Letter #122: Divisibility and Scarcity Are Not The Same
Read now to learn how divisibility and scarcity are separate but important parts of Bitcoin's immense value proposition.
For new entrants to the Bitcoin space, there’s a lot to learn. We’ve never had anything quite like Bitcoin: Fully decentralized. Completely digital. Perfectly apolitical. Financially freeing. It’s simply the best money humanity has ever had. And it can be difficult to wrap your head around.
That said, those who are willing to put in the time to learn will find a plethora of resources. For that reason, it’s disheartening to see people who obviously have spent so little time trying to understand Bitcoin that they’re unable to formulate anything but illogical attacks against it. This recent Twitter post certainly falls into that category:
There’s a lot wrong with that tweet, but let’s focus on the basics:
Scarcity And Divisibility Are Not The Same
You’d think that would be obvious, but apparently it isn’t to some people.
The term scarcity is used in the context of total supply, specifically when total supply is relatively finite. So, for example, we wouldn’t refer to bananas as scarce since people are always growing more of them. Nor could we get away with calling fiat currencies scarce, especially in today’s world where new fiat can be printed with the click of a button. But we could certainly call Bitcoin scarce seeing as there are and will only ever be twenty-one million, while there are billions of people who will try to acquire them.
Divisibility, on the other hand, is something different altogether. It doesn’t refer to total supply; it instead quantifies how much each unit of the supply can be divided. But whether I divide each unit into two pieces or two hundred pieces, I’m still left with the same amount that I had before I started.
In short, scarcity and divisibility are not two sides of the same coin. They’re two different characteristics. And mixing them up while trying to attack Bitcoin is sure to fail.
So Why Do Scarcity And Divisibility Matter In Bitcoin?
The importance of scarcity to Bitcoin is relatively easy to understand and it’s a topic that I write about frequently. And it’s certainly easy to understand it in the context of money that isn’t scarce, like fiat.
Fiat currencies are not at all scarce thanks to currency inflation. Currency inflation robs people of their economic output and their time, and it eliminates their ability to save their way to a successful future. Inflation benefits the individuals who control the money printer at the expense of everyone else. A lot of the present and past inflation being experienced around the globe can be traced back to currency inflation. Its effects are devastating.
So why does monetary scarcity matter? Because it allows people to save without fear of losing value over the long-term. And because it allows them to be appropriately compensated day after day for spending their time and energy in economic endeavors.
People are turning to Bitcoin because its perfectly limited supply helps make it the most trustworthy money in the world.
Bitcoin is highly divisible. As the misguided attacker we referenced before correctly stated, each Bitcoin is divisible into one hundred million pieces, or satoshis (“sats” for short). And the reality is that there’s no theoretical limit to how sub-divisible Bitcoin can really be. Many crypto banks and layer-two solutions already divide Bitcoin further than one hundred million pieces in their ledgers, and the same could happen on the Bitcoin blockchain itself if the community decided to make that change.
But why does divisibility matter? In my opinion, Bitcoin’s immense divisibility is important because of its destiny as a unit of account. In other words, in order for Bitcoin to be usable in valuing goods and services around the globe, it has to be able to be divided in as many parts as buyers and sellers need. Otherwise, either the buyer or the seller may be leaving money on the table, so to speak.
Bitcoin’s value will continue to grow thanks to its immense scarcity and its growing desirability as money. But Bitcoin’s near infinite divisibility means it will be able to be used as money no matter how valuable each unit becomes.
Like What You See, But Not A Subscriber Yet?
Consider subscribing for two weekly emails about Bitcoin, subscriber giveaways, real-time community discussions and more!
Wish You Could Easily Take The Podcast With You?
Can’t Get Enough Bitcoin In Your Life? Follow Me On Social Media:
Blockchain Word Of The Day
Want to learn more Blockchain words?
🙋🏽♂️Did You Enjoy This Edition Of The HiFi Crypto Letters?
This 3-question survey is your chance to tell me how I can improve the newsletter for you.
This is not financial or business advice. This newsletter and related content are for informational purposes only. Cryptocurrencies and digital assets can be risky. Always do your own research before making any sort of investment.