Let’s Denominate Prices in Bitcoin
An updated copy of this post is maintained here.
- Even when we pay in crypto, prices are mostly denominated in fiat
- Bitcoin might soon be more widely held than the US dollar, so it’s time to start denominating prices in Bitcoin
- If you own Bitcoin, the volatility of Bitcoin prices becomes less of a problem
- Pricing in Bitcoin is more realistic for software than hardware
- Pricing software in Bitcoin may make more sense from a value standpoint
- How can we denominate prices in Bitcoin? Just do it
Even when we pay in crypto, prices are mostly denominated in fiat
- Coinbase Commerce allows you to install a plugin on your website to receive payments in crypto. However, prices can only be specified in fiat (e.g. US dollars, Euro, etc.).
- Tesla is accepting payment in Bitcoin, but the prices are denominated in US dollars.
Bitcoin might soon be more widely held than the US dollar, so it’s time to start denominating prices in Bitcoin.
As of April 1 2021, there are over 33 million Bitcoin wallet addresses with at least 1 USD worth of crypto. With a further expansion of ten times, there would be just as many wallet addresses as people in the US. The number of people holding Bitcoin is becoming substantial.
If you own Bitcoin, the volatility of Bitcoin prices becomes less of a problem
True, if you only own US dollars, and items are priced in Bitcoin, then swings in Bitcoin prices will wildly affect your cost. However, as more people hold Bitcoin, this becomes less of an issue because spending in Bitcoin no longer requires conversion from fiat in every transaction.
Pricing in Bitcoin is more realistic for software than hardware
It is difficult to price products in Bitcoin if the input costs to make the products are denominated in US dollars (fiat). If the price of Bitcoin goes down (measured in USD), then you may end up selling the product for less than its cost. Conversely, if the price of Bitcoin goes up, then people may not be willing to pay that higher price (on a dollar basis) for the item.
This makes it particularly difficult to price hardware products in Bitcoin. There are non-zero costs to make the item.
I’m not saying it’s perfect, but if there’s anywhere to start denominating prices in Bitcoin, it would be software products because software products have near zero marginal costs. Price is much closer to profit.
Pricing software in Bitcoin may make more sense from a value standpoint
The value of the US dollar is roughly tethered to the price level of non-technological goods (the CPI, or consumer price level), plus roughly 2% inflation.
If a currency were instead tethered to the price level of technological goods (on a per unit value basis) then the currency would be highly deflationary — because every year we get significantly better technology (think mobile phones) for roughly the same or cheaper dollar price.
So, if there were an ideal “currency” in which to buy and sell technology, it would probably be something like Bitcoin, which is deflationary.
How can we denominate prices in Bitcoin? Just do it.
I’ve taken an extremely basic approach and now put the price of my DeFi mini-course in terms of satoshis. I encourage other product owners (particularly software or subscription to start doing this).