This is an opinion editorial Don McAllister, a technologist who has produced several video tutorials on Bitcoin.
Bitcoin was worthless when it was created; it had no monetary value. Early adopters can mine hundreds or even thousands of bitcoins on simple laptops. So there was no need to list it in units other than whole bitcoin. The Bitcoin protocol was designed to accommodate smaller fractional units, but in the early days there was no need to use them, as tens, hundreds, or even thousands of bitcoins were the norm. The first known purchase using bitcoin was 10,000 bitcoins for a few pizzas.
It was logical and necessary to use all bitcoin to list. As the acceptance of bitcoin and its monetary value increased, there was still no need to use smaller fractions of bitcoin – these fractions were bits and sat. A single bitcoin can be divided into 1,000,000 bits or 100,000,000 satas (short for satoshi).
However, as the value of bitcoin has increased to tens of thousands of dollars per bitcoin, the reset for how value is measured using the bitcoin protocol is long overdue. As bitcoin edges closer to being used as a medium of exchange, a reset is needed to increase familiarity for new adopters.
We are still in the very early stages of bitcoin adoption. Although it is estimated that up to 100 million people own the asset, many people who have yet to adopt bitcoin are both skeptical and confused about what bitcoin actually is. At this point in the adoption cycle, it’s probably safe to say that the vast majority of individuals exposed to bitcoin in the retail space will never collect a single bitcoin.
As Bitcoin issuance slows and institutional investors jump in and the price continues to rise, this will only be amplified over time. If you’re holding one or more bitcoins right now, you’re in a very lucky position that will be out of reach for most people going forward. Not every millionaire in the world will be able to own such a bitcoin. It is estimated that there are more than 50 million millionaires in the world, but there will never be more than 21 million bitcoins.
Honestly, bitcoin is a terrible name. For the uninitiated, bitcoin can refer to a physical object, i.e. a bit of coin. Obviously, bitcoin is a digital asset, but this contradicts its name. Additionally, bitcoin can be used to describe two things: a monetary network (Bitcoin) and a monetary asset (bitcoin).
The Bitcoin monetary network is one of the largest and most secure computer networks in existence. It is the underlying technology that provides the necessary framework and communication channels for bitcoin transactions and runs on thousands of nodes worldwide. The Bitcoin network is unparalleled in reliability and security.
Bitcoin, a monetary asset, is both confusing and alien to those who have yet to adopt it. Its current high value makes many people think that they cannot accept bitcoin or that they are missing the boat. This is because most people still hear that bitcoin is valued as whole units with an unaffordable price tag.
While current early adopters of Bitcoin conveniently split Bitcoin and use octets like 0.00002345 or 2.345 sats, this method is completely alien and inconvenient for non-owners.
To understand why, let’s apply some of the mechanisms and nomenclature of bitcoin to familiar fiat currencies. Let’s start by applying this current method of counting bitcoins to US dollars.
Let’s invent an imaginary USDcoin.
USDcoin = 100,000,000 cents. (Let’s ignore that in reality 1 dollar = 100 cents.) Now let’s say that USDcoin is accepted and used as a medium of exchange. Imagine that the average person walks into a store to buy a refrigerator and sees the price: Refrigerator = 0.00030000 USDcoin or 30,000 cents.
It is completely foreign and unfamiliar. So let’s ditch the USDcoin moniker altogether.
Instead, let’s list their actual value using dollars, 1 dollar = 100 cents.
So 30,000 cents = $300.00.
See how familiar and comfortable it feels?
You have a dollar sign so you can immediately see it as a dollar and you can clearly differentiate between dollars and cents.
So one USDcoin is 100,000,000 cents or 1,000,000 dollars.
Why should you use the USDcoin tag at all? Everything can be listed in dollars and cents. Instead of 3 USDcoins, you have $3,000,000.
Why are we applying the previous methodology to bitcoin newcomers? It’s not entirely foreign and unfamiliar, but it’s what we expect people to accept with bitcoin.
Bitcoin = 100,000,000 sats.
If accepted as a medium of exchange, the cooler will be valued as follows: cooler = 0.00030000 bitcoins or 30,000 sats.
Instead, let’s keep the nickname bitcoin for the Bitcoin network and start using “bit” for the currency and remove the complexity.
100 sats = ₿1.00 or 1 bit.
The price of the refrigerator will now be: 30,000 sats = ₿300.00.
See how familiar and comfortable it feels? The symbol ₿ has historically been used to list all bitcoins and is very familiar to people. I would suggest that we now adopt the symbol ₿ for bits. It is highly unlikely that anyone will mistake all bitcoin for bits. If you see a price tag of ₿300.00, you won’t think it’s 300 whole bitcoins. If you want to deal with the whole bitcoin, you can return to eight decimal places, for example 3.09367835 BTC.
But most normal people will never need (or be in a position to) transact with bitcoin. If they are lucky enough, they can operate on millions of bits. 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 units in millions, say $1,000,000 or £1,000,000.
We need to stay away from talking about the price of Bitcoin in bitcoin and start talking about bit price, just like we talk about things valued in dollars or pounds. Let’s leave the name Bitcoin to the network and focus on the bits.
Accepting bits to list bitcoin has other advantages. A “bit” is a Bitcoin. People are more likely to associate the word “bit” with bitcoin and understand more that bitcoin is a part of it. To the average person, “sitting” means nothing.
If this terminology is adopted by the exchanges, people will accept lower prices because bitcoin will make bitcoin look more affordable for the price of bitcoin. People will be encouraged to buy and spend bits and pieces.
As mentioned earlier, nothing new is required. No changes to the underlying monetary asset or the Bitcoin network are required. The bits are already installed and they are included for a reason. Do you think it’s really a coincidence that they reflect dollars and cents or pounds and pence? I think Satoshi Nakamoto was already looking into the future where bits would become the new global currency and built this familiarity into the protocol.
This is a guest post by Don McAllister. The views expressed are entirely their own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.