With an increase in the price of Bitcoin, accumulating enough money to buy a single Bitcoin (BTC) becomes a challenge. However, Bitcoin can be subdivided into smaller units that can be purchased even with a smaller amount of money.
For example, Bitcoin is currently exchanging hands at around 5,000 U.S dollars. However, even with 20 U.S dollars, you can still get a share of BTC.
The smallest division of Bitcoin is called a satoshi and it’s named after Bitcoin’s unknown creator, Satoshi Nakamoto.
Although fiat currencies differ from digital currencies, one common aspect between them is the fact that just like the dollar can be subdivided into cents, digital currencies such as Bitcoin can also be subdivided into smaller units.
In 2008, Satoshi Nakamoto, who has remained anonymous, ignited the development of the Bitcoin blockchain by authoring ‘Bitcoin: A peer-to-peer Cash System’ white paper. The paper outlined how a digital currency can be used to overcome the current over-reliance on traditional financial institutions. According to Nakamoto, Bitcoin is a platform using the power of the distributed ledger technology to facilitate financial transactions directly between persons without the need of an intermediary. With Bitcoin, Satoshi addressed the likeliness of spending Bitcoin twice on different transactions.
How small is a satoshi?
One hundred millionth of a Bitcoin is called a satoshi i,e 0.00000001 BTC. Since most payments and transactions involving Bitcoin cannot be worth a whole 1 BTC, this small unit of the coin helps in making transactions manageable.
Other Bitcoin denominations include milliBitcoins (mBTC). One Bitcoin (BTC) comprises of 1,000 mBTC. Additionally, microBitcoins (μBTC) can also be used to denominate BTC. 1 million μBTC is equivalent to 1 BTC.
Bitcoin has yet another set of denominations that are not widely used. This is DeciBit which is equivalent to 0.1 BTC, CentiBit (0.01 BTC), and Finney which is equivalent to 0.0000001 BTC.
The Finney denomination is a community suggested BTC fraction in honor of Hal Finney who is a computer scientist and who was the first to transact Bitcoin with Satoshi Nakamoto. A single Finney is equivalent to ten satoshis.
Why a satoshi?
Apart from allowing micropayments, dividing Bitcoin into satoshis solves another problem. Since its creator, Satoshi Nakamoto, wanted only 21 million people to own a single Bitcoin. So, what happens to the rest? They get a fraction of Bitcoin, a satoshi.
Arguments have erupted on whether to continue using Bitcoin when discussing the crypto coin with people who are relatively new to the digital currency world. This is because mentioning that one Bitcoin is approximately 5,000 U.S dollars can put-off an individual who would instead buy a section of the coin if told that one centiBit of BTC cost just 60 U.S dollars.
Satoshi to fiat to Bitcoin conversion
The above explanations can be a bit tricky especially when checking how much your money is worth in terms of purchasing a section of Bitcoin. The above system can also lead to loses when initiating BTC payments.
To overcome these hurdles, developers have created tools that help convert fiat to satoshi or satoshi to fiat or satoshi to BTC. Most of these tools take into consideration the price fluctuations of Bitcoin. With the price of Bitcoin and other cryptocurrencies being hoisted on the demand and supply curve, giving a fixed amount after conversion becomes impractical.
With the rising Bitcoin prices, having a way to invest in a section of the crypto founder, Bitcoin, was a noble idea for Nakamoto. However, some blockchain developers have suggested that other Bitcoin denominations be introduced so that the denominations spectrum can be full.
However, additional denominations looking to replace the three major ones, satoshi, DeciBitcoin, and CentiBitcoin have been rejected by the community by not being widely used.