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Author Topic: Understanding Bitcoins Granularity  (Read 11333 times)
bb113
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January 17, 2012, 04:36:20 PM
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"There aren't enough bitcoins to support a world economy" is a common complaint you hear from newbies. How does increasing the granularity of a money supply, or just the perception of it (by moving the decimal) affect the value of a currency? It seems like this would have an inflationary affect to me. Is there some maths to help people understand this?

From the wikipedia page:
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By 2013 half of the total supply will be generated, and by 2017, 3/4 will be generated. To ensure sufficient granularity of the money supply, clients can divide bitcoin's down to eight decimal places (a total of 2.1 × 1015 or 2.1 quadrillion units).
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bb113
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January 17, 2012, 04:45:02 PM
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Also ideas like found in this thread (receiving your change in bitcoin rather than USD):

https://bitcointalk.org/index.php?topic=59919.0

would seem to have the effect of decreasing the perceived granularity of USDs. In other words, if the US got rid of coins and small bills what kind of pressure would this place on the value of USDs?
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January 17, 2012, 05:05:14 PM
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"There aren't enough bitcoins to support a world economy" is a common complaint you hear from newbies. How does increasing the granularity of a money supply, or just the perception of it (by moving the decimal) affect the value of a currency? It seems like this would have an inflationary affect to me. Is there some maths to help people understand this?

From the wikipedia page:
Quote
By 2013 half of the total supply will be generated, and by 2017, 3/4 will be generated. To ensure sufficient granularity of the money supply, clients can divide bitcoin's down to eight decimal places (a total of 2.1 × 1015 or 2.1 quadrillion units).

The high granularity just ensures that bitcoins can continue being used as money despite a very high exchange rate. It's not moving the decimal; there is no increase in the number of base units, so there is no inflationary effect. Bitcoin just has a design that allows very precise measurements of value.

This high granularity can only increase the value of the currency, especially since we know it can be used for small values far into the future. A digital coin with several decimals of division is more usable than one with few.


Also ideas like found in this thread (receiving your change in bitcoin rather than USD):

https://bitcointalk.org/index.php?topic=59919.0

would seem to have the effect of decreasing the perceived granularity of USDs. In other words, if the US got rid of coins and small bills what kind of pressure would this place on the value of USDs?

Good question. There would be a slight bit of pressure to decrease the value of USD since they'd become less useful overnight. But the overall effect might be quite different.

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bb113
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January 17, 2012, 06:15:57 PM
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Ah I see, I was conflating currency redenomination (like was done in Nigeria a few years ago, see link) with people simply utilizing increased levels of divisibility. The latter would happen gradually and so there would not be any inflationary shock. Perhaps if the most widely used client suddenly began displaying microBTC there would be a psychological effect, but this shouldn't be that big of a deal.

http://www.cenbank.org/redenomination/newpolicy.asp
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January 20, 2012, 10:10:11 AM
 #5

Is there some maths to help people understand this?

1 / 1000 = 0.001

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