Abstract
Cryptocurrency, and especially Bitcoin, has struggled to gain recognition as a legitimate currency from governments, financial institutions, and consumers. This has occurred because many analysts and consumers believe that Bitcoin is not a stable and consistent store of value, a unit of measurement, or a medium of exchange. One way to overcome this challenge is for Bitcoin to be used as both a currency and store of value by a greater percentage of the world’s population. This paper seeks to identify how a change in Bitcoin’s monetary measurement (or denomination) can more easily facilitate Bitcoin transactions to increase its use. Specifically, we posit that applying whole number bias theory, from the cognitive psychology and mathematics fields, to Bitcoin’s unit of measurement will allow the value of Bitcoin to be referenced in smaller and easier tounderstand units with fewer numbers after the decimal point—such as the “Bit” or the “Satoshi.” In the process, the use of Bitcoin will include more whole numbers and allow the general public to more easily assign value to Bitcoin in day-to-day transactions.
Highlights
According to Satoshi Nakamoto’s original white paper on Bitcoin, cryptocurrency is a nascent form of digital currency, which facilitates direct peer-to-peer transactions without the use of a third party or financial intermediary
We posit that applying whole number bias theory, from the cognitive psychology and mathematics fields, to Bitcoin’s unit of measurement will allow the value of Bitcoin to be referenced in smaller and easier to understand units with fewer numbers after the decimal point—such as the “Bit” or the “Satoshi.” In the process, the use of Bitcoin will include more whole numbers and allow the general public to more assign value to Bitcoin in day-to-day transactions
We suggest that when applied to Bitcoin, the mantissa, or the part of the logarithm that follows the decimal point is, in its current form, too large for day-to-day and micro transactions
Summary
According to Satoshi Nakamoto’s original white paper on Bitcoin, cryptocurrency is a nascent form of digital currency, which facilitates direct peer-to-peer transactions without the use of a third party or financial intermediary. In order for Bitcoin to function as a currency in day-to-day transactions, we posit that Bitcoin’s monetary unit of analysis (or denomination) must become more simple to understand and include fewer numbers after the decimal place during everyday transactions. Because consumers prefer whole numbers with limited decimal places, most consumers would prefer engaging in an easier-to-understand monetary system such as the U.S Dollar, where a cup of coffee would cost just $5.50 In this scenario, for most consumers, the unitary measurement of Bitcoin becomes too complicated with 8 decimal places, creating confusion in assigning value to the transaction. The pure length of Bitcoin’s mantissa often creates cognitive dissonance in the individual, creating a natural tendency for consumers to conduct day-to-day transactions in currencies that employ whole numbers. The following sections will investigate and further explain whole number bias theory, Bitcoin’s challenges as a currency, consumer perceptions of Bitcoin, the history of proposing the use of discrete units, and how Bitcoin’s standard monetary unit can be changed
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