To be fair, your argument basically just proves that current options suck either way and are inferior to the past.

The track records speak for themselves.

There are still mountains of old cartridges and discs for long-defunct consoles out there readily available on the second-hand market, with prices that are still reasonable for any remotely popular game (rarer ones in high demand like, say, Chrono Trigger on the SNES still command high prices). Those games still function just as good as they did back when they were new, so long as they were taken care of. I bought the SNES & Genesis clones that Analogue released a few years back and all my old games for those systems ran perfectly fine. These are games I've owned for over 30 years. Most of my old original hardware still functions as well.

Meanwhile, there have been so many games delisted from digital stores that there's a website cataloguing them (delistedgames.com), and there have been multiple digital stores that have been permanently closed. Unless you "bought" any of those games that have been delisted and never relisted when they were available, then you're just shit outta luck. Lost your copy because of some sort of data loss? Again, you're SOL if the digital store you purchased it from is no longer available. There's even been occasions where people have had digital copies remotely wiped from their devices by the company that made the device. Not too long ago, Warner Bros. Discovery was going to force Sony to not only de-list all Discovery content on the PlayStation Store, but also forcibly remove all purchased copies from every connected PlayStation system, only relenting once a new licensing deal was made. While the distributor removing digital copies from people's devices is rare, the fact that it can happen at all ought to be sufficient grounds to argue against a digital-only regime.

Losing access to digital copies is something I've dealt with personally. While I was always skeptical of digital from the get-go, what really cemented my pro-physical position was an incident that happened in 2010 after the OXbox servers were shut down. I was trying to set up a Halo 2 LAN, but found that I only had the on-disc maps. All of the DLC maps were no longer on my 360's hard drive. Not sure how, but the reasons didn't matter. I lost maps I paid good money for, with no way to re-download them. Fortunately there was a physical option, as all of Halo 2's DLC maps (sans the last two made by Certain Affinity) were released on a physical disc back in July 2005. That disc, BTW, is still readily available for a relatively low price if you still want to play Halo 2 multiplayer on the original hardware and have nearly all the maps ever made for the game. Similarly, all of Halo 3's multiplayer DLC maps were released physically on the second disc that came with ODST.

... my point is that in this topic we are obviously talking about the medium in which we would buy current games so Atari 2600 cartridges are irrelevant to the conversation.

Physical games/and or their original hardware will eventually stop working due to wear an tear, time and/or the exposure to the elements. It's inevitable. Sure, it will take dozens of years since the product is released for that to happen. That's why I, on a personal level, like to own physical copies and old consoles: they will probably be in a working state for most, if not my entire life.

But for preservation sake? Like... Talking 50, 100 or even 500 years from now? Physical will not cut it. We may have the actual boxes, consoles and disc/carts for display (and that in itself is somewhat interesting to have) but their working parts will not work. People from the future won't be able to grab a Wii and a copy of Twilight Princess from a museum and play. If we depend just on physical, people won't he able to experience games from the past.

Digital media is extremely important for the conservation of video games, because it's the only way in which a game (digital copy) and a system (emulator) can live pretty much forever. Once a game is uploaded to the internet, it's preserved forever. Be it 50, 500 or a 1000 years old (unless we go extint and/or the planet blows up before that).

And that's just the time factor. Let's talk about how game publishers are a menace to game preservation. We have seen cases of old games not being re-relased in any shape or form. We have seen publishers sitting under completely finished games and/or translations that either take decades to see the light of day or just never happen. We have seen publishers change certain aspects of their original games (being graphics, music, dialogue, story, etc) in the newer and accessible versions. We have seen publishers outright take down full games from their storefront forever.

Physical games won't help in the long run in these cases. We either won't have a physical version at all or we will only have access to the official changed/censored copy. Only by having the digital versions (all of them in case of different iterations of the same game) we can keep playing and preserve the knowledge of how some games originally were.

As I said, physical only will doom video game history. Digital copies are the key to preserve this medium (and many others like cinema, literature and many more).

You can make as many copies of your physical media as you need to keep it continiously preserved, if needed.

There is literally no downsides to physical media aside of having the physical space to store it.

Digital with no DRM in the answer

The issue is the rights. If your studio closes and go bankrupt, who will keep creating the physical games?

If there was a law that make any IP from a defunct company to be from public domain, this could be solved, but right now if a company close doors and don't share the source could, don't sell its IPs and don't give up the copyright, then the game is technically lost 

Lastly, the issue with physical is it cost money to print. If nobody is buying anymore, no company will keep producing them. Regardless of them being public domain or not

And what allows you to make physical COPIES of games? The digital format. Without it, you have nothing.

In the end it's all physical, whether it's stored on a HDD, SSD or cloud server. The cloud can fail just as any physical copy. So you either make your own copies of physical or digital games or rely on the cloud infrastructure to keep the data indefinitely.

It's actually two questions "Which is better for game preservation/ownership?"

For ownership it's physical preferred. You don't own shit with a digital license. However newer physical games are often incomplete or merely an installer, thus your physical 'copy' is worthless without the server anyway. (Worthless for preservation, you can still sell it of course)

For preservation you either store your physical games carefully or keep making digital copies of your GoG collection every 10 years.

You mean having a software to extract the copy of my games so I can copy them on another physical object? This is a non issue.