Cypherpunk Money, Not Hard Money

Bitcoin meets the definition of (imperfect) cypherpunk money – the first of its kind. On the other hand, Bitcoin doesn’t meet the definition of hard, soft, or sound money, although one could say it’s metallic peer-to-peer electronic cash. In this post, I will explain why. But it’s not easy, as Satoshi wrote, “Sorry to be a wet blanket. Writing a description for this thing for general audiences is bloody hard. There’s nothing to relate it to.”

Sound Money

Bitcoin as sound money is the most widely held, profoundly ingrained falsehood in Bitcoin. No other misconception comes close to it. The Merriam-Webster dictionary defines sound money as “money not liable to sudden appreciation or depreciation.” Thus, Bitcoin is NOT sound money.

Volatility thwarts Bitcoin from acting as a stable store of value, unit of account, and medium of exchange – the three fundamental functions of money. Bitcoin’s volatility defeats Bitcoin’s immutable emission schedule that would otherwise impart Bitcoin with a stable value. Bitcoin’s price will always be volatile because when a spike in demand for bitcoin occurs, the supply of bitcoin can’t increase to meet that demand. And conversely, when the demand for bitcoin experiences a sudden drop, the network can’t decrease the supply of bitcoin. The mismatch between supply versus demand for bitcoin is hard-coded into the protocol.

Hard, Soft, and Metallic Money

I will now quote portions of an Investopedia article entitled “Hard Money” written by Adam Hayes and analyze how it applies to Bitcoin.

Hayes’ article starts by asking the question, what is hard money?

The distinction between “hard” metal coins and “soft” paper money was borne by the fact that metallic coins are solid, physical tokens with intrinsic economic value independent of their monetary status. Meanwhile, paper fiat currency only represents a promise to pay the bearer in physical money upon redemption.

In the absence of metallic monies, hard money today often refers to other types of monetary instruments that, to some extent, behave more like metallic money in domestic and international markets. Examples include gold bullion or cryptocurrencies such as bitcoin.

Bitcoin isn’t metallic or physical, like hard money. But at the same time, Bitcoin isn’t a promise to pay, like soft money. So here, Bitcoin isn’t hard or soft money.

Hard money maintains a stable market value relative to real goods and services and a strong exchange rate relative to foreign currencies. Due to its value and stability in goods markets and financial markets, hard money fulfills the economic function of money (as a medium of exchange, a store of value, and a unit of account) better than softer monies that have more volatile value.

As I previously laid out, Bitcoin doesn’t maintain a stable market value, so it doesn’t meet this definition of hard money.

Essentially, the use of hard money involves lower transaction costs and risks than using soft money. This distinction originated when comparing the metallic content and confidence in the metallic standard of commodity money and eventually carried over to the comparison of various modern paper or fiat monies.

Bitcoin can have lower transaction costs and risks compared to soft money. However, those costs are qualitatively distinct, so it’s murky to go as far as to say Bitcoin is hard money.

Because the value of paper currencies tend to fluctuate on the forex market, according to confidence in the promises of payment that they represent, and decline in value over time as issuers inflate their supply, “hard” versus “soft” money also became associated with the relative stability of exchange rates of certain national currencies. Hard money thus has a more stable value over time relative to real goods and services and a strong exchange rate relative to softer money.

So many users misunderstand inflation in regards to Bitcoin. Unlike central bank fiat, a committee or centralized body doesn’t determine the rate of Bitcoin’s supply. Instead, Satoshi programmed the rate of supply in the protocol’s code. Contrary to what many think, Bitcoin’s supply does increase or inflate over time. At least until the last Bitcoin is mined, projected to occur in the year 2140, at that point, Bitcoin’s supply will no longer increase. The supply of Bitcoin will only decrease due to users losing their private keys or sending their bitcoin to a dead address.

Another misunderstanding is that just because a central bank can’t inflate Bitcoin doesn’t mean Bitcoin’s value doesn’t fluctuate. Bitcoin is volatile! The bottom line is that Bitcoin is like hard money in that it doesn’t get inflated, but Bitcoin isn’t like hard money because its price is volatile. Bitcoin is like soft money in that it lacks price stability, but Bitcoin is not like soft money because it’s not a promise to pay.


In the white paper, Satoshi described his creation as a peer-to-peer electronic cash system. We understand his choice of “peer-to-peer” and “electronic,” but what about “cash”? For Bitcoin, the definition of cash has three components.

  1. Final settlement. Bitcoin is not an IOU; it settles an IOU. When two parties exchange cash, debt is fulfilled.
  2. Fungible. One unit of bitcoin is somewhat exchangeable for or replaceable by another unit of bitcoin in the satisfaction of an obligation. Thus, my one bitcoin is sufficiently indistinct from your one bitcoin under most circumstances. However, each coin (UTXO) has a transaction history attached to it, so Bitcoin isn’t perfectly fungible.
  3. Bearer instrument. Bitcoin is not linked to its holder by identity. Instead, the holder of the bitcoin is presumed to be the owner.

In summary, Bitcoin doesn’t meet the definition of soft, hard, or sound money. Instead, Bitcoin qualifies as metallic money and peer-to-peer electronic cash. But Bitcoin is much more than both. Bitcoin meets the definition of cypherpunk money, though imperfectly.

Cypherpunk Money

I will define cypherpunk money by quoting the cypherpunks.

The following are passages from A Cypherpunk’s Manifesto by Eric Hughes. Privacy in an open society also requires cryptography.

Cryptography is the foundational technology of Bitcoin. A private/public key pair makes Bitcoin transactions private but does more. If you retain sole control of your private key, no one else can control your funds. Cryptography plus a peer-to-peer network make Bitcoin resistant to censorship and seizure.

Since we desire privacy, we must ensure that each party to a transaction have knowledge only of that which is directly necessary for that transaction. Since any information can be spoken of, we must ensure that we reveal as little as possible. In most cases personal identity is not salient.

Bitcoin is the separation of money and identity. Unlike Bitcoin, third-party online payment systems such as PayPal and credit cards require your identity. You fill in boxes with your name, address, and phone number. This personally-identifying information is stored, shared, and exploited. When you pay with bitcoin, you don’t need to input personally-identifying information for the network to process your transaction. Nor does the receiver of the transaction reveal his info, only his receiving address.

Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system. An anonymous transaction system is not a secret transaction system. An anonymous system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy.

We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.

Bitcoin is a transactional system. It’s more than an asset or unit of account or a method of payment.

Unfortunately, Bitcoin isn’t anonymous, though it is pseudonymous. Nevertheless, Bitcoin reveals some information about the parties and their transactions. On a block explorer, anyone can view the sending and receiving address and transaction amount. Anyone can also see other transactions and the balances relating to those addresses. Additional metadata is also viewable.

So Bitcoin imperfectly reaches the qualification of anonymity for cypherpunk money.

Cypherpunks write code. We know that someone has to write software to defend privacy, and since we can’t get privacy unless we all do, we’re going to write it. We publish our code so that our fellow Cypherpunks may practice and play with it. Our code is free for all to use, worldwide. We don’t much care if you don’t approve of the software we write. We know that software can’t be destroyed and that a widely dispersed system can’t be shut down.

For privacy to be widespread it must be part of a social contract. People must come and together deploy these systems for the common good.

Bitcoin is fully open source. And anyone can use or modify its code. Additionally, Bitcoin is more than an asset or even a money. In the white paper, Satoshi described Bitcoin as a “peer-to-peer electronic cash system.” Bitcoin is a payment system, a money creation system, and even a pseudonymous identity system. Bitcoin doesn’t require third-party or off-chain inputs to function. Bitcoin is an autonomous, closed-loop system.

The following is a passage from The Crypto Anarchist Manifesto Timothy C. May.

Just as the printing technology altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and government interference in economic transactions.

It’s near impossible for corporations and governments to interfere in Bitcoin transactions. The network is too dispersed to control sufficient nodes to block transactions. Even miners are sufficiently decentralized to prevent chain reorganizations and double-spends.

However, we should remember that corporations and governments exert significant interference on Bitcoin users via third-party Bitcoin services, such as exchanges and custodial wallets. However, these aren’t part of the Bitcoin peer-to-peer network.

Bitcoin’s design creates an impressive property:

Bitcoin as a means of value exchange is unprecedented. There has never existed a mechanism for transferring sums of value — large or small — to other parties across the world with settlement in minutes.

-Brian Curran, “What is Sound Money? A Look At Bitcoin’s Emergence”

To summarize, Bitcoin sufficiently, though imperfectly, meets the qualifications of Cypherpunk money, which are:

  • Use of cryptography
  • Lack of need for personally-identifying information
  • Anonymity (pseudonymity)
  • An autonomous system
  • Resistant to interference from corporations and governments


Classifying Bitcoin as sound money is incorrect. But worse, it excludes the most impactful and unique strengths and functionalities of Bitcoin. Therefore, I propose dropping the “sound money” meme from Bitcoin, replacing it with “Cypherpunk money.” If we do, we will understand Bitcoin more accurately, appreciate it more deeply, and use it more frequently.

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