By Kris Sayce, editor, Casey Daily Dispatch
In today’s edition of the Casey Daily Dispatch, a change from our usual content.
Once again, we dig deep into the Dispatch mailbag.
Below, our experts answer reader queries such as:
Whether the government would really allow bitcoin to compete with the U.S. dollar.
And how on Earth did the government recover most of the bitcoin paid as ransom for the recent oil pipeline hack?
But before we get to that…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Dave Forest and Nick Giambruno. And from the founder of our business, Doug Casey.
And today, rather than us trying to figure out what’s on your mind, Dispatch readers have done the hard work for us. They told us, by writing in and asking questions.
Remember, if you have any questions for our Casey Research experts, just drop us a message at [email protected].
So let’s get into it…
Three Reasons the Government Won’t (Can’t) Ban Bitcoin
Last week, we published the transcript of an interview between your editor and Casey Research expert, Nick Giambruno.
The subject was bitcoin. And unsurprisingly, Nick didn’t pull any punches when it came to explaining not just the financial benefits of bitcoin, but also how it’s perhaps the biggest disruptor to the monetary system in history.
But one regular question we see about bitcoin is whether the government will ban it. The most commonly used comparison is when President Roosevelt outlawed the possession of gold in 1933.
Could a government outlaw bitcoin and demand (as they did with gold) that owners surrender their bitcoin holdings to the Federal Reserve?
With that in mind, a reader asks…
Reader question: I respectfully suggest that no government is going to permit a currency that competes with its own. They will be hunted down like dogs. I believe there will be hefty fines and imprisonment, just like when gold was outlawed in the 1930s. They won’t catch many bitcoin holders, but they will catch a large number. It will be Prohibition all over again. Fortunately, the malevolent universe is a logical fallacy as pointed out by the late Ayn Rand. In the end, good men will prevail.
– Philip B.
Nick’s response: Remember, bitcoin is simply computer code. U.S. courts have ruled computer code is equivalent to speech protected by the First Amendment of the U.S. Constitution.
But the Constitution is not a reliable protector of rights as the COVID-19 hysteria, the War on Terror hysteria, and the War on Drugs hysteria have all proven. So don’t count on the U.S. Constitution to protect bitcoin.
Let me also say that it’s a terrible, totalitarian notion to think that governments would throw peaceful people in cages for voluntarily exchanging value with bitcoin.
So, if the U.S. government goes down the path of outlawing bitcoin, I’d recommend immediately leaving the country as it would portend much worse things to come.
Fortunately, I don’t think it will come to that. In a recent issue of The Casey Report, (current subscribers can catch up here) I laid out three reasons why I don’t think the U.S. government will ban bitcoin:
Banning bitcoin is impractical. It’s impossible for the U.S. government, the Chinese government, or any government to stop bitcoin. It would have to shut down the entire internet everywhere in the world and then keep it off. And even that wouldn’t be enough, as there is a network of satellites constantly beaming the bitcoin network down to Earth. Further, the bitcoin network can be communicated over radio signals, and small portable solar panels can power the computers running the network. All aspects of bitcoin are genuinely decentralized and robust.
The best that governments can do is play an endless – and ultimately futile – game of global whack-a-mole.
The cat is out of the bag. Bitcoin is bigger than any government. It’s entirely impractical to ban it.
It’s too late to ban bitcoin. Supporting a ban on bitcoin means going against tens of millions of Americans – no small number of whom are wealthy, powerful, and well-connected. Outlawing bitcoin is not going to help anyone win an election. It’s already too politically popular to outlaw, and every day it gets stronger as adoption grows.
Banning bitcoin will only benefit U.S. rivals. Is the U.S. going to ban bitcoin and give China and other U.S. rivals a golden opportunity to become even richer and even more powerful by dominating the future of money? I don’t think so. I’m not the only one either. A flurry of high-level U.S. government officials expressed similar sentiment recently.
In short, the U.S. government doesn’t like bitcoin. It would probably ban it if it could do so effectively and without giving China or other U.S. rivals an edge. But it can’t, so it won’t. The U.S. government will have to adapt to that reality, and there are signs that it’s already doing so.
Next, a reader wonders about the security of bitcoin. There are a lot of misconceptions about bitcoin.
One of those is that it’s entirely anonymous and secretive. That’s not true at all. As Nick explains below, every bitcoin transaction is openly available to view on the blockchain.
This leads one reader to ask about the recent success of the FBI recovering the bitcoin paid as part of the oil pipeline ransom…
Reader question: Nick, on the subject of bitcoin security, could you please address how the government was able to hijack the bitcoin ransom paid on the pipeline to catch the ransomware perpetrators? Best regards!
– Steven P.
Nick’s response: There are two important clarifications to make here.
First, perhaps the biggest drawback to bitcoin is that every transaction ever made is known to all. Anyone can go online to a website that has the details of the public bitcoin blockchain to analyze and view the transaction history.
The information on bitcoin’s blockchain doesn’t explicitly show your name, address, and other personal information. It contains bitcoin addresses and transaction IDs that can look something like this:
Suppose it were to become known that a certain bitcoin address was associated with you. In that case, outsiders could track your balance and every transaction you make.
It’s true that there are some innovations in bitcoin that help break the transaction history that are available today. However, they are for more advanced users, and they are far from foolproof.
The reality is that there is no perfect solution to bitcoin’s privacy problems that is available today. In the next couple of years, I expect developments that significantly increase bitcoin’s fungibility and privacy for all users – including bad actors. I’ll have more details in the future.
But back to the question…
It seems the hacker group wasn’t sophisticated enough to be able to sufficiently obfuscate the trail of their ill-gotten bitcoin – even though they could have if they knew what they were doing. Therefore, it was not difficult for the FBI to trace it.
The second – and more important – aspect of this case is that the FBI was able to seize the bitcoin. While the FBI is being tight-lipped on the precise details, it would have only been possible for them to seize the funds if they obtained the private keys to the hacker’s bitcoin addresses.
The most likely explanation for how that happened is that the hackers were holding the funds on a custodial wallet or on an exchange.
As Bitcoiners like to say, “Not your keys, not your bitcoin.” What that means is, if you don’t have control over the private cryptographic keys to your bitcoin, then it’s not really your bitcoin. It’s like the difference between holding physical cash in your hand and having cash deposited in a bank.
So if you hold your bitcoin on Coinbase, CashApp, or some other platform, you don’t really own your bitcoin. You own a bitcoin IOU, which is something very different.
What most likely happened is that the FBI was able to trace the hacker’s bitcoin to a custodian within the jurisdiction of the U.S. and serve that custodian an order to hand over the funds.
If the hackers had held the bitcoin on a non-custodial wallet in which only they controlled the private keys, the FBI wouldn’t have been able to seize the funds – even if they were able to trace them.
So what’s your take on Nick’s responses? Do you agree or disagree?
Or maybe Nick’s answers have just opened more questions. If so, let us know. Send an email to [email protected] and type “Bitcoin question” in the subject line.
We’ll aim to answer them in a future mailbag issue of the Dispatch.
Editor, Casey Daily Dispatch
P.S. Nick has some of the best research out there on bitcoin… bitcoin miners… and a special class of investments he calls “Bitstocks” which have led his readers to 2,123% gains – in less than three months. Plus, open portfolio gains of 158%, 471%, and even 1,138%.
To learn more about this asset class, go right here. Nick believes the best gains are still to come.