Breaking Down the Bitcoin: Bits, Finneys and Satoshis
During 2017, bitcoin has gained a lot of value. Starting at a ‘meager’ $1,000 back in January 2017, we’ve seen it spike nearly to $20,000 by December. Now, there have been quite a few hiccups during this massive spike. But, one that most deal with when trying to spend or buy the currency is the simple arithmetic of trying to figure out the value of their cash versus bitcoin’s current value.
Luckily, this was an issue foreseen back in the early days of the crypto. A system is already in place for breaking a bitcoin down into smaller integers for easier mental arithmetic when doing currency conversions.
The smallest denomination for bitcoin is probably the most famous, that of the Satoshi. The satoshi unit is named after Satoshi Nakamoto, the original publisher of the paper that brought bitcoin development into reality.
The satoshi represents one hundred millionths of a bitcoin or 0.00000001 BTC. However, other denominations have names as well and prove much more useful when determining prices and conversions.
A single bitcoin is equal to 1,000 millibitcoins (mBTC) or 1,000,000 bits. The usefulness of these denominations has really started to shine now that BTC has reached over the $10,000 mark.
An example; if bitcoin is at $15,000 then $10.05 is .00067 BTC. If one isn’t careful, it’d be very easy to make an error by a factor of 10 when transferring with this many decimals. However, by changing the units from bitcoin to bits we have a much more manageable number of 670 bits. Which is much more difficult to muck up.
Swapping to these easier to manage units has other benefits besides the easier arithmetic. Staying at the $15,000 price point, if one offers someone say $105 for an item they may be wary of receiving only .0067 BTC. However, if the offer changes to 6700 bits, the seller may be more inclined to take the offer assuming they do not have substantial knowledge of the coin.
Beyond that, it just sounds much less silly than offering a fraction of a coin to someone and is much easier to communicate than listing off and counting decimal points whenever a transaction has to go through.
Ethereum, as well, breaks their coins down into similar metric denominations, ranging from 1 to the 18th power down to 1 to the third in fractions of a single ether. The smallest denomination of ether is the wei, but the most used are the Finney and the Szabo.
The Finney (1^15 wei) and the Szabo (1^12 wei) are named after prominent players and early adopters of the cryptocurrency scene and are well-respected in the community. Due to this Ethereum honored them by turning their names into denominations of their currency. The denominations work similarly to BTC, so instead of making a transaction with a fraction of an ETH, you can instead pay in a whole Finney.
These different denominations will become more important as cryptos as a whole catch on more and more and the value increases. Paying for things in the fraction of a unit is tiresome and overly complicated for widespread use. Look forward to a future of Finneys and bits.