23. The Advantage of Divisibility into 100 Million Subunits

When it comes to the scarcity of goods such as gold it is guaranteed by the limited amount of it as the resource on the whole world, having in mind that the extraction of gold has generally always required a long time. The confined supply of metallic coins has been a decisive factor in the stability of the purchasing power of these commodities, which in some sense explains why it has been designated by the market.

In this sense the technology provided by the blockchain platform makes the imitation of bitcoin impossible and the emergence of bitcoin is ordered by a public algorithm which gives the legibility to its creation. When compared with gold, it is also limited in supply, because the number of bitcoins cannot exceed 21 million units by 2140. Regarding that, bitcoin is an asset whose purchasing power is conjugated to increase in accordance with the growth in demand on the market.

Besides that a currency must be divisible in order to be used for dealing in transactions of low value. Traditional currencies have a benefit at this point because they have lower units, such as cents, eurocents etc. that allow performance of transactions of smaller value. In this sense gold is less practical, because it is not divisible to infinity, which is the reason why over centuries civilizations were trying to replace gold coins with some type of money of smaller value, using silver and bronze. In this sense bitcoin has the biggest number of advantages because it is exceedingly divisible, since every single bitcoin can be divided into 100 million subunits called satoshis.

Another important feature of money and tradable goods is its possibility to be transferred in  order to ease transaction with smaller number of restrictions. In this sense traditional currencies have a satisfying level of ability to be transported, particularly because electronic payment made possible to cut down provision restraints in order to transmit funds at any desired location.

Nonetheless, some national policies can trim down the mobility of particular currencies. When it comes to gold, just like any other good it is not easily transportable because of its weight and therefore the creation of paper money and other financial products backed by gold was meant to extend the usage of this precious metal as a medium of exchange, making easier to trade assets, especially those of a higher value, such as real estate etc. In the field of cryptocurrencies it is the internet that enabled to carry out transactions in bitcoin anywhere in the world at very low cost in comparison with the traditional methods. This process has one restriction and that is the need to have software support on both sides of transactions and have the authority of having a serviceable network whose decentralized nature makes a control of capital unachievable.

A certain monetary system must be placed in a time-tested and secure institutional framework in order to pledge the respect of the right to make a transaction. Traditional currencies are a part of the system that is dominantly under control of banks, where governments put a lot of precariousness, because their activities may increase the risks of default on public debt and since they use negative interest rates that are similar to a tax on deposits, that risk is even higher, especially with the expectation of picking up deposits in the event of financial undependability or bankruptcy of a state and its implication on their creditors.

Regarding the gold keeping, it is an activity performed by specialized companies that meet particular requirements. It has to be noted that some institutions are issuing on the paper market in an amount that exceeds securities compared to the precious metal reserves actually available which results with the condition in which many certificate holders will never be able to convert the amount of gold they poses on paper into real precious metal on the premise of high demand for conversion, since the paper market is hence to be avoided.

The security content that stimulates the bitcoin is the one that is connected to the digital ecosystem and therefore it is crucial to be cautious with online portfolios. A large number of platforms for bitcoin holding have proved to be fallible against piracy and these providers must consequently be scrupulously chosen. For offline storage, it is generally advisable to use several portfolios on various devices in order to prevent the total loss of assets in case of the problem with particular device, because the bitcoin wallet shares the destiny with the engine where it is installed and in case of any damage electronic money can be lost without any possibility of backup. This is why it is highly recommended to install wallets only on devices that are in good condition, strong, resistible and properly secured.

Regarding the ability to be a subject of exchange money is supposed to be able to be transfer at any time to anyone who is supposed to receive it, so the size of the market is therefore a determining reference point. Traditional currencies are generally exchangeable with any trader and individual in a given territory, except in times when hyperinflation occurs, but this feature is principally due to the fact that currencies take the advantage of the forced price. Still a currency that needs the involuntary price is to be recognized is nevertheless a quality that must be looked carefully.

The situation with gold is that it is easily listed by specialized traders, since their monetary attributes are however very restricted, because most traders do not routinely use this feature as a mediator in trade. Regarding this bitcoin is easy to exchange on specialized platforms and on online trading sites. For the time being, however, there are too few traders willing to accept this commodity as an intermediary on an international scale so that it can be moderately described as medium of exchange.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018


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