Breaking Bad, Bitcoin & the Mint: Reflections on Physical Assets

Alert: this is a bit lighter and less law-nerdy than my usual posts. (But just a little.) You’ve been warned.

Never having lived before in a city with a branch of the U.S. Mint (much less one of the only two cities that offer tours), weeks ago I did what any red-blooded, young(ish),Denver Mint hip(?) American(!) would do and booked a tour of the Denver Mint. This morning at 7:30am, there I was like a college student waiting for the latest iPhone.

As you would expect, there is a lot of security – for example, you have to turn off your iPhone; also there are shotguns – but one thing that strikes you when you look through the glass windows at the stamping and sorting machines is how insecure cash is. There are giant rooms full of enormous bags of cash just sitting there – small denominations, sure, though I seem to recall a similar arrangement of paper currency from a Imagemiddle school trip to the Bureau of Engraving and Printing. (Both are part of the Treasury Department; the mint makes coins, and the BEP prints paper currency.) No bag of pennies could be worth the trouble of moving it, but stacks of Benjamins add up.

But no one’s laying a finger to this stuff, so what’s the big deal? Bad guys prefer gold bullion anyway, particularly when it’s held at the Federal Reserve or Fort Knox.

Well, two things struck me, neither of which has much to do with America’s monetary institutions but both of which speak to the peculiar status of physical assets.

1. One does not often find oneself these days in the presence of so much tangible, fungible, portable wealth that can’t really be traced, recovered, or insured in the event of theft or loss. As soon as the coins are stamped or the bills printed, they are legal tender. There’s no activating them at the cash register. The whole thing is governed by law, of course, but to a lawyer this is a little weird. Shazam! Once the assembly line is in motion, money is created by a manufacturing process, like a belt buckle. (When I asked the guide about this, he ticked off a few of the mint’s security measures, but security per se is not really the point. In a nanosecond, a small amount of metal is stamped into something the IRS must accept as payment for taxes.)

Beyond the curiosity of its creation, cash is different from other valuable assets we are used to – real estate, stocks, bonds, jewelry, even IP licenses – in several key ways. First, the asset is not traceable. (Of course serial numbers on paper currency can be traced and canceled, but presumably a determined criminal could still gradually launder the money.) The real value of those assets either lies outside their physical expression (e.g., a stock certificate, a contract) or is readily insurable (a house, an engagement ring). Some might find cash reassuring, because of this “protection” from traceability. This partly depends on your ideological priors, I suppose, but I don’t think I’ll ever be able to see huge piles of cash again without thinking of Walter White’s $80 million being stolen by skinheads in the New Mexico desert. Recall that the storage locker/tinderbox pictured above is pretty much the safest place he keeps his money in all of Breaking Bad.

Which is much less safe than the U.S. Mint! (Speaking of which, the people who work there are lovely, but I do not recommend messing with them.) Also less safe than storing your money as a series of 1’s and 0’s at a bank. Even before considering deposit insurance, the ability to store enormous amounts of wealth with almost total safety and at extremely low cost – indeed, at a profit! – is a modern marvel. Which brings me to…

2. Seeing huge amounts of cash is a reminder that physical assets – and here I’m including family photo albums, birth certificates, legal papers – are inherently insecure. Whether they are more so than assets stored primarily or exclusively in electronic form depends on the circumstances, but often yes.

In some cases, physical assets are fungible and virtually untraceable and thus as soon as they get out the door, they’re gone. There is a reason it’s mainly the kingpin set who keep large amounts of cash. The identity of value and representation of value is inherently dangerous.

This is one of those intuitive, but often overlooked facts of life that applies to non-fungible physical assets as well, and I think it has implications beyond money, for example for privacy and items of sentimental value. We see a lot of attention to identity theft, or the latest internet virus. But the storage of physical valuables – even by banks – carries risks that are almost impossible for asset-holders to mitigate (headline from this Citibank branch fire says it all: “With Fate of Safe Deposit Boxes Unknown, Bank Customers Fret After Blaze”). Fires in safe deposit boxes are rare, but there’s only so much you can fit in those things. Physical assets get lost and stolen, they burn, they deteriorate.

Yet people often have a kind of sentimental attachment to physical assets (even non-sentimental ones, like gold), and we see this pro-physical prejudice carry over reflexively to the privacy realm, which is a little odd. In the olden days, people refused to buy things over the internet because they were afraid of their credit cards being stolen. Ok. Today, people are terrified about their email or Dropbox being hacked (recent NSA revelations have somehow failed to allay this concern), or about someone deleting a lifetime of their personal data by hacking their Google and Apple accounts.

These are real risks that, in some cases, may justify keeping things in physical form only – probably not photo albums, but maybe some other things. But I will go out on a limb and say that unless you have access to the U.S. Mint’s storage facilities and/or are being actively targeted by a foreign government, electronic storage of money and important photos and documents offers a better package of tradeoffs. The obvious point here is that hacking Citibank or Google is hard. But you’ll also never see a story about someone whose family photos are ruined by a pipe leak, or whose suitcase of cash is lost in a move. You will be seeing headlines about internet viruses forever.

Finally, I will need to give this some more thought, but it seems to me that bitcoin has attributes of both a traditional physical asset (can’t be recovered or replaced) and an electronic or electronically-held one (can be traced, at least to some extent, and of course it is electronic). I hope to sort out the implications of that on my next field trip, destination TBD.

Photo credits: Denver Mint, AMC Network


2 thoughts on “Breaking Bad, Bitcoin & the Mint: Reflections on Physical Assets

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