The Psychology of Decimal Places in Bitcoin and Digital Currencies.

[This is a reworking of a piece I wrote for Bitcoin Magazine in 2013]

With all the excitement it's easy to forget that the ecosystem around the Steemit platform is still very young. The technology is less developed than our interest in it. This will change over time.

In the interim, adoption can be challenging.

Steemit is attracting a lot of non-crypto people. Rightly so. This is exciting.
But the barriers to understanding are high.

Among the most challenging intellectual leaps involves the decimal.

Decimals in Psychology

As people discover steem, they also enter bitcoin. Most likely bitcoin will be what they use to 'cash-out' on exchange and spend their steemit earnings.

Each Bitcoin is divisible to 8 decimal places (100,000,000 individual units). The fiat currency we have always known is divisible to only 2 decimal places. This represents a huge paradigm shift.

So Bitcoin is more perfectly divisible than any of its fiat monetary competitors. Theoretically, this is is a source of strength. However, there is a vast gap between theory and reality. For adoption: perception is reality. Perception is king.

Richard Brown (R3CV's) Comments

In this interview R3CV's Richard Brown make's an interesting observations. He sees a coins with more nominal units as testing the idea that “if we have a larger nominal number of currency units, does that change people’s behaviour?”

This question has far reaching implications for adoption. At its heart lay the decimal place and the psychological impact of nominal representations of wealth.

A Numbers Game - Perception Rules

Theoretically Bitcoin does not need any clones. With 21 million nominal units, divisible to 8 decimal places, it is more than capable of supporting a global economy. Nevertheless, Bitcoin is an open-source project. So, for better or worse, it has a potentially infinite number of copies.

Numbers, psychology and value all interact inside our minds. Research on pricing psychology suggests that numbers and their arrangement around the decimal place influence perceived value.

As the eyes move left to right, digits to the left of the decimal place are most significant for us. We have learnt to see these numbers as important.

We have learnt to overlook anything laying to the right. This leads to an overall rounding-down effect in one’s mind. The exception being ‘special offer’ situations, with numbers to the right of the decimal ending in seven or nine.

As Bitcoin increases in value, wealth representation necessarily moves to the right. An average weekly wage, for example, would now show a ‘0’ digit to the left of the decimal place if represented in Bitcoins on current highs. If price creates expectancy then a ‘0’ to the left is a big disappointment.

Perceptions of Wealth

Our perception of a given thing creates a price point: the point at which demand changes. Marketing research applied to this case suggests that perhaps Bitcoin’s demand could be affected as units to the left increasingly comprise of zeros: an inevitable consequence of increasing valuations.

Perhaps then, a user will irrationally tend towards participation in a network that denominates their worth with a bigger number, out of a desire to own whole units. This would give the user a larger nominal representation of wealth, fewer zeros to the left and a greater psychological satisfaction.

Scientist and researcher Stanislas Dehaene notes that prices with precise numbers tend to make consumers uneasy. Prices are rounded to calm consumers and increase perceived value. Dehaene also notes that Rounded numbers convey value.

Practical Approaches

A Bitcoin is only a mathematical construct. So as a representation of value it is incredibly precise. Allowing for protocol changes it has the potential to be even more precise. Bitcoins are anything but rounded. For the inexperienced this precision must be intimidating.

Unless you hold the opinion that Bitcoin, purely disruptive, will sell itself, then it still faces significant challenges: its continued adoption not yet assured.

People who have never given much thought to money, value transfer or distributed consensus are unlikely to immediately realise the implications of Bitcoin. Already software is aiming to work around such issues.