Like many Bitcoiners I have been watching the price of Bitcoin rise steadily for the last several months. Between the halving of the block reward, the emergence of ASICs and a growing Bitcoin economy things are looking pretty good. With recent media attention from Bloomberg, Forbes, and others; Bitcoin is poised for growth. However, the increasing price of Bitcoin relative to traditional fiat currencies such as the Dollar and Euro may actually inhibit adoption by the general public.
The problem is as much a psychological one as it is practical. We’re used to thinking in terms of Fiat currency where fractions of a unit of measure, say cents of a US Dollar, are worth relatively little. In this regard Bitcoin differs greatly from Fiat currencies as it is deflationary in the long term rather than inflationary. While Dollars and Euros will continue to be worth less over time, Bitcoin will presumably increase. So while a US Dollar is worth less than it was in the past, a Bitcoin will be worth considerably more. What this means is that we’ll soon be trading for many things with mere fractions of a Bitcoin rather than in multiple Bitcoins.
At the time of this writing 1 Bitcoin is trading on MtGox for $25.60 (USD). Comparatively, the nearest Fiat currency, the Kuwait Dinar ( KWD) is valued at around $3.55 (USD). There is not a single currency whose individual unit has a worth higher than Bitcoin. This disparity between Bitcoin and Fiat currencies is likely to only make the transition from Fiat currencies to Bitcoin more difficult for new users.
You mean my dollar is only worth 0.039 Bitcoin?
I recently started using Bitcoin Paranoid, an Android app that updates the current value of Bitcoin to the notification bar on my phone. I noticed that Bitcoin Paranoid also displayed the exchange rate in terms of the value of the US Dollar relative to Bitcoin, not just Bitcoin relative to the US Dollar. The app lists the value of the US Dollar not in Bitcoins but rather in Millibits (Currently around 39 Millibits to a US Dollar). It had a profound affect on me as I began to better see the relationship between Bitcoin and the Dollar. While we currently view fractions of a unit of currency as being of little worth, this is not true of Bitcoin. Even fractions of a Bitcoin have a value higher than many traditional currencies.
This problem becomes more prevalent once we consider that new users would have to tally their trades and purchases not in single units but in mere fractions of a unit, to the hundredth and thousandth decimal places. While Bitcoin was built to be easily divisible to eight decimal places (referred to as a ‘Satoshi’), we have not yet made the transition. Assuming that the value of Bitcoin remains relatively high, now may be the time to make the transition to tallying Bitcoin transactions in both Millibits (mBTC) and Bitcoins. This transition would provide practicality as well as a psychological boost to new Bitcoin users.
Correction: The original post read “MicroBitcoin” which has been corrected to “MilliBit”. Check here for a full list of Bitcon units.