Bitcoins, tulipmania and electric grid insecurity

Are bitcoins, an electronic cyber currency skyrocketing in value — recently trading above $50,000 for a single bitcoin — the next big advancement toward a high-tech future? Or are bitcoins another big vulnerability for electronic civilization, already facing existential threats from nature and man?

In 2013, four years after the invention of the bitcoin, the former president of the Dutch Central Bank, Nout Wellink, compared the bitcoin to the ruinous “tulipmania” afflicting Holland 400 years ago. Wellink said bitcoins are “worse than the tulipmania. … At least then you got a tulip; now you get nothing.”

During the Dutch Golden Age (1600-1720), Holland was a world empire with a mighty navy, the highest per capita income in the world, and the most advanced system of banking, finance and market trading. Tulips, newly introduced to Europe from the Ottoman Empire, became enormously popular, including with Dutch investors. By 1637, paper trading for scarce tulips drove up the price for a single tulip bulb to 50,000 golden guilders, more than a skilled craftsman could earn in 10 years.

In February 1637, at an auction in Haarlem, when no one was willing to pay real golden guilders for real tulip bulbs, the bottom fell out of the market and paper stocks on tulip bulbs became worthless. Modern historians quibble over whether the Dutch tulipmania is history’s first example of a burst economic bubble, and over the economic consequences to Holland. But the bottom line is: A single tulip bulb having little intrinsic value, once theoretically worth many times its weight in gold, virtually overnight declined in value by 99.999 percent.

Are bitcoins the tulip bulbs of the 21st century? Perhaps not.

Japan’s Satoshi Nakamoto invented bitcoin as the first digital currency, designed deliberately to be scarce so its value could increase. An estimated 18.6 million bitcoins are circulating out of a maximum supply of 21 million, a number that allegedly cannot grow because this limit is “hard-coded” into bitcoins, to create artificial scarcity.

Arguably, bitcoins, unlike tulip bulbs, have significant intrinsic value. As a cryptocurrency, bitcoins can hide wealth and financial transactions from increasingly snoopy and greedy governments. Moreover, as government deficit spending skyrockets across the world — recklessly printing dollars, pounds and yuan to flood the global money supply — the value of traditional money is threatened by looming hyper-inflation, as is the profitability of investment.

Bitcoins have become for the super-rich another hedge against a dystopian future, like gold. However, like gold, even bitcoins can be stolen. Hackers reportedly have stolen billions of dollars in bitcoins in recent years.

In February, the Department of Justice’s (DOJ) National Security Division charged North Korea’s cyber warfare agency, the Reconnaissance General Bureau, with plotting to steal over $1 billion in cash and bitcoins. North Korean hackers Jon Chang Hyok, Kim Il and Park Jin Hyok are accused by the DOJ of stealing “tens of millions of dollars’ worth of cryptocurrency,” and DOJ calls them “the world’s leading bank robbers.”

According to the United Nations, North Korean cryptocurrency thefts are helping to fund Pyongyang’s nuclear weapons and missile programs.

Bitcoins may not be a good investment, or a good hedge against a dystopian future, when national electric grids and electronic civilization may be on the brink of a new Dark Age.

The Biden administration claims the recent ice storm that crippled the Texas electric grid — causing statewide rolling blackouts, depriving water and heat to millions and inflicting property damage and deaths — is a harbinger of catastrophic climate change.

If true, so-called “green energy” windmills and solar panels, alleged solutions to climate change, proved most vulnerable to the challenge of an unusual, but not unprecedented, Texas ice storm.  Nuclear and coal-fired power plants were least affected. Climate change is not the cause of what may be remembered as the “great Texas blackout of 2021,” which really was the result of politics.    

In 2017, the congressionally mandated Electromagnetic Pulse (EMP) Commission warned: “Current institutional arrangements for protecting and improving the reliability of the electric grids … has proven to be ineffectual” because the “power industry is largely self-regulated.” For example, Texas and California electric utilities failed to take commonsense precautions to protect themselves from severe weather. Federal and state governments are letting electric utilities cause deadly California wildfires and an ice age in Texas, essentially getting away with murder.

Government policy that trusts electric utilities to protect the nation from existential threats such as EMP and cyber warfare ultimately could prove to be genocidal, killing millions.

Maybe the super-rich do not care about the lives of 330 million Americans. But if financial wizards do not want their bitcoins to become as worthless as tulip bulbs, they should use their great political influence to advance policies that protect the national electric grid. As the EMP Commission warned: “An EMP attack that disrupts the financial services industry would, in effect, stop the operation of the U.S. economy. … The alternative to a disrupted electronic economy may not be reversion to a 19th century cash economy, but reversion to an earlier economy based on barter.” 

Will the recent SolarWinds cyber attack and Texas ice storm result in real protection for electric grids, or just more studies? Russia, China, North Korea and Iran are watching.

Dr. Peter Vincent Pry is executive director of the Task Force on National and Homeland Security. He served as chief of staff to the EMP Commission, on the staff of the House Armed Services Committee, and was an intelligence officer with the CIA. He is author of “The Power And The Light: The Congressional EMP Commission’s War to Save America.”