BitMEX Says Bitcoin-Denominated Payments Not Yet Viable As Coinbase Strives For Adoption
More than 70% of Bitcoin outputs today use the highest precision degrees possible
Since its launch, many proponents believe that Bitcoin may one day become a dependable store of value. But, increasing precision in the number of decimals for BTC suggests that there is decreasing usage in terms of a unit of account. The highlights of a January 27 BitMEX Research report put into context all the analyzed transaction outputs for the last ten years.
That report analyzed up to 1.3 billion outputs with a cumulative total of 5.4 billion BTC worth $12 trillion. Every single transaction was categorized using its degree of decimal precision. That represents the value of the last non-zero value in a payment.
More than 70% of Bitcoin outputs today use the highest precision degrees possible of one satoshi (0.00000001 BTC). That figure amounted to 40% in 2012. The Bit MEX report explained many anomalies seen in the findings. In the first two years of Bitcoin’s existence, there was a prevalence of Coinbase outputs that generate new coins. At that time, the block reward was 50 BTC, with very few other transactions.
At the start of 2013, there was an increase in 10 satoshi transactions, which corresponds to the rise of Satoshi Dice, a gambling platform.
Also, the strange spike in the summer of 2015 is explained by the July 2015 flood attack that stress-tested the network.
Unit Of Account
Bitcoin’s usage as a unit of account ranks among its ultimate goals of adoption. In that case, all payments would be denominated in BTC instead of US dollars or any other fiat currencies. But, the report shows that the continuous rise in output precision is proven as the opposite of increasing direct usage. According to the BitMEX analysts:
“If the unit of account status is achieved or becomes more prevalent, then presumably, the degree of precision should reduce rather than increase.”
Multiple factors are identified as potential causes of this scenario. One of them is the ‘experimental’ usage of Bitcoin during its early days. During that time, users tested heir first coins or on-chain gambling and gaming. Later on, the analysts said that a higher degree of precision became essential as the exchange markets and usage matured.
In spite of the rise in Bitcoin price, a single satoshi is still worth below a thousandth of a cent. It seems unlikely that the fiat-denominated payments would need this extraordinary amount of precision.
Transaction fees may play a significant role in precision. The change that returns to the sender in any given BTC transaction normally features a higher accuracy. That precision increases due to the requirement to subtract the fee that is calculated in satoshis per byte.
According to the report, the increased precision is a probable privacy enhancement. It tends to become more challenging to understand which part of the transaction is the actual money sent and which part is the change as the amount of high-precision transactions increases.
Eventually, the analysts categorized Bitcoin into three adoption phases: store of value, a medium of exchange, and unit of account. The first step, medium of exchange, is still ongoing. The report concluded:
“At least, for now, the unit of account status is still somewhat of a fantasy.”
Coinbase Joins Ripple Trying To Accelerate US Crypto Adoption
Two executives at Ripple and Coinbase are pushing for transparency and smart regulations in the crypto world. If they succeed, it will drive adoption and eventually take blockchain technology mainstream.
The Market Integrity Working Group’s co-chairs targeted regulators, urging them to find viable ways of how they can advance the crypto industry. Rachel Nelson, Coinbase senior director and associate general counsel and Breanne Madigan, Ripple’s head of global institutional markets, in an official statement wrote:
“To improve market integrity and provide consumers the confidence they deserve, Congress may need to enact legislation to support the orderly and secure functioning of crypto markets. Such legislation could expand the Commodity Futures Trading Commission’s (CFTC) authority to include the regulation and oversight of digital commodity exchange markets.”
The Working Group was officially launched on January 23, 2020. So far, this group has outlined the various challenges that affect crypto exchanges. Based on the organization’s opinion, state-specific regulations are to blame:
“Consumers and crypto exchanges deserve a clear regulatory framework, the establishment of which would ultimately enhance market integrity and drive consumer adoption of cryptos.”
The co-chairs said that new exchanges encounter byzantine challenges while the existing exchanges struggle against frequently revised compliance requirements. However, a regulatory infrastructure can enhance market integrity and promote consumer adoption of cryptos.