A growing precision in the amount of decimals for Bitcoin (BTC) points to decreasing usage as a unit of account. This is one of the conclusions of a Jan. 27 report by BitMEX Research, which analyzed transaction outputs for the past decade.
The report evaluated a total of 1.3 billion outputs, amounting to 5.4 billion BTC worth $12 trillion. Each transaction was categorized by its degree of decimal precision — what is the last non-zero value in a payment.
Over 70% of Bitcoin outputs currently use the highest degree of precision possible of one satoshi (0.00000001 BTC), while in 2012 this figure amounted to 40 percent.
Precision of Bitcoin outputs. Source: BitMEX Research report
The report explained several anomalies seen in the chart. Bitcoin’s first two years of life show the prevalence of coinbase outputs, which generate new coins. The block reward amounted to 50 BTC with very few other transactions.
An uptick in 10 satoshi transactions at the beginning of 2013 corresponds to the rise of Satoshi Dice, a gambling game.
Finally, the anomalous spike in summer 2015 is attributable to the July 2015 flood attack, which stress-tested the network.
Unit of account thesis
One of the ultimate goals of Bitcoin adoption is its usage as a unit of account, where all payments are denominated in BTC, instead of U.S. dollars or other fiat currencies.
However, the report explains that the continuous rise in output precision is the opposite of increasing direct usage. According to the analysts:
“If unit of account status is achieved or becomes more prevalent, then presumably the degree of precision should reduce rather than increase.”
Several factors are identified as potential causes. One is the “experimental” use of Bitcoin in its early days, which included users testing their first coins, or on-chain gambling and gaming.
As exchange markets and usage matured, the analysts argue that a higher degree of precision became necessary.
Despite the rise in the Bitcoin price, one satoshi is still worth less than one thousandth of a cent. It appears unlikely that fiat-denominated payments would require such an extraordinary amount of precision.
Transaction fees could play a part in this. The change returning to the sender in a transaction usually has a higher precision due to the need to subtract the fee, which is calculated in satoshis per byte.
The report highlights this as a possible privacy improvement. As the amount of high-precision transactions increases, it becomes more difficult to understand which part is the actual money sent, and which is the change.
The analysts divided Bitcoin into three adoption phases: medium of exchange, store of value and unit of account. Noting that even the first step of medium of exchange is still ongoing, they concluded:
“At least for now, unit of account status, is still somewhat of a fantasy.”
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