From a psychological point of view, the concept of “ownership” is best associated with a tangible sensation, so the thought of having physical bitcoins sounds like a great idea at first. After all, it must feel satisfying to hold a shiny copper Bitcoin worth tens of thousands of dollars in your pocket.
However, Bitcoin has made its name as a virtual financial system that is based on the principles of decentralization and fungibility. This means that there is no room for security printing companies and supply regulators in the blockchain ecosystem.
Apart from breaking the decentralized tenets, the idea of physical bitcoins sounds legally unsustainable since no government across the world will allow a parallel monetary system to exist within its legislation.
That said, there has been a serious attempt to produce material bitcoins throughout the decade-long crypto era. To find out why these efforts were short-lived, let’s dig a little deeper into Bitcoin’s “natural habitat” — the blockchain.
What Is Bitcoin?
People first heard about Bitcoin (BTC) at the end of 2008 when an anonymous developer, known under the alias Satoshi Nakamoto, released the Bitcoin whitepaper online. The creator explained the need for a decentralized currency that will operate outside the system of centralized authorities and banks.
Bitcoin was the first digital currency that showed a feasible plan for development in the area of decentralized finance. From our side of the computer screen, Bitcoin is a computer file stored in a specifically designed program called a digital wallet.
When we send BTC, we don’t physically transfer the file. Instead, we give access permission for that file to the recipient. More specifically, we actually pass a password called a private key (generated by the digital wallet) to the recipient, which is the one and only method for proving ownership over your digital money.
How Does Bitcoin Work?
On the blockchain side, when we want to transfer some bitcoins, we send a request to the network to validate that transfer. Bitcoin miners get notified of this change and start a competition for who gets to verify the Bitcoin transaction first. This process consists of guessing a random target number that solves an equation created by the algorithms of the Proof-of-Work (PoW) protocol. Bitcoin utilizes an SHA-256 hash algorithm system to generate a 32-byte number equal in length in a manner that requires a determined amount of processing efforts. Certainly, it’s not miners that make these efforts manually, but mining hardware represented by powerful ASIC rigs.
Eventually, the miners who get to the correct number first transparently present the solution to other miners, and that’s how Bitcoin mining ensures that only legitimate transactions are verified on the blockchain. For completing their job successfully, the fastest miners get a reward in the form of newly-generated bitcoins.
In a nutshell, this is what happens in the back while you’re waiting for around 10 minutes for the network to confirm your transaction.
Where Do You Store BTC?
Similarly, if you happen to be the recipient (the buyer) in the transaction process, you need a digital space to accommodate the received Bitcoin. As we’ve mentioned in the section above, digital or crypto wallets are the only software packages for storing virtual currency.
You need to activate your Bitcoin wallet before the BTC “check-in”, as you need to provide the sender with a valid wallet address (public key) so that they know where to send the coins. The public and the private key create a unique pair, whereby information encrypted with the public key can only be decrypted with the respective private key.
That’s the simplest way to describe how Bitcoin storage works in its very nature. On an end-user level, Bitcoin wallets are present in various forms of platforms and apps (hot storage), hardware devices with their own software, and even printed paper (cold storage).
When you buy Bitcoin from a centralized crypto exchange, the exchange itself offers you a crypto wallet for your newly-acquired coins within your exchange account. This sounds like a handy solution to avoid additional transfers and transaction fees, but from a security point of view, such in-exchange wallets are the least desirable storage solution for your Bitcoin holdings. In this scenario, it’s usually the exchange that takes control of your private keys. In the crypto jargon, they usually say no key, no money, which is true, as the exchange is actually the holder of your crypto capital.
Despite the robust security features of that particular exchange, it’s unreasonable to put all your trust into a platform that resides online with your private keys in its hands. Virtual vendors are the most desired targets for cybercriminals, which can be seen best through the rate of stolen bitcoins throughout the short but eventful Bitcoin history.
Software apps are the most diverse group of Bitcoin wallets consisting of mobile and desktop apps available for free download either on your mobile or desktop device. Mobile wallets significantly impact the convenience of use for those who use Bitcoin as a payment method because of their portability and QR codes. On the other hand, desktop wallet apps can provide an in-depth view of various aspects involving your digital assets, such as price movement and long-term forecasts.
Both desktop and mobile wallets feature equally easy navigation to web wallets, but unlike them, app wallets let you keep your private key in the device. In terms of security, this can be advantageous since you won’t leave your funds wide open on the exchange’s server. However, phones and computers themselves are frequent victims of malware and ransomware attacks (hence, your private keys), so these user-friendly software packages aren’t the best-recommended wallets in the long haul, especially if you own a large amount of Bitcoin.
Hardware wallets are real devices designed specifically for crypto storage purposes. You do need to connect these devices to a software interface through your computer (or mobile phone) in order to activate a transaction or monitor your balance. However, your private keys stay inside the wallet, fully protected from cyber threats.
This setup makes hardware wallets superior to all other forms of digital wallets. As an ultimately-safe Bitcoin storage solution, a hardware wallet will cost you between $50 and $350, depending on the model.
Bitcoin paper wallets are the earliest form of cold storage that allows you to keep your public and private keys printed on a piece of paper or other material. There are several Bitcoin paper-wallet generators online that will create a unique set of keys for you and remove them irretrievably from the network the very moment you click print. However, let’s make it clear just one last time. Your “coins” won’t leave the blockchain. Instead, you’ll get a paper version of your keys to access them through a certain user interface or compatible software wallet.
From one perspective, the paper wallet is the safest yet simplest way to store and withdraw your altcoins. They won’t leave any mark in the virtual space whatsoever for a hacker to trace them. However, the entire storage method looks a bit obsolete given the range of sophisticated cold wallets available on the crypto market today.
What Is a Physical Bitcoin?
Now that you’ve grasped the general idea behind Bitcoin’s lifecycle, we can tell you that a physical bitcoin is technically a type of paper wallet that allows you to keep private keys in a material form. However, unlike paper wallets, the physical crypto coin is made of copper or brass instead of paper.
The first to bring up the idea of physical Bitcoin was Mike Caldwell from Utah. He invented the Casascius model in 2011 as a means of money for face-to-face transactions rather than a method for safe storage of digital currency. With an average exchange rate of $7, Bitcoin was far from public acceptance at that time mostly because the entire blockchain idea seemed either suspicious or far-fetched to mainstream investors. While explaining blockchain technology to his family and friends, Caldwell, a programmer himself, thought that this “voucher system” would help people discover the cryptocurrencies’ potential faster.
How Did the Casascius Model Work?
Casascius coins were available in a few denomination increments and each metal coin had its own public key (Bitcoin address) inserted on a card inside each coin a private key covered by a tamper-proof hologram.
The Casascius monetary system was easy to follow. To “spend” the coin, the Bitcoin user would need to peel the hologram sticker and use the private key online. Once peeled and redeemed, the coin had no longer any value.
Technically, Casascius coins were pretty advanced. Caldwell assigned an expert team to craft a “honeycomb” pattern in order to prevent any attempt at re-sealing the coins. This mechanism ensured buyers that the coin had never been used before. To achieve this, Cladwell himself had to buy bitcoins first and then insert public and private keys to these units amid the manufacturing process.
Caldwell was aware that this “second-hand” approach disrupted the principles of decentralization as, after all, buyers had to put their trust in his online outlet for inserting the keys securely. As a result, Caldwell developed the Bitcoin Improvement Proposal (BIP-38) – the first example of passphrase-protected private keys. Today passphrases are a common recovery mechanism for hardware wallets in case of loss or damage.
We can’t say that people immediately accepted physical bitcoins after their launch, but it’s fair to conclude that their popularity rose proportionally with the general interest in Bitcoin.
What Types of Physical Bitcoins Were There?
In general, Caldwell was encouraged by people’s reactions to his Casascius coins. He created 3 series of physically minted bitcoins that looked like real coins even though there was a single denomination in the form of a gold bar. The Casascius coins could be found in 0.5, 1,10, 25, 100, 500, and 1,000 BTC. The top-seller list of Bitcoin coins included:
- 1 BTC (28.6 mm) — a brass coin that was originally minted in 2011 and resembled a US quarter. It was recognized by the spelling mistake on the hologram (Casascius was spelled as ‘Casacius’).
- 10 BTC — a silver coin with a binary encoded message that read: Bitcoin: an idea too big to fail.
- 1,000 BTC bar (8mm x 40 x 6mm) — 2-Factor Gold-plated savings bar that was the all-time highest denomination and included two-factor encryption. It looked similar to a gold bar and weighed around 340 grams. Certainly, the gold BTC bar wasn’t made entirely out of gold.
What Happened to Casascius Bitcoins?
The era of Casascius coins lasted only two years, from 2011 to 2013. In the middle of 2013, Mike Caldwell received a warning letter from FinCEN (the Financial Crimes Enforcement Network), part of the Treasury Department, asking him to reconsider his business operations.
In a nutshell, the US government had classified minting Casascius as a money transmitter business that required state licenses and further regulatory compliance on a federal level. Caldwell decided to shut down his “money plant” instead of spending millions on licenses across 47 states.
By the time the last physical Bitcoin was created in September 2013, Caldwell had produced 27,920 Casascius coins. Even though their production stopped, the existing coins were and still are legit ownership proof. There are currently two websites that track the status of all circulating Casascius coins based on the blockchain data from the blockchain: Casascius Physical Bitcoins Database and Casascius Bitcoin Analyzer.
A Few Words Before You Go…
Not only does the term “physical Bitcoin” go against the very nature of blockchain-based products but also it has turned out to be nearly illegal. Even though Caldwell’s idea was humble and justified, at the end of the day, he printed out money without government consent.
However, these physical coins have remained a meaningful event in Bitcoin history, holding a spot next to the man who bought pizza with 10,000 BTC and the legendary fact that 20% of the total Bitcoin is irretrievably gone because users have lost their private keys.
Finally, the collection of Casascius bitcoins is considered a treasury collection now that Bitcoin has become a global phenomenon. Similar to NFTs, these rare gems are today sold on an auction level, reaching prices that are far higher than their holding Bitcoin value. It’s estimated that around 19,000 coins of the total number of minted bitcoins remain unpeeled.