Healthy money is money that is not prone to sudden debasement. The conversation around a sound currency has reached a critical point, given the current uncertainties in the global financial landscape.
The rising debt of sovereign nations has raised concerns about currency devaluation. Unlike fiat money, which can be created out of thin air, solid money is linked to tangibility: it is something that can be touched, weighed, and kept. There is a growing chorus of people I am convinced that gold is the only antidote to the hyperinflationary threat to fiat money.
The question of whether bitcoin is sound money has sparked debates among economists for a long time, investors and financial experts. bitcoin, being an intangible digital asset, is often dismissed by proponents of sound money because it does not offer the same physical collateral as gold. You can’t hold bitcoins in your hand, so how could it be solid money?
Proponents of bitcoin as sound money often respond that although bitcoin is not physical, it is “backed by mathematics.” But this misses the mark. While true, this argument often fails to persuade skeptics because mathematics lacks a physical basis.
In fact, bitcoin is literally physical, just like gold. Being able to explain this to solid money advocates who are skeptical of bitcoin is a key challenge for bitcoin educators today. Let’s explore some of the ways bitcoin is physical so we can make a stronger case to gold enthusiasts about why bitcoin is sound money.
The blockchain is physical
To explain the ways in which bitcoin is physical, we must delve into technical territory, starting with how flash memory works.
Flash memory, a type of non-volatile storage medium for data, is the most common way the bitcoin ledger is recorded on each bitcoin node. Flash memory is “non-volatile”, which means that the data stored inside it will remain intact, even without power supply.
At a microscopic level, flash memory is made up of a series of memory cells, each constructed from a MOSFET (metal oxide semiconductor field effect transistor). These transistors are small switches that have a floating gate that traps or releases electrons. The presence or absence of electrons in this floating gate is translated into binary code, which in turn represents data.
When you own bitcoin, your record of ownership is literally a configuration of physical gates on a MOSFET inside a flash memory chip. Every bitcoin transaction that ever occurred is recorded in the physical states of transistors within bitcoin nodes spread around the world.
Now, flash memory may not weigh as much as a gold bar, but it is undeniably physical. With a powerful microscope, You could even take a look and see with your own eyes the states of those gates inside the flash memory chips.
Private keys are physical.
Let’s move on to private keys, which are alphanumeric codes that grant control over a certain amount of bitcoin. Whether engraved on a metal plate or stored on a secure chip, your private key is physically as real as a piece of gold.
If you store your private key in the form of a seed phrase written on paper or engraved on metal plates, as many do, then its physical character is obvious. However, while it may be tempting to assume that a seed phrase stored in this way is just a physical representation of something that is not physical, that is not entirely correct.
Hardware wallets are widely considered the best way for people to ensure the security of their private keys. A hardware wallet typically contains a secure element, a chip that securely stores a private key. The secure element increases security because it is designed to resist physical tampering attempts and unauthorized access.
In fact, the secure element inside a hardware wallet physically stores a private key in flash memory in the form of electrical states of transistors. Remember, each transistor is a switch with states that can be on or off. The private key, therefore, is a specific sequence of these states.
Even the private key stored in a phone’s hot wallet must physically exist in the phone’s non-volatile memory.
bitcoin‘s physicality means it can survive catastrophes
One of the arguments of people who believe that gold is a superior form of solid money to bitcoin is that bitcoin depends on electricity and computers. They argue that if a civilizational collapse were to occur that disrupted electricity for an extended period of time, or even permanently, then bitcoin would be useless. However, this view is erroneous. bitcoin‘s physicality allows it to survive almost any catastrophe. A famous Hollywood moment will help illustrate this point.
The famous 1999 movie Fight Club ends with the destruction of all consumer debt. In the final scene, we see the antiheroes look out the windows of a skyscraper, watching collapsing buildings. We are told that these buildings contained all of the consumer debt records. With the buildings destroyed, the debt is eliminated and “financial balance” is restored.
Although it is a thought-provoking ending, audiences who watched the film had trouble suspending disbelief in this scene. Are we really supposed to believe that all records of consumer debt are kept in a few buildings? Even dozens of buildings? Intuitively, we would assume that there must be copies of these records spread around the world, in various cities, computers, and files. Even if most of these records were destroyed, although recovery may be slow, copies would eventually be located and the pre-existing state of credit and debt restored.
The bitcoin blockchain is much stronger than even consumer debt records. The bitcoin ledger does not exist in a single location or even a handful of locations; It is replicated at thousands of nodes around the world, at almost every longitude and latitude imaginable. Each node stores a physical copy of the ledger in its flash memory, and together, all bitcoin nodes serve as an absurdly redundant global backup system. They all talk to each other and confirm that their physical states are identical to each other.
In fact, planet Earth is continually bathed in the bitcoin blockchain for satellites that broadcast it 24 hours a day. Even if Internet connectivity were to go down for an extended period in some locations, those locations could remain in sync with the bitcoin network using an inexpensive satellite dish.
After any catastrophic event that could disrupt infrastructure, one of the main objectives of recovery would be the restoration of electrical and communications networks. As history has shown, recovering societies prioritize the restoration of these public services as a basis for reconstruction. Once power and internet connectivity is restored, the bitcoin network will also be restored. All physical copies of the ledger, stored in flash memory on decentralized nodes around the world, and even in space, would be there to ensure the continuity and integrity of the system.
This decentralization makes it extremely unlikely that any one catastrophe (whether an electromagnetic pulse (EMP), a nuclear detonation, or even a meteorite impact) could erase all physical copies of the ledger.
Of course, there is always the possibility of a catastrophe so intense that it triggers an extinction-level event across the entire planet. In that case, the human species will have bigger problems to face than what form of money to use, and will be no better off with gold than with bitcoin.
If more people knew that bitcoin was physical, more people would adopt it
Why is it vital to spread the understanding that bitcoin is physical?
At a time when financial systems are becoming increasingly abstract and distant from the tangible, people long for the security of something concrete. That’s why many turn to gold, real estate and other physical assets.
The argument that bitcoin cannot serve as solid money because it lacks the tangibility of gold is a misunderstanding of how bitcoin technology works. bitcoin is not an abstract and ephemeral digital construct. It is a form of solid money that has physical existence.
Understanding the physical aspect of bitcoin can remove a significant mental block for many potential users. This would allow them to benefit from the inclusion of bitcoin in their own financial arsenal, as well as improve the resilience of the bitcoin network itself by introducing a sizable cohort of committed sound money advocates.
This is a guest post by David Birnbaum. The opinions expressed are entirely their own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
