Rename the smallest units of Bitcoin – Bitcoin Magazine
This is an opinion editorial by Don McAllister, a technologist who has created several video tutorials on Bitcoin.
At its inception, bitcoin was worthless; it had no monetary value. Early adopters can mine hundreds, if not thousands, of bitcoins on simple laptops. As such, there was no need to count it in units other than the whole bitcoin. The Bitcoin protocol was designed to accommodate smaller fractions, but there was no need to use them in the early days, when tens, hundreds, and even thousands of bitcoins were the norm. The first known purchase with bitcoin was 10,000 bitcoin for a couple of pizzas.
Using all bitcoin to count up was logical and necessary. As bitcoin adoption and its monetary value increased, there was still no need to use the smaller fractions of bitcoin – these fractions were the bit and the saten. A single bitcoin can be divided into 1,000,000 pieces or as small as 100,000,000 sats (short for satoshis).
But as bitcoin has increased in value to tens of thousands of dollars for a single bitcoin, a reset is a long way off for how we quantify value using the Bitcoin protocol. A reset is necessary to promote familiarity with new users, as bitcoin continues to move closer to being used as a medium of exchange.
We are still so early in the bitcoin adoption cycle. Although it is estimated that up to 100 million people hold the asset, most people who have yet to adopt bitcoin are both suspicious and confused as to what bitcoin actually is. At this point in the adoption cycle, it’s probably safe to say that the vast majority of individuals introduced to retail bitcoin will never accumulate a full bitcoin.
As the issuance of bitcoin slows and institutional investors jump in and the price always increases, this will only compound over time. If you have one or more bitcoins at this point, you are in a very fortunate position that will be unattainable for most individuals going forward. Not even every millionaire in the world will be able to own a single bitcoin. It is estimated that there are over 50 million millionaires in the world, but there will never be more than 21 million bitcoins.
To be honest, bitcoin is a terrible name. For the uninitiated, a bitcoin can be a reference to a physical object, i.e. a bitcoin. Of course, bitcoin is a digital asset, but this conflicts with its name. Additionally, bitcoin can be used to describe two things: the monetary network (Bitcoin) and the monetary asset (bitcoin).
Bitcoin the monetary network is one of the largest and most secure computer networks in existence. It is the core technology that provides the necessary framework and communication channels for bitcoin transactions and runs on thousands of nodes around the world. The Bitcoin network is second to none for reliability and security.
Bitcoin, the monetary asset, is both confusing and foreign to those who have yet to adopt it. The current high value leads many to believe that they cannot afford to adopt bitcoin or that they have missed the boat. This is because most people still hear about bitcoin priced as whole units with a prohibitive price tag.
Although current early adopters of bitcoin are comfortable breaking bitcoin down and using eight decimal places, e.g. 0.00002345 or 2.345 rate, this method is completely alien and abhorrent to non-holders.
To understand why, let’s apply some of the mechanisms and nomenclature of bitcoin to familiar fiat currencies. Let’s start by using this existing method of listing bitcoin to US dollars.
Let’s invent an imaginary USDcoin.
USDcoin = 100,000,000 cents. (Let’s ignore the fact that in reality 1 dollar = 100 cents.) Now let’s say that USDcoin has been adopted and is being used as a medium of exchange. Imagine that the average person walks into a store to buy a refrigerator and sees it priced as: Refrigerator = 0.00030000 USDcoin or 30,000 cents.
This is completely foreign and unknown. So let’s banish the USDcoin moniker completely.
Instead, let’s do the math using dollars at their actual value of 1 dollar = 100 cents.
So 30,000 cents = $300.00.
See how much more familiar and comfortable it feels?
You have the dollar sign so you can immediately see it as dollars, and you have decimal points so you can clearly distinguish between dollars and cents.
So one USDcoin is 100,000,000 cents or $1,000,000 dollars.
Why use the USDcoin label at all? Everything can be counted in dollars and cents. Instead of 3 USDcoin you have $3,000,000 dollars.
Why are we imposing the previous methodology on new entrants to bitcoin? It’s completely foreign and unfamiliar, but this is exactly what we expect people to adopt with bitcoin.
Bitcoin = 100,000,000 bets.
If used as a medium of exchange, the fridge will be priced as: fridge = 0.00030000 bitcoin or 30,000 sats.
Instead, let’s keep the bitcoin moniker for the Bitcoin network and start using “bits” for the currency and remove the complexity.
100 bet = ₿1.00 or 1 bit.
The refrigerator will now be priced as: 30,000 rate = ₿300.00.
See how much more familiar and comfortable it feels? The ₿ symbol has historically been used to enumerate the entire bitcoin and is very familiar to people. I would suggest that we now adopt the ₿ symbol for bits. It is highly unlikely that someone will confuse whole bitcoin with bits. If you see a price tag of ₿300.00 you will not believe that it is 300 whole bitcoin. If you want to trade in whole bitcoin, you can go back to eight decimal places, for example 3.09367835 BTC.
But most normal people will never need (or be in a position) to trade all bitcoin. If they are lucky enough, they can trade in millions of pieces. Remember that 1 BTC is ₿1,000,000, so 3.09367835 BTC is ₿3,093,678.35. This is what we do with USD or GBP: we use millions of units, e.g. $1,000,000 or £1,000,000.
We need to move away from talking about the price of bitcoin in bitcoin and start talking about the bit price, just like we talk about things priced in dollars or pounds. Let’s let the name Bitcoin stand for the network and let’s focus on bits.
Adopting bits to count bitcoin has other advantages. A bit is a “bit” of a bitcoin. People are more likely to associate the word “bit” with bitcoin and are more likely to understand that a bit is part of a bitcoin. A “sat” means nothing to the average person.
If this terminology is adopted by exchanges, people will experience lower prices because bitcoin will be priced in chunks that make bitcoin look more affordable. People will be encouraged to buy and use in pieces.
As previously mentioned, nothing new is required. No changes are required to the underlying monetary asset or the Bitcoin network. Bits are already built in, and they were included for a reason. Do you really think the fact that they mirror dollars and cents, or pounds and pence, is a coincidence? I think Satoshi Nakamoto already looked to the future when bits would become the new global currency and built this familiarity into the protocol.
This is a guest post by Don McAllister. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
