What Makes Bitcoin 'Hard' Money?

What is Hard Money?

You hear people talking about 'hard' money. What does it mean exactly? How is the 'hardness' of currency evaluated? It doesn't refer to the physical density of the money. Gold is actually extremely 'hard' money. And it's extremely physically hard. (Would you rather be coshed on the head with a dollar bill or a bar of gold...?) No, 'hard' in the context of money refers to the relative ease or difficulty of increasing the supply of that money.

Gold

Mining gold is expensive, difficult and resource-intensive. Every year, approximately 2% more gold is extracted from the ground. So, the gold supply increases by roughly 2% per year. This means gold has a built-in inflation rate of around 2%. That is high on the 'hardness' scale.

Paper Money

Is the US Dollar 'hard'? No! The US Dollar is extremely 'easy'. The same applies to all paper money. The pound, the euro etc. The central banks and governments print trillions more banknotes at whim. With trillions more banknotes entering the market, the purchasing power of all the banknotes already in circulation is reduced. This leads to inflation, which I hope nobody will deny is a real and present danger for us all right now.

Bitcoin to the Rescue

Up until recently, gold was the hardest money the world has ever known. But now there is a usurper. Bitcoin. In the digital age, bitcoin has displaced gold as the hardest money. It is inflation-proof. It has a limited supply. There will never be more than 21 million bitcoin in circulation. Every ten minutes or so a new block is added to the chain. Each block contains a certain number of bitcoin (which go to the miner who successfully submitted the block). Every 210,000 blocks (approximately every four years) the number of bitcoin minted on each new block is cut in half. This is the bitcoin 'halving' people talk about.

Decentralized Ledger

Bitcoin is a decentralized ledger. Each bitcoin user node (there are thousands spread out across the entire world) maintains a copy of the entire ledger. The ledger is stored on the distributed blockchain (as opposed to being stored on a central computer belonging to a corporation, or government, or agency, or individual, or group of people). A block is a list of transactions. Every time someone buys, or sells, or transfers bitcoin, that's a 'transaction' on the ledger. The blocks increment in number. The genesis block was number one. Ten minutes later, block number 2 was minted. Ten minutes later, block number 3. This is why it's called a 'blockchain'. It's literally a chain of blocks.

Immutable

The blockchain is immutable. Everybody in the world can see the entire history of every transaction that happened on the ledger. All the way back to the genesis block. (That's why it's laughable when people claim bitcoin is used by terrorists, gun-runners, drug dealers etc. to launder money.)

Halving

In 2009, the first block (the 'genesis' block) minted 50 bitcoin. And with every new block (approximately every ten minutes) 50 new bitcoin were released into circulation. In 2012 it halved to 25 bitcoin. In 2016 it halved to 12.5. In 2020 it halved to 6.25. In 2024 it will halve to 3.125. Bitcoin is deflationary. The supply is increasingly diminished, and the total supply is capped at 21 million.

Bitcoin is the hardest money the world has ever seen. It has all the advantages of gold, and none of gold's disadvantages. (But that is perhaps a topic for another article.)