Bitcoin’s Unit of Account Status is Still a Fantasy - BitMEX Research
How close is bitcoin (BTC) to becoming money? New data from BitMEX Research claims that although BTC transactions are now more precise than ever, the cryptocurrency still remains a long way off elusive money status – and believe that precision could actually hurt BTC’s hopes of becoming money.
The big news is that there has been a “marked increase in [BTC] precision in the last 10 years, which surprisingly continued even beyond 2018.”
The authors of the report, named Growth in the Level of Precision of Bitcoin Spending, and published on the BitMEX blog, write,
“Currently over 70% of bitcoin outputs use the highest available degree of precision (one satoshi), considerable growth since the approx. 40% level in 2012.”
However, the authors also note that most economists believe that for any commodity to be classified as money, it must meet three key criteria, in order.
The BitMEX Research team outlines these as follows:
- Bitcoin must become a medium of exchange
- BTC needs to be able to store value
- Bitcoin must become a unit of account
The researchers say that “Bitcoin’s potential unique capability” in the area of “censorship-resistant electronic payments” could give it a key boost in the first step, its quest to become a medium of exchange.
But the researchers say that the final stage is bitcoin’s “most ambitious and least likely step.” To attain unit of account status, mainstream businesses and governments would price goods and services in bitcoin, and bitcoin would become the currency most used in accounting documentation.
And increased precision is actually detrimental to this final stage, per conventional academic thinking.
The authors explain,
“If unit of account status is achieved or becomes more prevalent, then presumably the degree of precision should reduce rather than increase. […] Bitcoin is moving in the opposite direction, the average degree of precision is still increasing. This may indicate a violation of the unit of account thesis, at least up until this point.”
BitMEX Research identifies several factors that could be influencing the current increase in precision, namely:
- Earlier usage BTC scenarios were more experimental, with first payouts coming in payments related to onchain gambling and gaming, where lower precision is more common. But bitcoin’s increased economic adoption is tied to increasingly fiat-denominated economic usage – dragging up precision.
- Before mid-2010, bitcoin had no clear spot price, so high precision may have been unnecessary. As its value has gone up, so has the need for precision
- Bitcoin’s lifespan might also be a factor. More unspent outputs build up precision over time, carrying forward higher precision.
All this could spell bad news for bitcoin’s hopes of becoming money, with the elusive unit of account step, per BitMEX Research, “likely to be many years away, if it ever happens at all.”
Instead, bitcoin remains firmly in “the medium of exchange” phase, where “the battle is still very much ongoing.”
The authors’ conclude,
“At least for now, [bitcoin’s] unit of account status is still somewhat of a fantasy.”