Making Bitcoin Prices More Intuitive

This is a little story about decimal points and where they should go to make prices more intuitive. With the price of bitcoin now an average of $581.25 in US Dollars, bitcoin has become the most valuable currency in the world. As each bitcoin is valued at this high dollar value, buying everyday items with bitcoins typically requires just a part of a bitcoin.

Damn Math 15pcMost people in the world use whole numbers and two decimal places when expressing prices in their local currency. The decimal places are typically called cents or pence, depending on where you live. With bitcoins, there are eight decimal places. Yes, eight. And that’s just too much for most people to process in everyday transactions. Let’s look at an example to demonstrate my point.

If you are at the coffee shop buying your medium-latte-half-caf-coffee drink, you may be able to buy it for a few dollars and change. Let’s say, it costs you $3.75 in US Dollars. So how much will that cost you in bitcoins? Well, the math is pretty easy if you have a calculator at hand. Just divide 3.75 by 581.25. The answer is 0.00645161, rounded to the eight decimal places, as is required for bitcoin. So, you would need to pay BTC 0.00645161 for your coffee. For most people, having that many decimal places is confusing and hard to compare.

The folks at BitPay, a popular bitcoin payment processor for merchants worldwide, has observed this problem with consumers trying to pay with lots of decimal places using bitcoin. This problem is considered a serious adoption problem for this new digital currency as well. So, BitPay has proposed using a unit of bitcoin called simply “bits”.

In my book, The Bitcoin Tutor: Unlocking the Secrets of Bitcoin, I refer to this unit as micro-bitcoins. In practice, it means moving the decimal point over 6 places to the right and dropping any leading zeroes. So, in bits, your coffee latte would cost 6451.61 bits. Now, the price is starting to look more like dollars and cents, or pounds and pence. People are used to having two decimal places. That’s OK. And if you like the comma separator, you can also write it as 6,451.61 bits.

As the value of bitcoin rises, these numbers will look more and more common. For example, if bitcoin prices reach $2,500, a price many analysts expect before very long, then that latte now costs just 1,500 bits. So, although you may be spending a lot of “bits”, there are one million bits per bitcoin. So, 1,500 just isn’t that much.

Expect to see lots of additional innovations and usability improvements with bitcoin as adoption continues to grow. While the computer and math geeks were fine with lots of decimal points, moving to pricing bitcoin goods and services in bits will likely make it much easier for mass adoption.

What do you think about this proposal to shift to bits for bitcoin pricing? Share your comments below.