Divide and Conquer
Obi Nwosu is the CEO and co-founder of Coinfloor, the UK's longest-running Bitcoin exchange. He has over 20 years’ experience building online marketplaces and bringing virtual currencies to tens of millions of people. Obi writes The Road to Bitcoin Hegemony, a weekly recap of some of the most impactful developments in Bitcoin.
Divide and Conquer
Last week I wrote about the “Bitcoin break-up”, the inevitable creation of a two-tier system following international moves to create a regulated ecosystem. And, as I pointed out, this doesn’t mark the end for innovation, pseudonymity, self-custody, and decentralization, but — paradoxically, perhaps — a strengthening of all these pillars.
Well, this week saw the beginning of another Bitcoin break-up that will add yet more momentum to the Orange juggernaut. But this one has nothing to do with regulation, and everything to do with capitalism and psychology.
On Tuesday, the derivatives marketplace CME put out a press release announcing the creation of a new "micro Bitcoin" futures contract in units that will be one-tenth the size of one bitcoin. The point here is to improve their contracts' affordability and in so doing, combat Bitcoin’s perceived lack of affordability due to “unit bias.”
As Bitcoin’s value spirals ever upwards — and Biden’s record $3 trillion stimulus package sends inflation ever skywards — markets with 1 BTC minimum contract sizes will offer fewer and fewer trade opportunities due to an increasing minimum transaction value. Furthermore, the high perceived price of a single BTC can spook new retail and professional investors alike. And when investors get nervous, they may seek out “cheaper” cryptos that they see as having better growth potential.
There is a basic error at the heart of this thinking, which is that investors should never think in terms of the current price of an asset, but rather its potential to hold or increase in value. For reasons that have been expounded upon on numerous occasions, Bitcoin has and continues to perform better than the vast majority of altcoins. However, this irrationality was not just predictable, it was inevitable ? as is the solution.
Like so much that is good about Bitcoin, divisibility was baked into it from the beginning. Now it’s the turn of the market to catch up, with CME Group being one of the first major traditional institutions to recognize that measuring BTC value in large units, while indicative of its historical success, will naturally become a smaller part of Bitcoin’s future. It’s psychological as much as anything, and simply splitting Bitcoin into smaller investment units will prove a powerful corrective to the unit bias that is currently pervasive.
I was talking to an institutional-investor-turned-Bitcoiner friend about CME Group’s announcement earlier this week, and we agreed that many other institutional exchanges will follow and go further, culminating with all quoting the price in “satoshis” ? the Bitcoin equivalent of cents or pence, but some one hundred million times smaller than a bitcoin ? as a way to burst the bubble of unit bias and to increase trading volumes. The motivation is simple: when exchanges are paid by the number of contracts exchanged, splitting Bitcoin into smaller, more tradable units is going to maximize profitability.
Bitcoin’s unit bias is another (welcome) indication of its growing pains, and the fact that the market has started to find solutions is a sign that powerful profit motives are ensuring further progress.
In time we will all see that splitting Bitcoin into subunits will bring even greater unity among the investment community for the digital Gold and represents a crucial step on the path towards hegemony: first divide, then conquer.
Faceless
When Facebook eventually folds, it won’t just be because of its cavalier attitude towards the security of its product (sorry, “its users”). No, it’ll be because the fundamental idea behind the social network par excellence is long past its sell-by date.
On its own Facebook’s latest breach, in which a hacker published personal details from over half a billion compromised accounts, is a perfectly survivable incident for the lawyered-up tech titan. What’s not survivable in the long term is the concept of putting personally identifiable information into the public domain where it can be ? and regularly is ? harvested by bad actors.
To its credit, Facebook did solve one of the key problems of Web 1.0 by giving people the power to have their own digital footprint and the ability to share information easily. But our demands for the social internet have become much more nuanced and sophisticated. Today, we want to explore ways of interacting and communicating that are privacy-preserving and, with the advent of peer to peer options like Bittorrent and Bitcoin, the need of sharing so freely our identity online diminishes.
With every breach, we see yet another reminder that we are all better off with online services that espouse de-identification. Facebook and other platforms that demand our data are fast becoming relics. The future is faceless.