Debunking 5 Bitcoin Misconceptions: Divisibility, Satoshi\'s Control, Real-World Applications, Complexity, and Being Too Late

Bitcoin confuses many people, including prominent investment professionals. Recently, I debunked the top ten most pervasive misunderstandings and a further five.

Misconception #16: Divisibility Means Debasement Bitcoin has a fixed supply of 21 million. However, each of the 21 million Bitcoins can be divided into 100,000,000 units called satoshis (or sats). Each sat is worth 0.00000001 of one Bitcoin. That means the Bitcoin supply can be expressed as 2.1 quadrillion satoshis or 2,100,000,000,000,000 sats. This confuses some people, who think that because Bitcoin’s supply can be defined as such a gigantic number, it somehow represents debasement. Clearly, divisibility and debasement are not the same thing. Consider the example of dividing a pizza. It doesn’t matter how many slices you cut; it’s still one pizza. Similarly, some people think Bitcoin is not scarce because there is an ever-increasing number of altcoins—all cryptocurrencies other than Bitcoin. However, altcoins and Bitcoin are not at all the same thing. (If you think otherwise, try using an altcoin instead of Bitcoin and see what happens.) The growing number of altcoins has absolutely no effect on Bitcoin’s 21 million supply. That would be like thinking increasing the supply of pyrite dilutes the gold supply. Misconception #17: Satoshi Controls Bitcoin Recently, Jamie Dimon, the CEO of JPMorgan, claimed that Satoshi Nakamoto—Bitcoin’s anonymous Cypherpunk creator who disappeared in 2011—controls Bitcoin and could change the fixed supply of 21 million. Of course, Dimon did not explain the technical details of exactly how this could happen because he couldn’t. He simply made a confident assertion and probably hoped most people would lap it up because of his appeal to authority. However, Dimon’s sentiment reveals a profound misunderstanding of how Bitcoin works. Let’s start with the basics and build from there to clarify this misunderstood topic. Bitcoin is open-source software, which means its code is available for anyone to download, inspect, suggest changes, and run. Bitcoin was released in 2009, and anyone has had many years to inspect the open-source code, but nobody has ever found anything sinister. If you think there is something sinister in the Bitcoin code, nothing is stopping you from proving it. Think of the Bitcoin blockchain as simply a public database of transactions distributed to over 18,000 computers worldwide. The computers that retain the entire blockchain and run the Bitcoin software are called “full nodes.” Full nodes enforce the Bitcoin protocol and consensus rules—like its issuance and supply. The more full nodes there are, the more secure Bitcoin is. So it’s crucial the average person can easily operate one. The average computer can easily handle running a full node now and in the future, which is essential for Bitcoin to remain decentralized. Any desktop, laptop, Raspberry Pi—and even some cell phones—have the potential to become Bitcoin full nodes. Furthermore, as technology advances, running a full node will become even more accessible. The fact that anyone can run a full node makes the enforcement of Bitcoin’s protocol decentralized. So it’s unlikely that any individual, corporation, or government—or groups of them—could get together to enforce their will on the network by coercing the full nodes. As a practical matter, anyone can change any cryptocurrency whenever they want. All you have to do is take the open-source code—available to anyone—and make your desired changes to the protocol. But that doesn’t mean anyone will follow your lead or value your new cryptocurrency. For example, I can easily create a new version of Bitcoin that changes the supply from 21 million to 22 million and call it “Bitcoin 2.0.” But that doesn’t mean I can inherit the monetary properties of the original Bitcoin, which are related to the credibility of its supply, which I’ve just undermined by changing the protocol. That’s why the market is unlikely to assign any value to Bitcoin 2.0. In short, anyone can create a cryptocurrency in minutes. That’s the easy part. Making one that nobody controls is the hard part. If someone wanted to change to the Bitcoin protocol, it would require the agreement of most of the over 18,000 full nodes that enforce the protocol. Otherwise, the only thing they would succeed in doing is creating an increasingly worthless knockoff. Here’s another way to think of it. Imagine someone wanting to change the rules of chess so pawns could move backward. Of course, anyone could do so anytime, but that doesn’t mean people will follow the new rule. Of course, nothing is impossible, but it would be so improbable that such a move would gain traction that it’s irrelevant. In my view, getting the consensus of the full nodes to change the Bitcoin protocol—to

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