Satoshis Don’t Dilute Scarcity 

Satoshis are not dilution of Bitcoin

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Each year, more people learn about Bitcoin, as this digital beanie baby boiling the ocean refuses to die. Over a decade later, the Ponzi keeps rolling on, and onlookers remain in disbelief; they cannot understand why digital-only money with no central bank can have any value, let alone increase in value.

Why has Bitcoin yet to fail, they ask themselves.

But instead of taking the time to read the history and previous arguments and do the work of studying how this monetary system works, they’ll expose themselves in one of two ways.

  1. Either it’s I’ve just heard about Bitcoin, and I am here to fix it; insert way to improve Bitcoin, like “just make the blocks bigger.”
  2. Or I’ve just heard about Bitcoin, and here’s why it will never work and is doomed to fail. 

Both paths usually end up with hilarious consequences, as the hyper-hornets have nothing better to do than punch down on smug blue check smartarses and troll online.

Hard caps and smooth brains

One rehashed critique of Bitcoin is that it does not have artificial scarcity despite the 21 million hard cap. Since each Bitcoin can be subdivided into 100 million satoshis, there’s more than enough Bitcoin to go around; how can it be scarce if there are quadrillion of these digital tokens?

I guess we’ve been outed, boys; it’s time to pack it in, sell your stack and move on to the next Ponzi, hopefully, one with more supply elasticity, right?

According to critics who take this position, since Bitcoin can always be subdivided further, it has a near-endless supply.

Imagine a piping hot pizza fresh out of the oven. You can slice it into 8, 12, or even 100 tiny slivers, but the total amount of pizza or calories remains the same.

If you had a kilogram of Gold and broke it down into 35.274 ounces or 1000 grams, does that mean you have more Gold? No, the number of atoms that comprise the total weight remains the same, regardless of how you subdivide it.

That’s precisely how Bitcoin’s divisibility works.

While each Bitcoin can be divided into 100 million smaller units called “satoshis“, this doesn’t magically create more Bitcoin out of thin air. It simply allows for greater flexibility and accessibility in how we use this scarce digital asset.

Digging up dead FUD

The debate on Satoshi’s diluting Bitcoin has come up several times over the years, but in recent memory, it had its roots in a Twitter spat in 2021 with Frances Coppola.

But it recently resurfaced when Samantha LaDuc, a prominent television personality, decided this was the hill she planned to die on with the tired but bold assertions about Bitcoin’s supposed shortcomings.

Fixed supply, infinite divisibility

Bitcoin’s total supply is capped at 21 million coins. This hard-coded limit is a fundamental pillar of its scarcity, ensuring no central authority can arbitrarily create more. 

In theory, yes, the hard cap can be changed if every Bitcoin participant agrees and runs a new version of the software with a higher cap, but go ahead and try to convince everyone who holds Bitcoin to dilute themselves and see how far you get with that argument.

Satoshis are simply smaller denominations of this finite pie. Think of them as the “cents” to Bitcoin’s “dollars.” They don’t increase the overall supply, but they do make it easier to use Bitcoin for everyday transactions.

If Bitcoin could not be subdivided into smaller units, it would make it nearly impossible for people to conduct trade if all trade had to be conducted with only 21 million Bitcoin, especially as the relative purchasing power of 1 Bitcoin increases. 

While conducting trade in Bitcoin was easy when the relative value was $1, $10 or $100, now that it’s moved into the 5-figure range, Satoshis are making much more sense as a unit of account. 

Global context and lost satoshis

Even with 100 million satoshis per Bitcoin, the total potential supply of satoshis (2.1 quadrillion) isn’t as abundant as it might seem. If we were to try to divide all available Bitcoin between the 8 billion people on the planet today, each person would only have 230,000 satoshis; that’s a small number of units in the grand scheme. 

Considering that the global GDP in 2023 was estimated at $103 Trillion, if Bitcoin is to support even a fraction of that trade, Satoshis will make a lot more sense to price goods and services.

Moreover, not all satoshis will ever be mined or actively used. Some have been lost due to forgotten keys or hardware failures, while some have become unspendable as dust transactions and could cost more in fees to move, further reducing the circulating supply. 

Accessibility and micro-payments

Divisibility is a feature, not a bug. 

It allows Bitcoin to respond to its increase in purchasing power without disrupting its ability to settle transactions. Allowing users to transact in fractions of a Bitcoin makes it ideal for small, everyday transactions, like buying a coffee or tipping a content creator 😉 wink, wink. 

This ensures that Bitcoin doesn’t only appeal to users who need to settle large transactions but opens up possibilities for micro-payments of any size and frequency and even opens up new use cases that weren’t feasible with traditional payment systems. 

Have you ever heard of zaps or streaming sats? These are popular methods of micropayments using Bitcoin via the Lightning network. Using zaps, users can tip as little as 1 Satoshi on nostr-based clients, while streaming Satoshis can be done on podcast 2.0 apps where users pay as little as 1 Satoshi for every minute they listen to a podcast. 

The best part is that funds are transferred and settled in real-time. 

Scarcity meeting growing demand drives value

Ultimately, it’s Bitcoin’s guaranteed scarcity that underpins part of its value proposition. The limited supply and increasing demand create a natural price appreciation mechanism.

But being scarce doesn’t mean something will automatically be valuable; it needs to have a use case people want to leverage. Bitcoin offers users money they can transfer across borders without censorship and can be held with no counterparty risk. 

These are features that people find valuable, so market participants look to acquire it; some use it as a savings mechanism, some use it as a method of speculation, while others use Bitcoin as a means of settlement. 

As more people benefit from Bitcoin, others will want to access these properties of Bitcoin and would have otherwise been excluded should the entry be capped at 1 Bitcoin, a high bar that excludes most people as a single Bitcoins’ value is well beyond a year’s salary for most people at this point.

Bitcoin NEEDS divisibility if it is to reach the next Billion people or more.

We all know the total supply, we don’t know the accessible supply

Bitcoin diverges from all other forms of money today because it allows every user to audit the supply, prove that it is scarce and requires considerable resources to generate more Bitcoin, and even then, that new supply coming online is known to the market.

We know the issuance rate, 6.25 Bitcoin roughly every 10 minutes, and with each halving, this only becomes smaller. We know that there are about 1 million Bitcoins that still need to be mined up until the year 2140; there are no surprises when it comes to supply.

What we don’t know is how much Bitcoin is truly lost and how much Bitcoin will be lost in the future, so we have no idea what total supply will be able to serve the market, so having the flexibility that divisibility supplies will continue to gain in importance.

Debunk pizza arguments are as easy as pie.

The critique of Bitcoin losing value through dilution could stem from the fact that we’re used to this reality with fiat currency. Since fiat money loses value through constant dilution, more credit drives up supply over time, and as this money reaches the general population, it only makes goods and services more expensive.

Individual Satoshis only serve to make Bitcoin more accessible to the general public, while the overall scarcity of Bitcoin as a whole remains intact. A Satoshi is simply 100 millionth of the relative purchasing power of 1 Bitcoin; it’s as if you could scrape off the atoms of a gold bar and trade it with one another in an instant; that’s how efficient Bitcoin can be as a payment method, suited to any transaction need.

Remember, don’t confuse divisibility with unlimited supply.

Bitcoin’s scarcity is a core feature, not a flaw. It’s what makes this digital asset so unique and valuable in the long run.

So, the next time you hear someone question Bitcoin’s scarcity because of its divisibility, remind them of the pizza analogy. The slices may get smaller, but the pie remains just as limited and delicious.

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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