Physical Bitcoins: Finding a Replacement for Cash

Bag of bitcoinOne of the main hiccups for Bitcoin, especially when it comes to the older generation, is that you can’t really hold bitcoins in your hand. This is technically not true since paper wallets already exist, but there is definitely room for improvement in this department. Physical bitcoin wallets are in the works from companies such as Trezor and Butterfly Labs, and we have even seen a few Bitcoin cards in the wild. Although taking bitcoins into the physical world is definitely not a requirement for this currency experiment to work, it would definitely help when it comes to gaining more widespread adoption. Let’s take a look at the different ways people can hold bitcoins in their hands.

Paper Wallets

Paper wallets started out as a sort of niche novelty item for many Bitcoin enthusiasts, but they have actually turned into one of the most secure ways to store bitcoins. With this method, the keys attached to a bitcoin address are printed out onto a piece of paper. Bitcoins can then be sent to that address and be stored in a way where only someone who has the physical paper wallet will be able to spend them. The problem with using paper wallets as cash is that you can’t really check to see if the keys on the piece of paper mean anything without an Internet connection.

Bitcoin Cards

Bitcoin cards are something that many merchants will be able to understand without much hassle. They are built in the model of the credit and debit cards that many people use today, but they are connected to Bitcoin wallets rather than wallets filled with debt or fiat currency. There are no bitcoins stored on the actual card, and the card is simply used to send a message to the card manufacturer’s servers that says to take some bitcoins from the customer’s account and give them to the merchant.

Bitcoin Hardware Wallets

Hardware wallets come in many different form factors, and their main feature is that they are usually never connected to the Internet. These devices are left offline to make sure that the bitcoins cannot be stolen by hackers. Most of the hardware wallets in existence right now are nothing more than old computers or USB sticks will wallet.dat files on them, but that will change in the coming years. There are multiple companies working on Bitcoin hardware wallets that can store bitcoins and sign transactions with a private key. This means they could be used securely to sign transactions over the Internet when they are attached to a computer through a USB stick.

What Will Be Bitcoin’s Replacement for Cash?

For now, people are probably going to be using digital wallets on their smartphones to pay for items at various brick and mortar stores. This isn’t the most secure way to store one’s bitcoins, which means people will likely need to have some form of cold storage for their savings accounts at home. Individuals could then add a few bitcoins to their smartphone wallet before they leave the house in the morning.

Another possibility is that someone could create a secondary device to attach to smartphones or carry around separately. This would basically be a form of a hardware Bitcoin wallet that could easily sign transactions for a merchant during the checkout process. While this would definitely offer more security as a device that isn’t connected to the Internet, it would also be a bit less convenient.

Cash still has the advantage of not requiring an Internet connection to be useful, but it’s possible that a private company could start issuing some kind of physical asset, such as paper, that can be redeemed for bitcoins if they are presented to a branch of that private company in person. This would be similar to the system that was used during the gold standard where paper money was nothing more than a receipt for an ounce of gold in a warehouse somewhere. In other words, banks may be necessary for Bitcoin to work in areas of the world without Internet.