Bitcoin Cap and Endless Divisibility
There will only ever be 21 Million Bitcoins created, the currency is systematically capped.
But, a Bitcoin is infinitely subdividable. Meaning the decimal places to describe the fraction of a Bitcoin are limitless. (Technically, the decimal places are limited by the size of the memory block chosen to store Bitcoins, but if we need more decimal places in the future to subdivide further, we can always choose a bigger memory block size.)
Bitcoin being both limited and limitless makes my mind spin.
Merchants and consumers intimidated by the cost of a single Bitcoin could collectively agree tomorrow that all Bitcoins are best measured in mBTC denomination. 1 mBTC = .001 BTC (it’s a millibitcoin). So now there would be 21 Billion mBTC in circulation. What’s the difference? Bitcoin is not asset backed and has no intrinsic value, so why not just shift the decimal place?
If people knew there will only ever be 21 Billion mBTC in circulation instead of 21 million, would the exuberance for stockpiling Bitcoin diminish? 21 Billion widgets sounds less scare than 21 Million widgets.
Not compelled by my argument? Well, what if we move a couple thousand decimal places…? A million? When there is 21 Googol xBTC, is that enough to convey limitlessness?
And if there are infinity Bitcoins available, how much would you pay for one? This is the question a non-early adopter would need to ask self-reflectively when first buying into Bitcoin.
I know, I know. I can already hear the naysayers reading this post. They’ll say: “Andrew, you’re making a 4th grade math mistake. If we just change the decimal place, then I now own my same portion of Bitcoins that I did before. My 2 Bitcoins becomes 2,000 or 2 million, etc… So infinite subdividability is meaningless and the number of Bitcoins are still fixed at 21 Million.”
In the context of early adopters, this feedback is correct and I agree. But if Bitcoin is only ever relevant to early adopters, it will fail. It’s disruptive power is perfectly correlated with Metcalfe’s Law. What good is a currency that is only accepted by a small fraction of the world.
In the context of mainstream participants in the global ecosystem (non-early adopters who do not benefit from the near term Bitcoin inflation because they do not own any coins), I think my argument that, practically (not theoretically), there are limitless Bitcoins is more persuasive. And the value of a single Bitcoin will only be measured in its purchasing power with merchants that accept Bitcoin, or the work you’re willing to do to be paid in Bitcoin. Without that counter-party context, Bitcoin is limitless and inherently worthless to the non-early adopter.
Oh, the Bitcoin mind games…
Bitcoin: the Company? or the Currency?
If you believe in the Bitcoin ecosystem with enough conviction to make an investment right now, are you better off investing in a startup making a business in the space or simply taking your capital and buying the currency itself?
Given the deflationary nature of the currency, can any single company build value faster than the current itself will appreciate if the whole system takes off?
Bitcoin Needs a Leader
Bitcoin is quite a remarkable, audacious project. I’m rooting for Bitcoin and all the startups building in that ecosystem. But I can’t help but wonder if the Bitcoin movement would be better served if it had a clear, well-known creator. Every non-commercial movement needs a cheerleading parent:
Wikipedia has Jimmy Wales…
The world wide web has Tim Berners-Lee…
Linux (and also Git) has Linus Torvalds…
These charismatic creators can get up on stage and really motivate people to jump into the parade they are leading. It’s an amazing sight to watch (I’ve had the wonderful pleasure of seeing Jimmy speak, and it’s incredibly motivating).
Bitcoin, like any major project, does have a creator, but that creator(s) chose to hide behind a pseudonym: Satoshi Nakamoto. The myth of Satoshi and his true identity certainly adds to the mystique of Bitcoin. It also generated some nice PR with two investigative journalism efforts to unearthing his/her identity via the New Yorker (warning: paywall on that NYer link :/ ) and Fast Company.
But, I don’t think a couple of news articles makes up for the loss of a charismatic creator. No one can tell the story of a movement like a Founder can. I hope that a thought leader emerges in the Bitcoin movement that can fill in the gaping hole left by Satoshi Nakamoto’s absence.