Difference Between Hard Money and Sound Money

Money is anything that serves as a medium of exchange, a store of value, and a unit of account. However, not all money is created equal. Some forms of money are more reliable, durable, and scarce than others. In this blog post, we will explore the difference between hard money and sound money, and why bitcoin is considered to be the purest form of hard money ever created.

What is hard money?

Hard money is money that has a high cost of production or acquisition. It is usually backed by a physical commodity, such as gold or silver, or by a limited supply of tokens, such as bitcoin. Hard money is resistant to inflation and devaluation because it cannot be easily increased in quantity or manipulated by central authorities.

Some examples of hard money throughout history are gold coins, silver coins, shells, beads, cattle, salt, cigarettes, etc. These forms of money have intrinsic value or utility that make them desirable and scarce.

What is sound money?

Sound money is a broader concept than hard money. Sound money is money that maintains its purchasing power over time and across different locations. It is also stable in value and predictable in supply. Sound money does not lose its value due to excessive inflation or deflation. Sound money also facilitates economic calculation and coordination by providing a common measure of value.

Some examples of sound money throughout history are gold standard currencies (such as the British pound sterling or the US dollar before 1971), commodity-backed currencies (such as the Swiss franc before 2000), or fixed exchange rate currencies (such as the euro).

What is the difference between hard money and sound money?

The main difference between hard money and sound money is that hard money refers to the physical characteristics of the money itself (such as its cost of production or acquisition), while sound money refers to the economic characteristics of the money system (such as its stability and predictability). Hard
money can be seen as a necessary but not sufficient condition for sound money.

Another way to think about it is that hard money focuses on how much work it takes to create new units of currency (the supply side), while sound money focuses on how well those units retain their value over time and space (the demand side).

Not all forms of hard money are sound money. For example, gold coins are hard money because they have a high cost of production and are backed by a scarce commodity, but they may not be sound money if they fluctuate widely in value due to market forces or government interventions. Similarly, not all forms of sound money are hard money. For example, the euro is sound money because it maintains its purchasing power across different countries in Europe, but it may not be hard money because it can be created out of thin air by central banks.

Why bitcoin is hard money?

Bitcoin is considered to be the purest form of hard money ever created because it has zero elasticity. This means that its supply cannot be increased or decreased by any external factors. Bitcoin's supply follows a predetermined algorithm that reduces its issuance rate every four years until it reaches 21 million bitcoins around 2140. No one can create more bitcoins than what the algorithm allows.

Bitcoin is also backed by cryptography and mathematics rather than physical commodities or human trust. Bitcoin's network relies on thousands of nodes distributed around the world that validate transactions and secure the ledger using proof-of-work. Bitcoin's network does not depend on any central authority or intermediary to function.

Bitcoin is therefore resistant to inflation, devaluation, counterfeiting, confiscation, censorship, and corruption. Bitcoin's scarcity, transparency, and immutability make it an ideal store of value for long-term savers.

Conclusion

In conclusion, hard money and sound money are two related but distinct concepts that describe different aspects of monetary quality. Hard money refers to how difficult it is to produce new units of currency, while sound money refers to how well those units preserve their purchasing power over time and space. Bitcoin is arguably the best example of hard money ever created because it has zero elasticity and relies on cryptography.