The sword in the stone… soon to be drawn?

ABERDEEN, SCOTLAND – I feel like I’ve opened a Pandora’s box. When I asked the readership for a suitable collective noun for gold sovereigns, I didn’t expect such a sustained response. Even after Tuesday’s note where I settled on “splendour”, the suggestions just keep on rolling in.

The latest is a “realm” of sovereigns, a “smaug” of sovereigns, a “line” of sovereigns… I think the most commonly submitted term I’ve seen is “dynasty”. Considering there is such clear demand for a term, the Royal Mint should probably just come out and clear the waters for us. But I’m content with “splendour” for now…

Those aren’t the only emails I’ve been receiving from the readership, however. My recent scribblings on the properties and value of gold and bitcoin have spurred quite a response – from both those in agreement and those who take a different view. This was in response to last Friday’s email Evaporating aurum where we looked at the gold and silver shortages at bullion dealers:

Someone more cynical than I might suggest the issuer of physical coins, in times of shortage, might find it advantageous to restrict the distribution of bullions coins to other dealers. That same cynic may also conclude there may a degree of manipulation in constraining individuals safeguarding their hard-earned fiat in a more tangible, and less traceable, form…

I will have to admit I have not read many of your articles of Bitcoin despite being a holder of a chunk of Cardano and would appreciate your view on what the impact of the developing quantum computing, graphene processors etc might have on the value of Bitcoin and, indeed its security. The code written by Satoshi Nakamoto was, and is (today), extremely impressive but with Moore’s Law and my experience in coding at University where I was trained in Fortran 4, a language predating MS-dos, can we be sure, going forward, that Bitcoin coding will not be as ridiculed as my first mobile phone which required a box?

Will Mr Nakatomo’s brainchild last the 5,000 years gold has?

I’m an old and increasingly technophobic [gentleman] but I have to wonder if your generation has accepted there will be the same, if not greater, advance in technology as I have seen (see moon landing and the phone in your hand) and there may be a possibility that Bitcoin may be seen with the same contempt as we have for tulips and the south sea?

I’m sceptical of the idea that the Royal Mint is secretly throttling the supply of sovereigns to increase their price. Gold demand in general is on the up, and for the Mint to abstain from providing product to the market would only open an opportunity for other mints to jump in and sell theirs. But all manner of gold products are running scarce – you’ll find that bullion bars from the likes of Umicore and Metalor are hard to come by right now.

When it comes to the quantum computing, I must say first off that I am no expert whatsoever. That said, I do think that critiques of BTC that are based on the future development of quantum technology may be misguided – let me explain.

Say in the future somebody creates a stable quantum computer capable of breaking asymmetric encryption. They’ve finally forged the digital sword of Excalibur that has been prophesied for so long by futurists – a mighty weapon that can be used for ill or for good, with the power to reshape cyberspace in its bearer’s image. And in this scenario, let’s imagine the individual with their hands on the hilt is firmly in the villain camp. They just want money.

But why would they go after bitcoin? Asymmetric encryption is not only key to bitcoin’s security, but some of the most fundamental structures of the internet, like HTTPS. Why would they seek their fortune compromising bitcoin, when they could just as easily use “Excalibur” to break into actual banks with it? “That’s where the money is”, after all. Not to mention the great ransoms one could extract breaking into government intelligence networks, military and energy infrastructure, social media data centres, or internet service providers. Why go after BTC if you had such power?

There would be no recourse for bitcoin holders I suppose. If you were to break the network by exploiting its own flawed assumptions on the strength of its cryptography, it probably wouldn’t even be illegal – a similar situation to the Ethereum hack in 2016 where a malicious actor spotted a loophole in Ethereum’s code and used it to seize funds from the network. This event led to a contentious debate about centralisation which permanently divided the Ethereum community and the digital token itself (there is now Ethereum and Ethereum Classic).

However, there are plenty of folks in the bitcoin space who have made plans for a quantum-resistant version of the protocol in anticipation of a quantum attack which could be adopted without dividing the network (see here for a good example). While there would definitely be a massive shock to the BTC price in the event of a quantum attack, I am (admittedly optimistically) confident that the network would swiftly find and adopt such a solution in the interests of its own survival.

If somebody does unsheathe digital Excalibur and decide to draw blood with it, we have larger things to be worried about than bitcoin – our money at the bank just to begin with.

Regarding the last segment of that reader’s letter, bitcoin is an experiment – an experiment which could fail. But though something better may well come along in the near future, I don’t think it’s here yet.

Finally, while I find the comparison of bitcoin to the Dutch tulip bubble as tiresome as it is inaccurate, it’s worth pointing out that market bubbles often bear glimpses of future trends within them. After all, the Netherlands today is the largest exporter of flowers in the world…

Wishing you a good weekend,

Boaz Shoshan
Editor, Capital & Conflict

Category: Investing in Bitcoin, Investing in Gold

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