Background
There was a recent post asking the question of "Will gold be used alongside Bitcoin in a hyperbitcoinized world?" There was no official consensus, with some arguing that gold makes no sense to use even right now, and that it would only be relevant for electronics.
I, however, respectfully disagree and believe that gold will have a use case in a hyperbitcoinize world, as it will fill the role of physical cash that has so far been insufficiently addressed by Bitcoin. This is because of a recent development in gold cash called the Goldback.
Physical Money is Essential
As much as we would love for it to, Bitcoin cannot fulfill the use-case of every person who needs to transact. Although in a hyperbitcoinized world almost all transactions would be digital and thus done using Bitcoin, there is still a significant. 18% of transactions are still in cash, indicating a thriving demand.
Image by Jonathan Borba
It is important to have something physical to store and transact with. Gold and silver rounds, or even cash, is a fantastically direct form of self-custody. It's on the same level as a seed plate, yet doesn't require a computer to use. In addition, many people I know do not have smart phones, which makes it difficult to transact with anything other than cash.
Bitcoin Struggles With Physical Money
Right now, it is hard to use physical Bitcoin in an effective way. Because of the digital nature, you need NFC tech or something else to make your sats physical.
Opendime
The Opendime was the first successful Bitcoin physical cash, and is fantastic technology. It stores the key to a UTXO, then can be passed from person to person as cash.
Satscard
The Satscard was the second edition of the Opendime, and used NFC tech to be smaller, cheaper, and less conspicuous.
The Problems with Opendime and Satscard
Premium Discourages Small Transactions
Using the Opendime or Satscard involves a premium, as there is a cost to producing each that discourages storing more sats than the Opendime or Satscard is worth.
- The Opendime costs $23 each. That means you can only economically store ~58,000 sats
- The Satscard costs $7 each. That means you can only economically store ~18,000 sats For small and granular transactions, this is a major hurdle.
Verification
You have to verify the exact amount of sats each time, as there is no easy way to indicate the amount of sats on the Opendime or Satscard. Therefore, you still need a computer to verify physical Bitcoin.
Gold Fixes This
Gold makes no sense for digital payments, but it does for physical ones. However, it is hard to break gold down into the size needed for transactions, as it becomes simply too small to make a coin. A few years ago, a company in Utah built technology to address this issue, making a form of gold cash called Goldbacks.
The gold is laid inside of the bill using vacuum technology, so that 1 Goldback contains 1/1000 oz of 24K gold. And because of their anti-counterfeit measures, you can be reasonably certain that there is the same amount of gold as in your Goldbacks and the ones metallurgists have verified.
1 Goldback = $4.09 = ~11,000 sats
Currently, 1 Goldback = $4.09 = ~11,000 sats, meaning they can be used for much smaller transactions that would be feasible with the Opendime or Satscard. Because of this, combined with the ease of accepting them when compared to Bitcoin or other digital payments, almost 600 small businesses already accept them in four states in the US. Do note that they are not tied to the dollar and are tied only to physical gold.
How Goldbacks Could Work Alongside Bitcoin
Goldbacks will not replace Bitcoin, and I don't think gold will "win" over sats either. However, gold still is unique in its ability to serve as physical, hard money. Bitcoin can form the global currency, while Goldbacks or some similar physical gold cash can serve as a local currency directly tied to gold that cannot easily come unpegged. This way, we don't need to rely on IOUs from banks for physical cash. And even though I would prefer it if we could do with Bitcoin what has been done with gold and make physical bills out of it, this kind of gold-Bitcoin dynamic seems a reasonable future for sound money.