Why Bitcoin Should Be Valued In Sats (And Why It Has A Divisibility Dilemma)

Bitcoin is expensive. Too expensive, says Mike Novogratz. The high price puts people off. To attract smaller savers, exchanges should switch to the Satoshi listing:

Satoshis are the equivalent of bitcoins in cents, except that there are many more of them. Just as a dollar is made up of 100 cents, a Bitcoin is made up of 100 million satoshis. This is defined in the original code of the Bitcoin system.

In the early days of Bitcoin, when the Bitcoin currency was only worth a few cents, no one cared about satoshis. But now that bitcoins are trading at $ 58,000, most people cannot afford to buy an entire bitcoin. Even those who can may not want to because Bitcoin’s infamous volatility means they could lose a large part of their investment.

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Bitcoin’s success as a store of value has been a double-edged sword. It has enriched early adopters, but raised the barriers to entry so much that it is becoming increasingly difficult for late entrants – who tend to be younger and poorer – to buy in. Just like real estate, Bitcoin is becoming an asset for the elderly and richer.

Frances Coppola, CoinDesk columnist, is a freelance writer and speaker specializing in banking, finance, and economics. Her book “The Case for People’s Quantitative Easing” explains how modern money creation and quantitative easing work, and advocates “helicopter money” to help economies out of recession.

However, unlike real estate, you don’t have to buy a whole bitcoin. Increasingly, people are buying fractions of bitcoin – and fractions of bitcoin can be expressed as multiples of satoshi. People who “stack sats” (regular small purchases to build up inventory) are already talking about sats, not bitcoin. Instead of buying 0.02 bitcoin, they buy 2 million sats. How many sats did you buy today?

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So there are good reasons to consider switching to satoshi as the unit of account. Quoting in Satoshi instead of Bitcoin could help convince people who don’t have a lot of money that Bitcoin can still be for them despite its high price. Sats can become the preferred savings tool for ordinary people looking for a safer, more profitable place for their money than bank deposits.

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Are there enough sats for everyone? Theoretically yes. The world population is just under 8 billion. 18.5 million Bitcoins have already been mined, so theoretically there are 1.85 trillion Sats. That’s about 231,000 for every person on the planet. On this basis, everyone can actually save in sats.

Of course, it’s not that simple. Of the 18.5 million mined to date, an estimated 20% are lost or otherwise irretrievable and approximately another 10 million are never traded. This means that only about 4.2 million Bitcoin are available for purchase, either in whole or in parts. Let’s repeat the math with the number of bitcoins actually available for purchase. Instead of 1.85 trillion satoshis, there are only 400 billion to buy. That’s around 50 sats per person.

And this is where the limits of divisibility come into play. Just because something can be broken into very small pieces doesn’t mean it’s practical. I could maybe cut a pizza down to the atomic level, but that wouldn’t solve world hunger because humans need a certain amount of food to live.

Likewise, there are practical limits to how much Bitcoin can be divided; 50 sats per person is not enough for everyone in the world to save in sats. And sats would not be evenly distributed among small savers anyway. Realistically, people who have more money will be able to buy more sats and this will drive the price up and price those with the least amount of money to invest. So sats cannot be the only vehicle of salvation for normal people.

There is also another limit that starts to bite in much faster than the Sats supply limit. This limit is transaction fees.

As the demand for Bitcoin increases, so does network traffic, which increases the average transaction fee. People who buy or sell small amounts of Bitcoin and therefore don’t want to pay high fees have to wait longer for their transactions to process – if at all. Higher transaction fees effectively discount smaller transactions from the market. For people who don’t have a lot to spare, this can be a huge barrier to investing in Bitcoin.

These limits of divisibility raise profound questions about the nature of Bitcoin.

Transaction fees are already a significant obstacle for small investors. With Bitcoin priced at around $ 58,000 (at the time of writing), 50 sats are worth less than 3 cents. Bitcoin’s average transaction fee is around $ 22 at the time of writing and has been up to $ 60. So 50 sats would be a very expensive purchase. In addition, very small stocks like this cannot be sold because the holder does not have enough bitcoin to pay the transaction fee. They are called “dust”. The higher the average transaction fee increases, the more dust accumulates in the Bitcoin ecosystem.

Layer 2 solutions aim to solve the “dust” problem by taking small transactions off the chain. But I wonder why ordinary people’s savings and transactions don’t seem to need the same anonymity, security, and immutability as those of the rich. Surely we should protect the wealth of the common people who cannot afford to lose money, not the wealth of the great whales, for whom losses are a flea bite?

These limits of divisibility raise profound questions about the nature of Bitcoin. What exactly does the community want? Do you want it to be a reserve investment that underpins a new international payment system similar to the gold standards of the past, or do you want it to be the safe savings of choice for the common people?

This is essentially the same dilemma that the Bitcoin community faced in the “blocksize wars” of 2015-2017. Then it came down to whether Bitcoin should host the world’s transactions or whether it should simply be the base layer that underlies a new generation of transaction systems. Those who wanted it as a base layer won the wars but did not solve the fundamental dilemma. That has now re-emerged in the form of an argument over whether Bitcoin should absorb the world’s savings.

The division into sats will solve this dilemma for a while. But if Bitcoin continues the path taken in the outcome of the “blocksize wars”, the transaction fees will ultimately be far too high for normal people to save significantly on sats. Bitcoin therefore needs Layer 2 solutions not only for transactions, but also for savings. New products that offer the security that people need who can’t afford to lose money.

The crypto world is an extremely creative and innovative place. I am confident that there can be a solution to this dilemma. I just hope it works in the best interests of the poor.

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