Monday, January 24

Coin valued at $ 0.00004893 highlights the wild decimal frontier of cryptocurrencies

When it comes to decimal places, cryptocurrencies are treading strange territory that other markets have never dared, or actually bothered to go before.

Shiba Inu cost only roughly $ 0.00004893 each on Friday afternoon, while Dogecoin was sold for less than 1 cent earlier this year. One Bitcoin can be cut into one satoshi, which is the bulk of the coin: 0.00000001. Then there is the strangest of all: the wei. That’s one quintillionth of an ether, or 0.000000000000000001.

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Possible explanations for this are a mixture of understandable and puzzling.

Retail traders love penny stocks. It’s easy to dream of big profits when a move from 1 cent to 2 cents doubles your money. So going even smaller than that depends on some long-standing skirts, even if Shiba Ibu and Dogecoin don’t bring much more to the table. And who doesn’t want to buy a million of something? With Shiba Inu, that only costs about $ 50.

“You see with a lot of these meme currencies, like Doge and Shiba, retail investors are pouring money into them because they look cheap,” said Halsey Minor, CEO of Public Mint, a blockchain platform. “There is a psychological element here, in many cases, where people think, ‘Oh, a full Bitcoin costs $ 65,000, but a Dogecoin costs only 25 cents.’

But the rationale for Bitcoin, Ether, or Ether’s cousins ​​(smart contracts using the ERC20 standard that also live on the Ethereum blockchain) is more difficult to explain, apart from the fact that they are named after the pioneers. of cryptography. The namesake of satoshi is, of course, the creator of Bitcoin, Satoshi Nakamoto. Wei refers to the influential cryptographer Wei Dai.

Why the heck would someone need to divide a tile to 18 decimal places? Well, there aren’t many compelling reasons. Although, theoretically, a token could increase so much in value that all those decimal places could be useful. In theory, at least.

“Many researchers in the space have agreed that the 18 decimal standard for ERC20 tokens is quite arbitrary and probably not ideal – 18 decimal places is A LOT of precision for almost any use case,” said Arjun Bhuptani, co-founder and project. Leader of Connext, which is what is known as an interoperability network that enables communication between Ethereum-compatible blockchains.

The problem is that, while numbers can be infinitely increased or divided into infinitely small amounts, computer hardware has finite limits on the amount of data that can be stored. So some platforms and tokens have chosen to break away from the 18 decimal place standard. For example, the Tether stablecoin, known as USDT, is an ERC20 token but only uses six decimal places. Even that is a lot for a coin meant to be worth almost exactly $ 1.

“The trade-off that token creators often consider when doing this is whether the improvement in the user experience outweighs the additional work that would have to happen for other projects and applications to integrate it,” said Bhuptani.

The result is what’s known as decimal precision, or how far to the right of the decimal point various platforms are willing to go. For example, at Kraken, there are limits on the number of numbers that can be entered when placing a trade. Given its high price, the exchange has cut the pennies when it comes to buying Bitcoin – orders can only be placed in ten-cent increments. And when it comes to placing an order for a certain amount of a token, forget about the 18 decimal standard for Ethereum-based tokens – you only get 8 on Kraken and many other platforms.

As Kraken explains on its website: “Lower price accuracy can help order books run more efficiently by reducing the volume of canceled (unfilled) orders as merchants continually advance by small fractions. Price”.

When it comes to coins like Shiba Inu, Dogecoin, and SafeMoon, which currently costs around $ 0.00000348, it’s usually a ridiculously large number to the left of the decimal when it comes to supply that helps create the ridiculously small number on the right when about. pricing. Shiba Inu started with a 1 billion supply. In other words: 1,000,000,000,000,000.

While half of that was gifted to Ethereum co-founder Vitalik Buterin, who “burned” most of it by sending it to a wallet that no one can access, that still left around 500 trillion coins.

So in the highly unlikely event that the coin increased in value to $ 1, the amount in circulation would be worth almost 10 times more than the entire US stock market. Retail traders are probably not thinking about how unlikely that is. said Jonathan Azeroual, vice president of blockchain asset strategy at crypto exchange INX.

“Decimalization in Dogecoin and Shiba was actually the best thing to do in marketing, basically because nobody wants to buy 0.01 Bitcoin, but everyone wants to have millions of Shiba,” said Azeroual. “Why? Because they think that somehow, someday, maybe that thing will hit $ 1.”

That psychological effect is why some in the crypto community advocate pricing for satoshis, rather than a full Bitcoin. For what it’s worth, when Bitcoin costs $ 65,000, a satoshi costs $ 0.00065, more than 10 times the cost of a Shiba Inu.

INX also only allows eight decimal places for subdivisions of a currency. Even that is a lot. Starting in sixth place, you’re already dealing with a fraction of Ether that’s worth less than a penny, and you’re heading into territory known as “dust” – chips of chips so small they can get stuck in wallets because they’re not valuable enough. . to cover transaction costs.

Of course, the world of cryptocurrencies is famous for making what once seemed implausible plausible and vice versa. Azeroual recalls the cautionary tales of years past when people spent massive amounts of Bitcoin or Ethereum as payments just because they could. Like the guy who spent 10,000 Bitcoins – current value, almost $ 600 million – for two pizzas in 2010. These days, in some stores, you can get something like 10,000 pizzas for one Bitcoin.

“And that’s what the exchanges are dealing with, at the end of the day, what the price will be 10 years from now,” he said. “Who knows? Right?”

© 2021 Bloomberg

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