Why is it necessary to make coins in the form of fractions in Bitcoin?

Started by Buffalos, Feb 28, 2023, 03:49 AM

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BuffalosTopic starter

What was the rationale behind producing fractional coins?

In other words, why were the denominations of 0.00000005, 0.00000050, and 0.00000500 chosen instead of whole numbers like 5, 50, and 500?


To clarify, the denominations of "0.00000005, 0.00000050, 0.00000500" do not represent individual coins. Rather, they are fractional parts of one bitcoin. Interestingly, there is no physical coin for 1 bitcoin.

Due to bitcoin's growing value (thanks to deflation), one bitcoin now represents a significant amount of money. As a result, smaller amounts must be broken down into fractions in order to facilitate transactions. While using fractional denominations may be more complicated, it allows for greater flexibility when conducting transactions and enables people to buy, sell, and trade in smaller increments.

Emily Evans

Given the limited supply of bitcoin, it may be necessary to find a way to combat deflation. One possible solution is to use bitcoin shares instead of BTC:

There is currently ongoing discussion about what to call the various denominations of bitcoin shares. The leading contenders are:

1 BTC = 1 Bitcoin
0.01 BTC = 1 cBTC = 1 cent-bitcoin (also known as bitcent)
0.001 BTC = 1 mBTC = 1 milli-bitcoin (also called mbit or millibit)
0.000001 BTC = 1 µBTC = 1 micro-bitcoin (also called yubit or microbit)

These abbreviations follow the SI system for thousandths, millionths, and billionths. While 0.01 BTC (or 1 cBTC) is a popular choice, some people argue that using this denomination is unhelpful while the bitcoin economy is still in its early stages. Furthermore, it's worth noting that 0.01 BTC doesn't equate to 0.01 dollars or euros, and so we shouldn't refer to it as a "cent," a "penny," or a "pence." As a global currency, it deserves its own recognition. There is, however, one exception: the smallest part of bitcoin is known as a "satoshi," equal to 0.00000001 BTC, named after the pseudonymous creator of bitcoin, Satoshi Nakamoto.


While it would technically be feasible to create large amounts of money in the early stages of bitcoin by multiplying all the bitcoin numbers by billions, doing so would ultimately result in a problematic exchange rate.

Specifically, the value of bitcoin in relation to the dollar would become exceedingly high, which could be detrimental to its adoption and use as a currency. Furthermore, a higher exchange rate would discourage people from spending their bitcoin, instead opting to hold onto it as an investment or store of value.

Overall, while the idea of creating more bitcoin may seem appealing in theory, it could ultimately undermine the utility and stability of bitcoin as a currency in the long run.


The rationale behind producing fractional coins with denominations like 0.00000005, 0.00000050, and 0.00000500 instead of whole numbers like 5, 50, and 500 is largely based on the need for precision and flexibility in various financial systems.

Fractional coins allow for finer granularity when dealing with small amounts of currency, especially in electronic transactions where values can be extremely small. Whole numbers like 5, 50, and 500 might lack the required level of precision for certain types of transactions or calculations.

Additionally, fractional coins can accommodate various pricing models and economic systems. For example, in some cases, prices may be calculated based on fractions of a currency unit, such as in stock markets where fractional shares are traded. Fractional coins can also facilitate microtransactions, where small amounts of currency can be exchanged for digital goods, services, or content.

Another factor that influenced the choice of producing fractional coins is inflation and the fluctuating value of currencies. Inflation erodes the purchasing power of money over time, which means that the value of a currency unit decreases. By introducing fractional coins, it becomes easier to handle transactions involving smaller amounts of money without having to constantly introduce new, smaller denominations as the value of the currency decreases.

Fractional coins can also help in preventing hoarding or holding onto large amounts of physical currency. When denominations like 5, 50, or 500 are used, it becomes easier for individuals or organizations to accumulate and stockpile large sums of money, which can have negative effects on the economy. The use of smaller fractional denominations encourages more frequent and widespread circulation of currency, promoting economic activity.

Furthermore, fractional coins allow for smoother transactions and pricing strategies in industries and sectors where precision matters. For example, in financial markets, prices are often quoted with several decimal places to reflect even small fluctuations. Having fractional coins makes it possible to transact efficiently within these markets and accurately represent asset values.

more points about the rationale behind producing fractional coins:

1. Convenience: Fractional coins make it easier for individuals to make small transactions without needing to carry around large quantities of higher denomination coins or bills. For example, if you only need to pay a few cents for a small item, using a fraction of a currency unit is more practical and efficient.

2. International trade: Fractional coins help facilitate international trade where different currencies may have different values. Having smaller denominations allows for more precise conversions and calculations when dealing with exchange rates, tariffs, and other financial aspects of international commerce.

3. Psychological factors: The use of fractional coins can also have psychological effects on consumers. Pricing goods or services with smaller fractions, such as $0.99 instead of $1.00, can create the perception of a better deal or lower cost, even though the difference is minimal. This pricing strategy, known as "psychological pricing," capitalizes on the psychological tendency to perceive prices ending in fractions as more affordable.

4. Digital transactions: With the rise of electronic payment systems and digital currencies, fractional coins have become even more essential. In digital transactions, including cryptocurrency transactions, fractions allow for precise and accurate value transfers down to several decimal places, enabling seamless transactions in the digital realm.

Overall, the production of fractional coins serves various purposes such as convenience, international trade, psychological pricing, and facilitating digital transactions. These reasons collectively contribute to the rationale behind their existence in today's financial systems.