# How can Bitcoin be divided into small units?

As with other recent articles, this one was originally published as an answer to a member of Quora, a Q&A site in which I am a cryptocurrency columnist. And just like the previous one in this series (also posted today), this is a Q&A exchange with a newbie—Bitcoin beginner.

The question is simply: “How can Bitcoin be divided into units smaller than one?” While the answer may seem obvious to someone versed in math, statistics or economics, I get this question a lot—or something very similar. It’s difficult to explain that “one” is just a number and not a living thing. And so, I turn the explanation around by asking a nearly identical question; one that the enquirer can probably answer easily.

The goal is to provide the tools to answer the question, in a manner that helps readers recall and make use of the answer in the future. This is my new approach…

Puzzle me this: Can you divide 100 into smaller pieces? Of course you can! You just divvy it up. After all, it’s just a number.

• Let’s say you divide 100 by 10: You get 10 pieces of 10 each.
• Now, starting with the same 100, say that you divide it by on hundred. This gives one hundred pieces of ‘1’ each.

Until now, we have been talking about a number—not a real thing. Next, lets say that you start with \$100 (a single bill with Ben Franklin on the front). You are in a casino, standing next to a bill/coin change machine. No counterfeit bills; no funny stuff.

Can you divide it into smaller bills? Sure! The change machine gives you one hundred crisp notes with George Washington. on the front.

Now, about your question: You are already down to pieces of just 1 unit each (i.e. one US dollar). Is this the limit of granularity? Is there no way to divide the units any further?

Of course you can! You can exchange each dollar for 4 quarters, or 10 dimes or even 100 pennies. One cent is just another way of saying 0.01 dollars.

And don’t stop there. Just because the government doesn’t bother with coins of a smaller denomination, a processor that deals in micro-payment or a seller that holds credits for small, cumulative purchases (i.e. web visitor clicks) could easily track your credits based on much smaller units—say one millicent, or 1/1000 of a penny.

Example: Suppose that a natural gas pipeline crosses the territory of an indigenous population in the interior of a country. The government enters into an agreement that pays the tribal authorities 1/30 cent for each 500 BTU of gas energy equivalent that passes through the pipeline. Micro payments, contracts and quotations are of this kind are crafted frequently.

Bitcoin is even more flexible than a dollar, because it is a virtual ledger that is stored across many bookkeepers. The ability to deal with small units is simply math. The protocol was designed to support 8 decimal places, but this can be extended to even smaller units.

In fact, the total number of Bitcoin that can ever exist (21 million BTC) could have just as easily been called 1 BTC (or 10 trillion BTC). It really doesn’t matter. That decision was arbitrary. To make things convenient for buyers and sellers, we will all eventually refer to the units that put our everyday purchases in the range of 1-to-100.

Pieces of Eight: Divisibility by design

For example, on the USA east coast, a wrapped head of fresh lettuce costs 0.000166 BTC.* That’s an awfully small number to remember or to work with.

But wait! Bitcoin already has a unit name for (1) one-hundred-millionth of a bitcoin. We call this a “satoshi”. Each satoshi is equal to 0.00000001 BTC.

So, that same head of lettuce costs 16,583 Satoshis. But this is also a difficult number to work with. It sounds more like the amount of money you spend on a car and not a small consumable.

So, if Bitcoin were in wide use today at the grocer and other retailers, we would probably be quoting and comparing units of 1/10,000 BTC. Let’s call each unit 1 DC, for “deci-milli”.

At today’s exchange rate, a head of lettuce costs 17 DC and a basic Toyota Camry without the expensive options will set you back 16,700 DC.*

Will you get used to it? Sure! It’s no different than moving to France. Your intuitive feel for the cost of things will become second nature when vendors begin quoting goods and services in units of bitcoin. Soon, even advertising and catalogs will display prices this way.

When this happens, all sorts of good things follow. For example, the volatility that we perceive today (because we are comparing Bitcoin to the US dollar) will disappear. Prices in BTC (or DC) will seem quite stable, even though the US dollar will seem to have unpredictable spikes and dips.

* Assumptions / Exchange Rate

• On the USA east coast, a head of lettuce is \$1.99. (New York is far from California and Mexico where lettuce is less expensive)
• At the time of this post, 1 BTC = about \$12,000 USD
• A base model Toyota Camry without tax or extra features sells for about \$20,000

Related:

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

# Why is it impossible to create more units of Bitcoin?

This article was originally an answer to a member of Quora, a Q&A site in which I am a cryptocurrency columnist. The reader is a “Bitcoin beginner”. If you understand the nature and purpose of a blockchain, the political leanings of Satoshi or the economics of a capped cryptocurrency, then this reviews things that you already know. But sometimes, a recap can be fun. It helps ensure that we are all on the same page…

It has nothing to do with how many individuals can own bitcoin or its useful applications. It simply means that—if widely adopted as a payment instrument or as cash itself—the number of total units is capped at 21 million. But each unit can subdivided into very tiny pieces, and we can even give the tiny pieces a new name (like femto-btc or Satoshis). It is only the originally named unit (the BTC) that is capped.

But, this article addresses a more primitive question. (Actually, it is a naïve question, but this adjective has a negative connotation, which is not intended). I interpret the question to be: What prevents me from creating, earning or being awarded an amount that brings the total circulation above 21 million BTC?

The question is a bit like asking Why there are only two solutions to a quadratic equation? — Or (a metaphor): Why can’t you own a new Picasso painting?

In the case of Picasso, it’s because we know the ownership and location of the 1,885 paintings created during his lifetime. The Old Guitarist (shown at bottom) is at the Art Institute of Chicago. Unless there has been a serious error in record keeping, there cannot be any more paintings, because he is no longer around to produce new art.

You cannot create more bitcoin than the 21 million scheduled for release because that’s all the math yields. It is the capped quantity that Satoshi wanted in circulation—because he/she sought to create a deflationary token that could never be gamed by politicians or anyone else.

Consider the alternative. The Zimbabwe dollar had no cap. When the government needed more cash, they simply printed more. (This is exactly what the US does today). Eventually, they had 4 recalls and “official” devaluations. But, of course, the value of a Zimbabwe dollar (just like a US dollar, bitcoin or a Picasso painting) is not established by edict. It floats with supply and demand.

Eventually, 100 trillion Zimbabwe dollars was worth US 16¢. Then, it collapsed completely. You can still find a few 100 trillion dollar notes on Ebay. Ironically, they cost far more than 16¢, because western collectors are fascinated by them. Just as with a Picasso painting, all value boils down to supply and demand.

Of course, no citizen of means used the local currency even before it collapsed. They simply couldn’t trust their treasury. Today, Zimbabwe uses dollars, rands (SA), British pound and euros.

What about the US dollar? Only the most arrogant citizens believe that we control such a vast consumer market (and that we are such a huge debtor) that the world must continue to value or paper. But is this realistic? Is it sustainable? Does U.S. debt ever have to be repaid with real sweat and real products sought by creditor nations? Of course it does. The alternatives are unthinkable: We would go the way of Zimbabwe, the Roman empire—or worse. Think of the Wiemar Republic between world wars.

The US dollar has no cap. A trillion or so new dollars are printed ever year, in a series of emergency measures that transient politicians call “raising the debt ceiling”, or an “emergency requisition”, or humanitarian, infrastructure, disaster relief, military necessity, debt repayment—or whatever. This leaves us 20 trillion in debt and with no path to recovery. Our own president openly asked why we can’t just print even more money to square up with our creditors.

With Bitcoin, we will never face that problem. Will adopting Bitcoin as legal tender interfere with a government’s ability to tax, spend or enforce tax collection? Not at all! But one day, it will decouple governments from control of their money supply. And that will be a marvelous thing—for both individuals, organizations and governments. It will force nations to balance their books—just like every household, business, NGO and municipality.

When this happens, governments can still raise money (from taxes) and they can even borrow. But just as with an individual or corporation, they will need to find:

• Creditors (or shareholders) who truly believe in the ability to repay
• This means they are creditors that believe in a nations institutions & ethics
• And this leads to a conclusion: What better way to move our institutions and ethics in the right direction than through the accountability owned to our creditors.

Bitcoin is the embodiment of radical technology, but it is not a radical concept. It is the simple and functional embodiment of free-market economics. It addresses a market need that Aristotle fervently researched 2050 years ago, but failed to resolve. Gradual adoption is analogous to denationalization of telephony, airlines and package delivery services. Imagine the positive fallout when this occurs! Hopefully, we will around to witness a society in which governments are decoupled from monetary policy & control!

Related:

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

# Should we ‘out’ Bitcoin creator, Satoshi?

Everyone likes a good mystery. After all, who isn’t fascinated with Sherlock Holmes or the Hardy Boys? The thirst to explore a mystery led us to the New World, to the ocean depths and into space.

One of the great mysteries of the past decade is the identity of Satoshi Nakamoto, the inventor of Bitcoin and the blockchain. Some have even stepped forward in an effort to usurp his identity for fame, infamy or fortune. But in this case, we have a mystery in which the subject does not wish to be fingered. He prefers anonymity.

This raises an interesting question. What could be achieved by discovering or revealing the identity of the illusive Satoshi Nakamoto?…

The blockchain and Bitcoin present radically transformative methodologies with far ranging, beneficial impact on business, transparency and social order.

How so? — The blockchain demonstrates that we can crowd-source trust, while Bitcoin is much more than a payment mechanism or even a reserve currency. It decouples governments from monetary policy. Ultimately, this will benefit consumers, businesses and even the governments that lose that control.

Why Has Satoshi Remained Anonymous?

I believe that Satoshi remains anonymous, because his identity, history, interests and politics would be a distraction to the fundamental gift that his research has bestowed. The world is still grappling with the challenge of education, adoption, scaling, governance, regulation and volatility.

Some people are still skeptical of Bitcoin’s potential or they fail to accept that it carries intrinsic value (far more than fiat currency, despite the absence of a redemption guaranty). Additionally, we are still witnessing hacks, failing exchanges and ICO scams. Ignorance is rampant. Some individuals wonder if Satoshi is an anarchist—or if his invention is criminal. (Of course, it is not!).

Outing him now is pointless. He is a bright inventor, but he is not the story. The concepts and coin that he gave us are still in their infancy. Our focus now must be to understand, scale and smooth out the kinks, so that adoption and utility can serve mankind.

Related Ruminations:

Ellery Davies co-chairs CRYPSA, publishes A Wild Duck, hosts the New York Bitcoin Event and kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement.

# Stellar & Ripple: Pretender to Bitcoin throne?

You might know that I am a board member and co-chairperson of CRYPSA, the Cryptocurrency Standards Association. (I write this Blog under a pen name). The organization is brand neutral. That is, we don’t endorse or favor one particular coin over another. Think of CRYPSA standards as the security paper onto which money is printed. The paper can be used for Dollars, Yen and Zlotties. If it prevents counterfeiting then any currency can benefit. Like security paper, the standards we create and the safe practices we promote apply equally to all cryptocurrencies.

But, as with any user network, recognition, adoption and gravitas count! It’s no secret that Bitcoin is the elephant in the room. It is by far the biggest, baddest and most reported new age coin by any yardstick.

Dollars & cents? Ripple Labs unit = XRP

But Bitcoin has a problem—at least that’s what fifty start up companies want us to believe. The code that validates transactions (also used to mine coins) is transaction bound and hampered by original design. Moreover, alt coin entrepreneurs make a persuasive case for new features that more fully exploit the block chain potential.

Wild Ducks may know of Litecoin, Feathercoin, Dogecoin and Mastercoin, but there are even newer coins attracting the eyes of the crypto and investment community. If you have your ear to the ground, the smart money seems to be betting on digital currency coined by Stellar and by Ripple Labs. The rival companies share an eclectic and storied founder and they are both headquartered in San Francisco.

The New York Observer offers an illustrated history and analysis of the two pretenders in the novel-like style of Wired Magazine. They call it The Race to Replace Bitcoin.

Wow! In my humble opinion, this is a great article! I will assume that you have perused it. Very little recap here—just a Wild Duck commentary and analysis…

Ripple and Stellar co-founder Jed McCaleb has a history. He founded eDonkey, a Napster-like service of the early p2p era and Mt. Gox, the big Bitcoin exchange that collapsed in a spectacular and still-mysterious failure. Another co-founder, Sam Yagan also survived eDonkey and OK Cupid. He is now CEO of dating behemoth, Match.com.

I know some of the other players, but hadn’t realized that Ripple Labs was making waves (pun intended). McCaleb’s newer venture, Stellar, claims to represent more than just a coin. It is a monetary ecosystem that inter-operates across currencies and boundaries. (Isn’t that what Bitcoin does? It seems that I have a lot to learn)…

I have less programming expertise than these geniuses, and possible less cryptography expertise. But I can outdistance their collective chops on macro economics.

Wild Duck Analysis

It is exceedingly unlikely that any venture will create the next cryptocurrency by design, unless the new coin is directly tied to and sanctioned by a believable and uncontested legacy of Bitcoin prime. In effect, a new coin must be a fork of the original code or at least a proper heir with blood lines and public trust.

Ripple Labs and Stellar have a very bright team. I don’t doubt the need to improve on the Bitcoin protocol, perhaps even with a wholly new technical approach. But the string of failures in McCaleb’s background, the mystery surrounding the first 1.5 billion STRs, and the daffy distribution scheme with Facebook are almost deal killers. This needn’t be an epitaph. There is a path to righteousness…

Cryptocurrency is already hard for the public to understand and harder to accept. For this reason, an heir to Bitcoin needs five things to succeed:

1. Direct ties to the ownership of all original BTC
2. Sanctioned by top Bitcoin developers AND blessed by Satoshi in a signed email
3. The coin must be ZERO growth. It must never fall prey to inflationary economics. It accommodates a growing base and users and transactions by slicing the pie thinner (or ‘mining’ from a capped pool)—never by creating coins out of thin air.
4. Source code that is transparent, open and without proprietary interests.
5. A unshakeable commitment to continued decentralization and p2p operation with no mandatory reporting of anything (identities, or anything about transaction beyond date, pseudo-anonymous wallet ID and amount). In short, there must be no authority and no requisite bookkeeping beyond the open and distributed block chain.

There you have it: Our unofficial CRYPSA manifesto of what it takes to dethrone Bitcoin. In short, a successful replacement must be no less than Bitcoin 2. It elevates Bitcoin to the status of emeritus, because it respects the equity of early adopters (and without watering down with ‘newly created shares’)—and it must provably disavow any potential for inflation or manipulation.

Ellery Davies is a founder and board member of CRYPSA. He is also chief editor at AWildDuck.com.