstream institution in America, you create a log with cash as well. Atleast with cash, the government can’t string together your entire life’s history, showing which political candidates you supported, which non profits you supported, which type of music you bought, etc.
    Bitcoin, my friend, is not the answer to privacy by any stretch if the imagination… Currently, it’s a great alternative to a corrupt debt based financial system that enslaves Americans by way of select private institutions having monopoly power to create money and issue it in exchange for property collateral! All the fed needs to do is tighten the money supply and the Feds shareholders (the banks and their representatives that control the federal open market committee and the board of governors) can own 90% of the real estate and other collateralized assets in this once great nation…. Bitcoin currently to texts from that, but rest assured, if the people don’t start rising up against this injustice, bitcoin will become regulated in such a way that it eliminates it’s value if not having a “trusted” 3rd party will be obliterated! F course, that won’t officially occur until sufficient adoption takes place!

  • Bella Miner

    Wow yet ANOTHER horribly uninformed article about Bitcoin! Buddy, if the power goes out you will run out of money just as soon as whatever paper you have in your pocket is gone. There is no mechanism in place to get a single cent of your money out of a bank, EVEN FROM A TELLER, without power.
    This story is bad and you should feel bad.

  • Buddy Bell

    If the electricity goes out digital currency will be the least of our problems. https://www.youtube.com/user/bigfootyancey

  • scooterdoo

    Gold? The government can physically seize your gold and any other physical assets. They absolutely can not seize your bitcoin. IBM’s system is not bitcoin, pretty confusing to present them as the same. The question that needs to be asked is: Is it a basic human right to exchange value with another person over the internet in a completely private manner? Or must you show such transactions to the government so that they can monitor them, etc.? If you believe the answer is “yes”, realize that there is currently no means to do this, and you should be pushing for something like bitcoin

  • bitWhisky

    Doomsday scenarios are kind of silly. I do agree however that decentralization is the way to go. Also, companies are already looking at transmitting the block chain via satellite and radio waveforms.