(BTC) has critics that would argue it cannot be used as a currency. The usual points made are that it has no tangible asset, no intrinsic value and no practical use case. It was originally intended for direct peer-to-peer payment (P2P) systems, which allow users to be their own source of funding without the need for a middleman. It also does not require a third party to process the transactions, so payments are direct between two parties. Since then it has evolved more into “digital gold”, as a store of value.
Perhaps we can point out that Bitcoin can be considered both a digital currency and a new type of asset class that is as valuable as gold. An important feature that makes it usable as a currency is its divisibility. Currency (i.e. fiat currency) is what we use as money to make payments. A currency that is divisible makes it a good medium of exchange for any amount of goods or services due to precision
The Divisibility Of The Dollar
Fiat currency like the US Dollar (USD) is divisible into smaller denominations that can be spent. A dollar is divisible into cents that use 2 decimal places.
1 Penny = $0.01 = 1 cent
1 Nickel = $0.05 = 5 cents
1 Dime = $0.10 = 10 cents
1 Quarter = $0.25 = 25 cents
The smallest unit of a Dollar is a penny, which is worth one-hundredth of a Dollar. Anyone who spends a Dollar can get change back in fractions of the currency that are in smaller denominations. If you purchase a candy bar worth $1.50 and you pay with a $5.00 bill, you will receive $3.50 in change. The cashier would give you three $1 bills and two quarters. You can also receive your change all in pennies, but that would be a lot to fit in your pockets. Those are all possible and are legal for spending as currency.
The Divisibility Of Bitcoin
Bitcoin is also divisible into fractions of smaller denominations. In sense, Bitcoin is more divisible than fiat currency. The currency can be denominated into intermediate units using up to 8 decimal places. These are for Bitcoin denominations that can be used for smaller micro-payments.
1 Satoshi = 0.00000001 BTC = 1 SAT
1 Microbit = 0.00000100 BTC = 1 µBTC
1 Millibit = 0.00100000 BTC = 1 mBTC
1 Centibit = 0.01000000 BTC = 1 cBTC
1 Decibit = 0.10000000 BTC = 1 dBTC
The smallest unit of accounting in Bitcoin is the , also called SAT. 1 BTC is thus equivalent to 100,000,000 SATs (100 x 10^6). 1 SAT is equivalent to 1 x 10^-8 BTC. Satoshis are used by the Bitcoin protocol as units for smaller calculations. In order to make more precise computation for payments, a currency must have smaller units of denomination. Bitcoin is divisible down to 8 decimal places denominated in satoshis.
Although there are intermediate units between a SAT and BTC (e.g. mBTC), they are not often used. Satoshis are more commonly used. If you have less than 1 BTC, it is going to be denominated in SAT. That would mean if you have $10 in BTC, it would be worth 0.xxxxx SATs (Depending on the value of BTC to USD).
Bitcoin As A Currency
Since Bitcoin can be divisible, it makes it useful as a form of currency. Bitcoin is also a type of cryptocurrency, that is used for direct P2P payments in a public decentralized network protected by cryptographic techniques. It differs from payment networks like VISA and Mastercard which are centralized and permissioned systems. On the Bitcoin network, users do not have to register a membership to make payments or need permission from a third party institution like a bank to send money.
Bitcoin is actually much better for transactions than gold. The problem with gold is it does not have the versatility of BTC. The reason merchants cannot accept gold for payment is due to the difficulty of producing the quantity of gold equivalent to the value of a product or service. If a good is worth $2,000 and you want to buy it in gold, you would have to produce the precise amount of gold based on its weight. Think about how difficult and time consuming that can be. You have to get your physical gold deposit and then take a piece of the metal worth its weight in USD. You can argue that certain markets can just issue a bond for payment, but there is a settlement period to deal with. Using a smartphone app with a Bitcoin , a payment can be made in SATs with faster settlement.
Here is another situation with the problem of using gold as currency for payment. It just so happens you have a bar of gold that you carry around, that is worth about $50,000 let us say. You go to an appliance store that does accept gold for payments. You want to buy something worth $13,000, but you have a whole bar of gold worth $50K. You can pay with the whole entire bar and get change worth $37,000 of gold. I suppose you would need to have some goldsmith present at the store to cut up the gold and measure it for its value. It sounds all good, but this is not realistic at all. You can say that it is also not realistic to go to a store and pay for something with BTC, but the point is if you could pay with BTC it would be much easier and faster than with gold.
Unlike fiat currency, Bitcoin has a hard cap on its total supply. There can only be a total of 21 Million BTC in total circulation. It only makes sense that BTC is divisible because not everyone in the world can own 1 BTC. If BTC were not divisible, then it cannot really be used for payments since you would need change every time you try to spend 1 BTC for low value commodities (e.g. cup of coffee). If the value of 1 BTC is $1 Million, it certainly does not make much sense to spend it for just a cup of coffee. You need smaller denominations of BTC. That is actually one reason why some believe Bitcoiin is like digital gold since it is a valuable type of asset. At the same time it can be used as currency due to its divisibility.
Final Remarks
Bitcoin’s divisibility also allows for easy conversion to fiat currency. That means you can convert any amount of BTC in SAT to USD and vice versa. Users can convert at digital exchanges or by using a Bitcoin ATM (BTM). A BTM allows users to withdraw from Bitcoin to cash or deposit cash to buy Bitcoin. It doesn’t matter if it is less than 1 BTC since Bitcoin can be denominated to smaller units that can convert precisely. It is for that reason that people can buy fractions of Bitcoin.
Divisibility of Bitcoin makes it possible for everyone to own BTC, even if it is just a fraction of it. Consider if the price of BTC (per coin) were to reach $100 Million, then the price of 1 SAT will equal to 1 USD.
100,000,000 SAT / BTC * 1 BTC / 100,000,000 USD = 1 SAT / USD
Despite its hard cap limit of 21 Million BTC, it still allows more of the currency to be distributed. This is due its divisibility property. It is also digital and electronic (i.e. virtual currency) so you don't have to worry whether the change fits in your pocket.
