Bitcoin has an image problem. It’s just too big.
Only eleven years ago, 10,000 bitcoin could buy you two pizzas, yet Bitcoin’s exponential growth since then has made it hard to use it as a unit of currency. Think about your local coffee shop quoting you 0.001 Bitcoin for a $5 cup of coffee, and you’ll see the aversion to denominating prices in Bitcoin, one that will only increase with the price of Bitcoin.
This unit bias drives many people away who can’t afford a whole bitcoin from investing in Bitcoin as an asset. You can’t buy a fraction of a stock, and so many people mistakenly think that you can’t buy a fraction of a Bitcoin either.
Enter Satoshi. What cents are to the dollar, Satoshis are to Bitcoin with one significant difference. Whereas 100 cents buy you one dollar, you’ll need 100 million Satoshis to own a whole Bitcoin. Satoshis, or sats for short, are the smallest unit into which a Bitcoin can be divided. Instead of 0.001 bitcoin, that same $5 cup of coffee can also be priced at 100,000 sats.
A movement to denominate prices in sats is picking up steam as many industry insiders realize that the path to mass adoption runs through overcoming Bitcoin’s unit bias. At the same time, denominating prices in Satoshi’s might be an overcorrection since it is such a small unit.
But fear not, because just like you can break a measurement of distance into light-years, kilometers, meters, centimeters, millimeters, and even micrometers, so too a single Bitcoin can be broken down in many different ways.
It all starts with Satoshi, though.
When Coinmarketcap, a popular crypto asset tracking website, recently added ‘Satoshi’ to their list, many people mistook it for a brand new coin with little value and some even start investigating how to buy Satoshi. In truth, Satoshi is not a new coin, but rather it is the smallest denomination of Bitcoin. One Bitcoin can be split up into 100 million pieces. Each of these pieces is called a Satoshi, named after Bitcoin’s anonymous founder and leader, Satoshi Nakamoto. Other popular denominations include the ‘bitcent’, ‘bit’ ‘(millibitcoin), and microbitcoins. The breakdown of their valuations is as follows:
It doesn’t stop there. It’s technically possible to divide Bitcoin even further, and certain projects are already doing so. For example, the Lightning Network which is built on Bitcoin supports transactions in millisatoshis, or 1/1000 of a satoshi. If one satoshi is equal to 1,000 millisatoshis, that means that 1 bitcoin is infact worth 100 billion millisatoshis!
Unit of Account: The Final Boss
Denominating prices in Satoshi could make it much more simple to price goods and services in Bitcoin. This could better position Bitcoin as a unit account, not only within the crypto economy but in the world at large.
To recap, money is an asset that fulfills three main functions.
- Store of value: We use money to conserve our wealth across time.
- Medium of exchange: We use money to transfer wealth across space in order to pay for goods and services.
- Unit of account: We express how much something is worth in units of money.
By subdividing Bitcoin into digestible units, starting with sats, we can transform Bitcoin into a more agreeable form of currency and prime it for mass adoption.