Any student of Austrian economics (or free markets in general) is familiar with von Mises’ principle of sound money. In 1912, the Austrian economist Ludwig von Mises wrote “The sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.”

Sound money is just that: money that hasn’t been debased or devalued through constant inflation and manipulation by a governing power. It stands for money that can’t be adjusted by every policy whim of the central banking system, and in most cases that means a precious-metal based standard.

Gold and silver have been used as money for thousands of years, and still remain a bulletproof means of retaining wealth. Gold and silver’s value mostly remain the same, even throughout the years, with the value of fiat currencies fluctuating wildly in relation to it.

Recently, the concept of cryptocurrencies have come into play along with the increased spread of technological ability to process payments easily and cheaply. The efficacy of cryptocurrency (like Bitcoin) is proven by the instant need of the financial system to both regulate and replicate it. Anything that serves as a potential threat to the status quo of fiat currency, and the benefits that fractional reserve banking gives to the powers that be, is immediately classed as potential competition.

Bitcoin serves as a representation of sound money because it resists devaluation. A government or central bank cannot merely print more Bitcoin, as it can with paper dollars or electronic transfers. There is a finite amount of Bitcoin available, and the value adjusts according to user adoption and usage. We have recently seen wealthy Chinese citizens using Bitcoin as a means to transfer their wealth outside the heavily regulated People’s Republic of China.

How do these work together? Gold and silver bullion are physical, and it is not easy to conduct remote business using physical precious metals. It is, however, entirely possible to use cryptocurrency like Bitcoin to conduct online transactions remotely and electronically, and then use gold coins for everyday in-person transactions, and of course as a means to store wealth. 

Possession of sound money is the only way that someone can be sure to withstand fluctuation in times of economic stress. Where fiat currencies can crash, devalue, rapidly inflate, or be subject to arbitrary regulations or even capital controls, sound money by it’s very nature is not subject to these factors.