Learn Crypto Jun 26 · 9 min read
If you spend enough time researching Bitcoin and the justification for a form of money outside the control of the state you’ll sooner or later come across a reference to Executive Order 6102 issued by the US President in 1933. So what was Executive Order 6102 and why does it get the Bitcoin community so hot under the collar?
- Executive Order 6102 – Forbidding the hoarding of gold
- What led to the need for gold confiscation
- Bail-in precedents & the threat of CBDCs
- Self-custody to avoid the threat of confiscation
On April 5th 1933 U.S President Franklin D Roosevelt signed Executive Order 6102 ”forbidding the hoarding of gold coin, gold bullion, and gold certificates within the continental United States.”
An Executive Order (EO) is a special privilege of the US President to bypass the often slow process of gaining support for legislation from both chambers of Congress, and immediately enact a very specific action of national importance.
In the case of Executive Order 6102, Roosevelt wanted to confiscate privately owned gold at a fixed rate of $20.67 per troy ounce (a unit of measure for precious metals).
Though the EO excluded holdings of less than $100 in gold coins, jewellery and professions that dealt in gold, all other gold coins, bars, ingots and certificates had to be surrendered with the threat of a $10,000 fine (equivalent to over $200,000 today) and or 10 years in prison for anyone who failed to comply.
The most obvious question to ask about Executive Order 6102 is ‘why?’
The period following the end of the American Civil War and the beginning of the First World War is associated with rapid industrialisation and prosperity in America, so much so that it is often referred to as the Gilded Age.
The rapid expansion of railroads, and growth of heavy industry – coal mining & factories – fuelled mass migration into the new American urban economies from rural communities as well as from overseas, particularly Europe.
This was also the era of the Gold Standard where national currencies were backed by physical gold. The Bitcoin Standard, one of the most influential books on the importance of Bitcoin, makes the explicit connection between the prosperity of the period – which extended across Europe – and the restraint that the Gold Standard placed on monetary policy.
Gold became the most obvious representation of wealth during the Gilded Age, fuelled in part by two significant gold rushes, California (1848-55) and the Klondike (1896-99), which played a significant role in stimulating the US economy.
Despite the obsession with gold, its use as circulating currency essentially stopped by the end of the 19th century, so it instead served as a popular form of investment – a store of value.
Though the period is associated with rapid economic growth, the benefits weren’t felt evenly, and the era is also noted for growing inequality, ostentatious wealth and the changing behaviour of investors toward much more speculative activities, such as trading on the stock market.
The good times didn’t, however, last with the First World War forcing the suspension of the Gold Standard. In its aftermath came the Great Depression, a decade-long period of economic suffering triggered in the US by the Wall Street Crash of October 1929, which saw the speculative share-trading bubble violently burst.
By 1933 the effects of the Great Depression were still being felt, but attempts by Roosevelt to stimulate the economy by printing more money were constrained by the legal requirements for the supply of US Dollars to be backed by 40% in gold.
In simple terms, Executive Order 6102 was a bail-in. The government allowed a huge bubble to grow and burst but it was those citizens who had been prudent and hoarded an effective store of value in gold, who had to finance the rescue plan.
No sooner had their gold been confiscated at a fixed rate of $20.67, than the government devalued the dollar against gold, valuing it at the increased rate of $35 a troy ounce.
That clever accounting trick netted the government an immediate paper profit of $2.8bn (at 1934 levels) much of which was then used to try and stabilise the exchange rate of the US dollar. The success of the approach led to the idea of funding broader institutions to promote currency stability, such as the International Monetary Fund (IMF) which emerged at Bretton Woods post World War II.
The dollar value of gold remained fixed until 1971 when the final remnants of the Gold Standard era were ended by Richard Nixon, who stopped the convertibility of foreign reserves of US dollars into gold. The Nixon Shock also marked the beginning of the era of fiat money – money backed by nothing but trust in the government.
Though this is an interesting little economic history lesson, what’s the link between gold confiscation in 1933 America and Bitcoin in the 21st century?
You can actually find a big hint to the answer in the message attached to the very first block of the Bitcoin Blockchain by Satoshi Nakamoto:
“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
By including that headline Satoshi seems to be suggesting that Bitcoin was an alternative to the inherent problems of fiat money, highlighted by the 2008 financial crash and subsequent government-funded bail-outs.
What many Bitcoin advocates believe is that the next time there is a financial crisis, which history suggests is inevitable, governments won’t be able to fix the problem with bail-outs, and what we should prepare ourselves for is the opposite; a bail-in styled on Executive Order 6102 which might also extend to bitcoin
Though there are some clear benefits to the use of CBDCs – such as simplifying the way benefits are paid and taxes collected, improving financial inclusion and protecting financial sovereignty – there have also been warnings of the ease with which governments could pull off a digital version of Executive Order 6102.
There are various ways in which a CBDC might work in practice but the simplest version would see citizens banking directly with the government rather than private financial institutions that the government currently licenses as intermediaries.
This would allow pensions and social security benefits to be deposited directly into your CBDC e-wallet, while taxes and fines could be instantly deducted.
Though CBDCs could remove a huge amount of costly friction from the transfer of money between the government and its citizens when the financial shit hits the fan – as it did in 1929 and 2008 – what would stop the government from deciding that we should all take a hair cut to pay for it and automatically confiscate funds from our CBDC wallet?
This may all seem like a conspiracy theory fuelled by preppers and Bitcoin Maximalists but there are more recent historical precedents for bail-ins from both traditional finance and crypto itself.
If you’re sceptical, read some of the small print coming out of CBDC experiments and look at how this exact approach was used by Cyprus in 2013 to mitigate the consequences of the financial crisis.
Cypriot banks were crippled by exposure to Greek government bonds but excluded from EU bailouts so their only option was to force a bail-in from wealthy depositors, a process that was seen as a future template for banks that hit trouble.
“The move was a condition sought by international creditors for a 10 billion euro ($11.62 billion) bailout to the east Mediterranean island. At Laiki Bank alone, about 3.4 billion euros in deposits were wiped out. This left savers with at most 100,000 euros, the ceiling on deposit insurance under EU regulations.
Bank of Cyprus clients saw a percentage of their deposits exceeding 100,000 euros converted to equity, exchanging the seized funds for shares in the lender.” Reuters, 2013
The reason why the Bitcoin community references Executive Order 6102 is that it is one of the biggest adverts for a form of wealth that cannot, unlike gold in 1933, be confiscated.
This has even happened at the central bank level with the US freezing $7bn of Afghan foreign reserves held with the Federal Reserve in New York following the takeover of the Taliban in August 2021. Joe Biden signed an Executive Order declaring that half the funds would be administered for the benefit of Afghanistan, but not the Taliban, and the remainder to settle lawsuits related to the 9/11 attacks.
Similar tactics have been used as part of the sanctions imposed on Russia following their invasion of Ukraine, setting a geopolitical precedent for freezing centrally held digital assets.
Bitcoin is a decentralised financial network so there is no central ledger that the government could simply amend. They would have to perform what is known as a 51% attack, which apart from being practically impossible would be self-defeating as it would destroy the very wealth that the government wanted to co-opt.
What Executive Order 6102 underlines is the argument for self-custody of bitcoin, such as using a hardware wallet. Combining cold storage with the best practice of only using new addresses for each transaction, and respecting bitcoin’s pseudonymity, would put funds out of the reach of the government and make it much harder for them to use on-chain analytics to identify bitcoin hodlers.
The alternative to self-custody, leaving bitcoin in the hands of exchanges and custodial wallets, would make a government confiscation much easier as exchanges are centralised entities that governments could sanction with enforced confiscation orders.
There is also precedent for exchanges themselves to force bail-ins as this is what Bitfinex did in 2016. Facing insolvency from the theft of 120,000 BTC the Hong Kong-based exchange forced a 36% haircut on customers who received an IOU in return, in the form of a BFX token.
Bail-ins are also seen as a democratic way for DAOs to deal with the loss from hacks, which is exactly what Badger DAO did in 2021, following the loss of $120million of user funds. The problem is that not all users were equally impacted so this kind of restitution cannot take a one-size-fits-all approach.
There are already suggestions that Celsius Network, the CEFI yield generating platform that paused withdrawals in June 2022 due to market conditions, might follow the same path for their 1.7million customers to stave off insolvency.
The ability to resistant confiscations like Executive Order 6102 is seen as a true measure of decentralised money and Bitcoin Maximalists feel that all other cryptos fail the test.
Ethereum essentially performed a type of bail-in in 2016. Facing an existential threat from the DAO Hack it simply forked to create a new chain where the hacked coins were reinstated. Solana put forward something similar this year trying to deal with the threat of a large liquidation on a DEX that threatened to destabilise the whole blockchain.
Bitcoiners referencing Executive Order 6102 is therefore used to both underline the supremacy of Proof of Work over other designs for decentralised money that are vulnerable to censorship and to reinforce the golden rule of custody – not your keys, not your coins – as a defence against a similar form of confiscation.
The hysteria that followed Roosevelt’s mandate led to several high-profile hoaxes, including the idea that the IRS was forcibly seizing and searching all safe deposit boxes held at banks, looking for gold.
So the reason why Executive Order 6102 and Bitcoin are connected is that the next time there is a financial meltdown, which is not if but when, the only way you might be able to protect your wealth from a re-run of Roosevelt’s gold confiscation, is to keep your BTC safely stored in a cold wallet, protected from any mandate or decree by its unbreakable cryptography.