Physical Bitcoins: Tangibility with Varied Tradeoffs

written by @veriphibtc

With the advent of scarce digital money in Bitcoin, the future is clearly intangible. However, since 2009 we’ve seen physical representations of digital value manifest with varying tradeoffs.

Money has been present in different forms and shapes since the beginning of human history. The ones that have survived and persisted as adequate reserves of value were the most durable and rare resources.

For example, gold has always been humanity’s favorite rare metal to use as money since it perfectly fulfilled the functions of money. Therefore, its physical properties such as its chemical stability, its durability, and scarceness are appreciated today by governments, companies, and individuals. Gold’s physical form gives it a special status as money since its ownership isn’t dependent on legal contracts but solely on the fact that you possess the metal. Many gold bugs covet the ability to physically handle their riches.

The Next Evolution of Money Isn’t Physical

Money has traditionally been associated with the inherent belief that you need to be able to hold it physically in order to call it as such. This perception has been gradually shifting as our banking system has slowly but surely migrated towards virtual ledgers.

That means that you never have to hold your fiat currencies in a paper form to function properly in a vast majority of today’s developed countries.

We can also observe a general change coming for central banks in that regard. Most of them are advocating for completely paper-free money where every transaction will all pass through digital mediums. Whether you agree with that or not, it seems like an inevitability.

Bitcoin is digital but completely different than our current banking system. Its ledger is distributed and decentralized. No centralized, permissioned party has an exclusive right to modify it in any way.

However, it seems like a lot of people have trouble understanding this feature. Many criticize Bitcoin based on the fact that they can’t “touch” it, even though many lobbing these criticisms also utilize online bank accounts and credit cards every day.

Surprise surprise, Bitcoin can actually be held in different physical forms by the most “touchy” of Bitcoiners. We will explore a few of these options so you can decide if these are for you!

Paper Wallets: Risky and Outdated

One of the most popular ways to keep Bitcoin in the early days was in the form of paper wallets.

The method consisted of printing the private key and a single address on a piece of paper in order to receive Bitcoin funds corresponding to that private key. The only way to redeem Bitcoins sent to that address was to initialize a software wallet with the written private key.

This can be considered as physical Bitcoin since you are securing the funds through a paper medium, especially if there is only one physical copy of this document, as opposed to using software wallets.

However, we absolutely do not recommend this method to hold Bitcoin due to its inherent limitations and flaws.

Most paper wallets were offered through websites and not self-hosted software. This means that the key generation process could have been backdoored/compromised in a lot of cases. There were a lot of tragedies where neophytes thought they were doing the right thing by downloading these wallets but ended up having their funds stolen.

Another attack surface is the printer itself used for paper wallet generation. Printers are easily hacked and someone could simply go into the printer’s printing history to find the precious private keys.

Apart from that, this method encourages people to use third parties and websites to verify their Bitcoin balance through external blockchain explorers.

Finally, the sole fact that the funds are held on paper makes them vulnerable to destruction, floods, and fire. Imagine how bad you would feel if you spilled your coffee on your Bitcoin private keys!

Casascius Coins – Legendary Relics

A more advanced version of the paper wallet was created by a Bitcoiner calling himself Casascius (real name: Mike Caldwell).

Casascius coins are basically real physical metal coins with an embedded private key that holds the amount of Bitcoins expressed on the face value of the coins. As opposed to paper wallets, the private key is protected by a tamper-resistant hologram.

This means that you could do transactions with these coins without triggering a transaction on the blockchain.

So, once you’re ready to spend the coins locked inside a casascius coin, you have to peel off the sticker to read the private key.

Here is an image of a Casascius peeled hologram.

Of course, you have to trust that Cascascius isn’t malicious and hasn’t noted the private keys before applying the protective holograms. If he did, he could redeem these coins and access them even though he doesn’t possess them physically.

Some of these coins had a high collector value and were selling at significant premiums over the course of their manufacturing. Caldwell, however, had to stop the selling of these legendary coins in 2013 once The Financial Crimes Enforcement told him he was falling under the Money Transmitter Business laws.

Today, from all the Bitcoin locked inside Casascius coins, approximately half (45626.6 bitcoins) have been redeemed by their owners. You can track them here.

Opendimes – The Ultimate Physical Bitcoin

The biggest problem of previous physical Bitcoin forms was the amount of trust needed to use them. You need to trust the issuers of the key generation software for paper wallets and you need to trust the manufacturer of the Casascius coins.

This is of course unacceptable when it comes to holding large amounts of money and these methods are now considered outdated and unsecured.

However, there are definitely some benefits to physical Bitcoin as you can basically trade them without needing to express the transaction on the blockchain unnecessarily.

OpenDime has resolved that issue and is currently the ultimate bearer instrument product for Bitcoin.

OpenDime is a product created by Coinkite, a Canadian cypherpunk-driven company led by high-profile bitcoiners and hardware specialists.

As opposed to the Casascius coins, these special USB sticks will be delivered to you completely empty. When plugging them into a computer you will be prompted to create the wallet that will ultimately hold your coins. However, only the public keys and corresponding addresses will be visible through the graphical user interface of OpenDime. You can then proceed to transfer the intended Bitcoin to be held on the OpenDime with the provided addresses.

Once the owner of a loaded OpenDime wants to spend them, they have to physically remove a hardware chip with a pin in order to be able to see the private key that is held inside. Then they can proceed to sweep the private key with an external wallet in order to spend the funds.

This product is revolutionary in a lot of ways since you can basically transact Bitcoin securely without the need for an internet connection, strongly resembling a cash transaction.

The Perfect Wedding Gift 

Forget about giving boring dirty cash at the next wedding you’re attending. Make an impression on the young couple by giving them a loaded OpenDime.

First, they will be perplexed but highly impressed by the originality of the gift. Tell them to secure it carefully and only open it once they’re ready.

As a matter of fact, that gift was tested in a few weddings by the members of our team and they can all assert that the married couples will remember you. For better or for worse!