What are bitcoins?

Bitcoins are a relatively new and interesting electronic currency (cryptocurrency). What makes bitcoin unique from typical currencies such as Euros or USD is that its value isn’t backed by any single government or organization. This makes Bitcoin a viable international currency, since it’s value is consistent regardless of where it’s being used. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, however, it’s current high value makes owning bitcoin in small amounts less susceptible to the risks caused by these fluctuations. For example, if the value of bitcoin depreciated by $60 or so during the day, someone who only owned $100 worth of Bitcoin won’t notice the total value of their Bitcoin holdings change significantly. With a price (as of this writing) of $2600 to 1 Bitcoin, a price change causing bitcoin to depreciate by said $60 wouldn’t be noticeable to someone who only owned $100, or 2.6% of a bitcoin.

How divisible are bitcoins?

You don’t have to be able to buy an entire bitcoin in order to use the currency. A bitcoin can be divided down to 8 decimal places. Therefore, 0.00000001 BTC is the smallest amount that can be handled in a transaction. If necessary, the protocol and related software can be modified to handle even smaller amounts. Business that accept bitcoin can accept bitcoin in very small denominations, and people who use bitcoin can send bitcoin in small denominations as well. You can kind of think of it like the dollar or the euro. You don’t need to have a full dollar or a full euro to have a balance in euros or dollars. You can have a tenth of a dollar (a dime) or .67 dollars (.67 cents) etc. Bitcoin is no different.

What do I call the various denominations of bitcoin?

Unlike most currencies, bitcoin amounts are highly divisible. This make the currency very versatile, and helps to accommodate for its high exchange rate in other currencies. Even half or a tenth of a bitcoin is still a large amount of money in other fiat (government centralized) currencies (such as USD, Euros, Pounds etc). This has led to a desire to create names for smaller denominations of bitcoin amounts, especially since transactions involving whole bitcoins are no longer quite so common. Bitcoin is decentralized, so there is no organization that can set official names for units. Therefore, there are many different units with varying degrees of popularity. As of 2014, the most common units are bitcoins, bits, and satoshi: 1 bitcoin = 1,000,000.00 bits = 100,000,000 satoshi.

The smallest value that the Bitcoin network supports sending is the satoshi (sometimes abbreviated sat), one hundred-millionth (0.00000001) of a bitcoin. In other words, the network does not support sending fractions of a satoshi. Since it is a hard limit, it seems natural to use it as a unit, though it currently has very little value.

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