Everything You Need To Know About Physical Bitcoins
The A-Z Guide to the most controversial Bitcoin storage.
So you did it. You read more about Bitcoin Halving. You felt now was the time for you to shine and decided to invest your money into the crypto market. You thought of buying some Ethereum (ETH), maybe a little Ripple (XRP), but you said ‘Nah. To hell with it’, and decided to go for the real o.g. Bitcoin (BTC).
You signed up with a respectable broker who and now you have some BTC stored in a fancy digital wallet. Life is good until I tell you that your wallet isn’t secure.
You panik, yes, panik. “Really?”, you say. And I’m like “Yes. You could lose all your holdings online in a snap “. Your panik intensifies.
Mon Dieu! My money! Non!
While it’s understandable to worry in a weirdly french way (unless you are french…in that case ‘Bonjour’), do remember that no security is always 100% safe. Blockchain, the tech underlying Bitcoin, is the safest that is out there, but that doesn’t mean that there aren’t bigger brains trying to gleefully line their pockets with your digital money. Okay, that’s not exactly technically possible but you get the gist.
How does that exactly work?
Well, bitcoin or any other cryptocurrency is a digital currency. That means it doesn’t physically exist in reality, it’s stored as bits (geddit…hahah) on servers. All bitcoin wallets have private keys from which the owner can access his/her holdings for sending and/or receiving the BTC.
There are 3 main types of wallets: mobile, desktop and hardware. You don’t have to stitch together fabric or leather and put your branding, you just have to download dedicated software or use dedicated hardware ledgers, among others. But these still are accessible if someone gains access to your private key and/or someone performs a good old switcheroo on your crypto storage device. A virus could attack your device or the mobile app could crash. Or you just have short-term amnesia and forget where you left your ‘keys’. That doesn’t mean that all of that necessarily happens regularly, but there is that sense of insecurity.
From this sense of insecurity and the sometimes public hacking of crypto exchanges and service provides, the idea of creating a physical bitcoin was birthed. As funny as a bitcoin coin sounds ( kinda like Ferrari naming its car Ferrari La Ferrari…Italians are very creative), having your money stored on a physical coin which you could store in a locker or a bank vault represents a safe option in comparison to say a mobile phone.
Unlike the history of a mobile phone, the history of Physical Bitcoins is a lot less Jurrasic. The first physical crypto coin was developed by an American, Mike Caldwell. He invented Casascius coins in 2011, minting coins for safely storing cryptocurrency. Unfortunately, he had to put up ‘That’s All Folks’ sign in 2013 (we’ll get to that later), but his idea of storing sensitive data on the coin was revolutionary and led to several startups gunning for the proverbial gold coins.
The beauty of the physical coin is that you would still need a digital device for it to work. Because unlike a normal coin, which has an intrinsic value, there is no actual ‘money’ stored on the tiny pieces of silver, brass, or whatever scrap metal they could find to please Greta Thunberg (I’m all for saving the planet, Greta). What they contain is the aforementioned private key, which gives access to the particular bitcoin amount for which you purchased the coin.
Confused?
Well, think of a bank card or a share certificate. The ‘card’ or the ‘paper’ in itself is worthless or of no significant value. But what it does contain is specific data (could be a microchip, a line of code, a unique reference number, etc.), which gives you access to the ‘true’ value on the card/certificate. In the case of the bank card, it is the amount of money in your savings account. In the case of the share certificate, it is could be the amount of Apple stock you own (which is much different from Chicken stock). A bitcoin coin follows the same concept. But wait! There’s more
Like the chocolate coins you may receive during a Halloween trick or treating session, the coin also gets packaged with fancy material. In this case, it’s not gold foil…which sucks… but the packaging is holographic, so if you are a bigger fan of Blade Runner than of Fort Knox or Richie Rich, this is straight-up your..ahem..wallet. The holographic packaging isn’t just there for a ‘weird flex but okay’ moment either. The cover hides the private key required to access the predetermined amount of cryptocurrency the coin essentially ‘holds’. That means, as soon as the package is tampered with hands not belonging to oneself or not under one’s express authorization, you know that someone has stolen your sweet digital gold.
This enables you to do any changes to your account before any other hacker who is not as wholesome as the CrazyRussianHacker to run away with your coins. The best part? Each coin has a unique private key. Thus if the apocalyptic scenario happens and someone has tampered with your coinage, they would only have access to the holdings under that specific ‘coin’.
This is so much safer than a digital wallet, where the nefarious personality will have access to all your holdings as soon as he/she/it (we don’t judge) does an Indiana-Jones-moment on your private key. Additionally, chances are higher that you would be more cautious with a physical asset than a digital asset, and when the asset looks so freaking cool, it even achieves a collector’s status.
Well, the US Government didn’t like it, and that’s why Mike Caldwell had to stop minting his idea within 2 years. The country’s Financial Crime’s Enforcement Network (FinCEN) felt that since Mike was minting physical ‘coins’, even though they served as an access point to the actual digital currency, Caldwell’s Casascius could be classified as a money transmitter business. The Treasury Department was going to have none of that. Unless Mike somehow managed to get registered at a Federal level and received State licenses, his Cyberpunk money was gonna have to go down the sink.
As you can see, the physical bitcoin journey does have regulatory roadblocks. The coins too, especially Casascius, would not be divided into much smaller fractions of BTC for the average user. This made sense back in 2011 when the highest 1 BTC went to was a measly 31 USD. Now, 1 BTC is very close to 5 figures. Holding that amount of money in a coin-sized …um…coin is way scarier than what it was almost a decade ago. A physical coin thus wasn’t perfect.
But when is new tech ever perfect? The idea of turning digital currency into a wallet-friendly asset remains revolutionary. Perhaps further down the line, regulatory approval would be granted and we would have a new coin in our wallets.
After all, playing ‘Heads-or-Tails’ with something worth thousands of dollars will be cool, no?
