Bits meaning
A bit is a smaller unit or subdivision of a single Bitcoin, typically representing one millionth of a Bitcoin.
What Are Bitcoin Bits?
A bit is a unit used to designate a subdivision of a Bitcoin. One bit represents one millionth of a single Bitcoin, meaning that 1 million bits are equivalent to 1 BTC. Since a million microbitcoins (uBTC) also equate to 1 BTC, bits can also be referred to as microbitcoins.
For context, a single Bitcoin is often made up of smaller, more manageable sub-units. When broken down into 100 million units, the denominations are called satoshis (sats), typically the smallest possible unit of a Bitcoin. However, when denominated into a million smaller units, the units are called bits.
In short, since one Bitcoin is equal to 1 million bits or 100 million sats, 1 bit would be equal to 100 sats. These denominations make Bitcoin more flexible and more practical for pricing tips and purchasing goods and services, among other everyday uses.
Why Use Bits as a Standard of Measure
The concept of using bits as Bitcoin’s main denominator originated from a proposal published on the Bitcoin subreddit. This standard argued that owning one whole Bitcoin is too expensive while sats are too small to buy due Bitcoin dust limit – the minimum limit of a valid Bitcoin transaction – unless on the Lightning Network.
Moreover, a majority of standard financial software is limited to parsing only two decimal places, posing a significant challenge to Bitcoin interoperability. Since bits can be expressed to two decimal places, such as 99.99 bits, the standard enhances Bitcoin’s usability and compatibility in common financial applications, including bookkeeping and accounting.
It is also easier to calculate Bitcoin balances in bits as compared to fractions of a Bitcoin. For example, instead of crypto wallets and exchanges displaying a user’s balance or transactions as 0.000005473 BTC, it is more straightforward and intuitive to specify the amount as 5473 bits.
In addition, subdividing Bitcoin is essential in integrating Bitcoin into daily financial transactions, such as paying for a service, buying a coffee, or tipping an attendant. By facilitating microtransactions, this standard helps expand Bitcoin’s use cases beyond pure speculation and large asset transfers.