Letter #231: A Brief Look At Bitcoin In Times Of Natural Disaster
Read now to learn how Bitcoin can survive and thrive even in the most dire of human circumstances.
Over the years, I haven’t chosen too frequently to share events and stories from my life in this newsletter. Perhaps some of you prefer it that way, while maybe others wish I peppered in more personal anecdotes. Either way, a recent development in my area of the world has made me contemplate Bitcoin’s role and viability in places that get hit by natural disasters.
I live in a part of the world where hurricanes (or typhoons, as they’re called elsewhere) are rather common during certain parts of the year. Thankfully, most of those storms don’t come close enough to my location to do much damage, but from time to time a storm actually does knock out power, level trees, and damage homes — unfortunately, that happened just last week, although I luckily was spared the worst of the impacts. Other people, unfortunately, weren’t so lucky, and went days without electricity, internet access, running water, or other amenities that perhaps some of us take for granted.
The lack of those luxuries has led me to think recently about Bitcoin’s role as money when electricity and internet access are in short supply. Natural disasters can obviously lead to those circumstances, but I’m also not oblivious to the fact that large numbers of people around the world live daily with limited or no access to power and the internet, both of which are very helpful, albeit not entirely necessary, to a productive and positive Bitcoin experience.
In order for Bitcoin to truly operate as a worldwide, unbiased monetary network, it needs to be available to all people, both in stable times and in unstable times. So today, I’ve chosen to share a few current thoughts on how Bitcoin could still be used even when power, internet, phone networks, and more are unavailable. Full disclosure, hurricane season in my area is only half over, so I may choose to visit this topic again in the coming months – I hope you all won’t mind:
We typically think about Bitcoin only in digital terms. After all, the Bitcoin blockchain is simply a digital ledger of Bitcoin transactions that lives on top of a network of participating computers (“nodes”). However, one accesses Bitcoin on the blockchain via use of the corresponding private key, and there are certainly ways to make private keys tangible. For example, people commonly write down a backup of their private key on paper, wood, or metal for safe keeping.
In essence, transferring Bitcoin when the power or communication networks are out could be as simple as transferring the physical manifestation of your private key. You could even prepare for that use case by separating smaller amounts of Bitcoin among different public/private keys – that way you’re not required to give away all of your Bitcoin when you need to buy bread to feed your family during an emergency.
Many of you are likely familiar with the Lightning Network, a layer-2 solution on top of the Bitcoin blockchain that allows participants to complete any number of Bitcoin transactions before closing their Lightning channel and settling the final balances on the layer-1 blockchain.
In an emergency situation, that type of delayed settlement could be replicated in the real world. For example, you could establish a “tab”, if you will, with your grocer, your landlord, your tenants, your employer, etc. of money owed and to be settled once connectivity with the rest of the blockchain is restored.
Workarounds With Weaknesses
I’ll be the first to admit that both proposals above suffer from a rather consequential flaw: they introduce trust into Bitcoin, which is intended to be a trustless system.
With physical Bitcoin, you have to trust that the person with whom you’re transacting hasn’t duplicated the private key they gave to you in order to also give it to someone else (rather like a double spend).
With delayed settlement, you have to trust that the person with whom you’re transacting will make good on their promise to actually send you Bitcoin once they reconnect to the blockchain.
In other words, neither one is a perfect solution for using Bitcoin when the power is out and communications networks are down. Instead, they’re potentially useful, albeit also potentially risky, ways to access Bitcoin even in the most dire of circumstances. In such circumstances however, prudence may require you to only transact with people you trust, or at least people who are highly incentivized to not renege on their commitments to you.
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This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.