This article is the continuation of How Bitcoin Works in Simple Terms
Sometimes, when we say Bitcoin, it refers collectively to the entire currency system. However, the term ‘Bitcoin’ itself is the unit of this Cryptocurrency. The value of Bitcoin is dependent on the market like any other currency. As the demand for a currency increases and the supply goes down, its value will increase. Bitcoin’s system was designed to increase the value of its currency with time as the total supply is capped at 21 million Bitcoins. To make the currency usable when the value increases, there is a necessity to break it down into smaller units. By doing this, it still will be able to make regular purchases on the internet even when the value of a single Bitcoin goes up by thousands of dollars.
These sub-divisions ranges from 1 Bitcoin to a hundred millionth of a Bitcoin (0.00000001 Bitcoin). This is the smallest unit of a Bitcoin and is referred to as ‘Satoshi’ in honour of Satoshi Nakamoto. The second smallest Bitcoin unit is known as ‘Finney’, in honour of Hal Finney, a computer scientist who received the first Bitcoin transaction from Satoshi Nakamoto. One ‘Finney’ is equal to 10 Satoshis and 0.0000001 BTC. With these tiniest denominations, goods can be priced in Bitcoins with extreme accuracy and consumers can easily pay them in exact change. For example, a fast-food centre can price a burger at 0.00136537 Bitcoins, or 136,537 Satoshis.
Rather than printing the term “Bitcoins” on price tags, merchants often use the abbreviated currency code BTC or XBT. 5 Bitcoins are written as 5 BTC or 5 XBT. Regardless of the fact that the ‘BTC’ abbreviation has been widely used since the beginning of Bitcoin’s development, recently most of the merchants and websites have started using ‘XBT’ as it conforms better to certain international naming standards. The standard for currency codes uses the first character in the code to refer to the country issuing the currency. Since Bitcoin doesn’t belong to any government, the standard suggests that its name should start with X, hence XBT. As the value of Bitcoins has largely appreciated from its inception, it has become usual to work with thousandths or even millionths of Bitcoins. One-thousandth of a BTC is known as milliBitcoins (mBTC), and one-millionth of BTC is known as microBitcoins (μBTC).
Picture Credits– www.cryps.info
Cryptonizers consider mBTC as Bitcoin’s standard unit of purchase in most of the cases. One mBTC is around 6.8941 USD as of today. This is because mBTC is small enough to be used as a unit of exchange and big enough to actually be worth something. BTC’s value being thousands of US dollars is too big to use for most of the online transactions, and μBTC is not worth enough to be real tender for most of the purchases. The current value of μBTC is equal to 0.0071 USD.
It is very important for crypto traders and investors to familiarize themselves with these units and denominations in order not to get lost while reading any of the charts online, as most of the exchanges and trading platforms use these acronyms to represent the Bitcoin currency.