Satoshis allow people who want to start buying or trading bitcoin to join the market without having to make a large investment and purchase a whole coin.
The unit has been named after the pseudonymous creator of Bitcoin, Satoshi Nakamoto. Even though he did not name the satoshi himself, he was the one who determined its value. The idea behind creating this unit is to make more units to trade with, as there is a finite amount of bitcoin that can be created.
One bitcoin can be divided into one hundred million (100,000,000) satoshis. This unit is very useful for smaller transactions and paying fees, especially as the price of Bitcoin increases.
SATOSHI ESSENTIALS
- The smallest unit of bitcoin.
- One hundred million satoshis equals one bitcoin.
- Can be used for buying, selling and trading small amounts of BTC.
- Mainly used for paying transaction fees.
What are satoshis used for?
One satoshi is the smallest possible unit of bitcoin. But because the price of one bitcoin is now quite high, satoshis are required to express more precise values. They can be used for buying, selling and sending tiny amounts of bitcoin.
Satoshis are mostly used for paying transaction fees to crypto miners. The source code of the Bitcoin blockchain also denominates all amounts in satoshi before they are converted to bitcoin for display. This allows the transaction records to be more accurate. Denominating transactions in satoshis instead of bitcoins also makes transactions smaller (in bytes), because working with a large number of decimal points requires a lot more space.
The smallest amount of bitcoin that can be sent in a transaction is actually 547 satoshis or 0.00000547 BTC. Smaller amounts are considered spam by the client software. So transactions smaller than 547 satoshis are declined and are not added to the blockchain.
Why do we need satoshis?
Satoshis retain the usability of BTC for everyday purposes in light of bitcoin’s massive increase in value since its inception. Without a subunit, the uses of BTC would be limited as the price for a single coin increased by thousands of dollars. But with satoshis, bitcoin can still be used to make smaller trades and transaction payments.
Bitcoin is limited by max supply, meaning that the number of bitcoins that can ever be created cannot exceed 21 million. When that number is reached, no more mining rewards will be given out to miners. But since bitcoins can be broken down, this gives us many more units to operate with – 2.1 quadrillion satoshis. For comparison, this number is much higher than the number of USD cents in circulation, and indeed, the number of USD cents that can ever be created, because there simply is not enough zinc and copper on Earth to make them.
Because you can transact with such a small amount of bitcoin, you don't have to buy a whole coin to own bitcoin. Rather, you can purchase a fraction of a bitcoin with a small investment.