Over at Backdoor Survival, Gaye wrote a nice introductory post on cryptocurrency and prepping: Cryptocurrencies and Preppers – a Match Made in Heaven? She seems pretty positive on crypto. But I’d like to add my two cents. (I mean, my 0.000005 BTC.)
1. Not Provably Secure
In one sense, cryptocurrency is just a bunch of zeros and ones that are treated as if they have value. Cryptocurrencies use software that connects computers via the internet, and then exchanges information. And that info is protected by encryption, a two-key system, where one key encrypts and the other key decrypts. But the encryption scheme used, called public key/private key, is not mathematically proven to be secure. Researchers think it’s pretty secure, but we can’t be absolutely certain.
So … someday, a Big Bang Theory type of genius could be sitting in a coffee shop, and have an idea. And that idea could be the solution to solving certain difficult math problems that are the very foundation of cryptocurrency. Then he jots his idea down on a napkin, takes a photo, and uploads it to social media, and poof! Cryptocurrency becomes worthless. Everyone’s encrypted cryptocurrency account is no longer secure. Billions of dollars in bitcoin and other cryptocurrencies would instantly become worthless.
That’s very unlikely to happen. But it is possible.
2. Internet Dependent
Any SHTF disaster that messes with the internet necessarily messes with all cryptocurrencies. They all use the internet to run their software and work their particular brand of magic. It’s just zeros and ones, and it’s zeros and ones on the interweb. The first disadvantage is very unlikely. But this second disadvantage is often discussed by preppers. You can decide for yourself how likely or unlikely it may be.
3. Governments dislike crypto
Just this week, the government of China decided to crack down on ICOs — initial coin offerings of new cryptocurrencies, which are similar to IPOs. As a result, the value of Bitcoin and many other cryptocurrencies dropped sharply (but perhaps briefly?).
Not too many days before that, in the U.S., the SEC decided that ICOs are subject to securities regulations. Does this apply only to the ICO that the SEC was, in particular, investigating (DAO), or more broadly? More broadly, but we can’t be sure, at this point, the exact extent.
You can bet that the U.S. government and many other governments around the world will continue to look with suspicion at cryptos and continually add more regulations. They don’t like cryptos because they involve large amounts of money moving around the world, anonymously, with little regulation, and with limited ability to tax that money. (That sounds to me like a list of reasons for preppers to like crypto.)
4. It could all disappear in an instant
If you have physical gold or silver in your possession, it has value regardless of what happens in the internet or the economy. In fact, if the economy tanks, it has more value. But cryptocurrency can disappear in a flash.
5. It is one of the most risky types of investment.
1. See #3 under disadvantages. Cryptocurrency is anonymous, not yet over-regulated (like most other things), and it largely avoids government control and scrutiny. Be careful here. Contrary to what you may have read, cryptocurrencies like Bitcoin are traceable, like anything else you do on a computer and/or on the internet. And all of the crypto accounts are publicly accessible. The accounts just don’t have names or addresses on them. So, if you don’t trust the government, you might want to convert a modest sum of money into crypto.
2. When economic systems have problems, investors are now moving money into crypto. It’s independent of any local or national economic situation. It allows money to be moved from one location to another quickly and anonymously. If the stock market crashes, the value of different cryptocurrencies may rise as a result.
3. You can store your cryptocurrency (in a sense) on a USB drive, and then bug-out. You are not dependent on a particular bank or a particular location.
4. The value may rise over time. Some cryptos have increased in value a great deal in recent years. But there is no guarantee that this rise will continue. If you have only a limited amount of money in a cryptocurrency, your risk is limited and there is still some decent potential for increase in value.
5. Some cryptos have inherent value, in that the system offers a service, such as secure storage of data or secure messaging.
There may be some usefulness to cryptocurrencies for preppers. I’m not recommending that you buy or avoid buying. This post is just an overview of the pros and cons.