Thanks for that post.
As we become more familiar with bitcoin – and as the price of BTC/USD (one bitcoin priced in dollars) goes ever higher – we’ll get more comfortable with the fractional divisions of bitcoin.
In theory, those fractional divisions of bitcoin are no more complicated than the fractional divisions of the dollar: quarters, dimes, nickels and pennies. But, the numbers themselves are a bit daunting.
Here are the fractional divisions converted to USD, [B]using a recent bitcoin price of BTC/USD = 2000:[/B]
$0.002 --- 2/10 of 1¢
$0.00002 --- 2/1000 of 1¢
[B][U]Why would bitcoin need to be divided into such tiny fractions?[/U][/B]
The answer lies in the [I][B]bitcoin protocol[/B][/I] – the original scheme devised for bitcoin by “Satoshi Nakamoto” (whoever he/they might be). The scheme is such that the financial incentive to “mine” bitcoin will diminish over time, until that incentive will effectively disappear when there are 21 million bitcoin in existence.
See — Bitcoin - Wikipedia
[B][U]A whole bunch of [I]if’s[/I][/U][/B]:
If the protocol plays out as designed, 21 million will be the final worldwide stock of bitcoin.
If bitcoin becomes established as a permanent (alternative) world currency, the value of each individual bitcoin will have to become enormous. Currently (as of January 2016), if all the money in circulation in the world (bank notes, coins, and bank deposits) were to be converted into USD, the total would be more than $80 trillion ($80,000,000,000,000.) That figure does not include the leveraged value of derivatives. See — Here’s all the money in the world, in one chart - MarketWatch
If we envision a bitcoin system in which there are enough bitcoin in existence to substitute for, say, 5% of the world’s money supply, then the world would need $4 trillion worth of bitcoin, given today’s market metrics. If the total stock of bitcoin is capped (by the bitcoin protocol) at 21 million bitcoin, then the price of BTC/USD will have to soar to $190,000 per bitcoin.
If 1 BTC = $190,000 —
— then 1 mBTC = $190, 1 bit (1 µBTC) = $0.19, and 1 satoshi = $0.0019 (19/100 of 1¢).
This thought-experiment does not account for the time factor. We are “equating” the ultimate stock of bitcoin [I]at some time in the future[/I] to an assumed percentage (5%) of [I]today’s[/I] worldwide stock of conventional currencies. But, the ultimate stock of bitcoin (21 million BTC in existence) is not projected (by the bitcoin protocol) to be reached before [I]the year 2140.[/I] A lot can happen in the next 123 years.
Suppose bitcoin gains traction; suppose its increasing use requires increased “mining”; suppose interest and confidence in bitcoin drives its price higher until the [B]bit[/B] achieves “parity” with the U.S. dollar; and suppose that all of this happens long before the year 2140.
In other words, in this [I]very[/I] hypothetical scenario, the ultimate worldwide stock of bitcoin would reach 21 million well ahead of schedule, and [B]1 bit would equal $1.[/B] Furthermore, the total value of bitcoin in existence would be slightly greater than 26% of the world’s money in circulation (based on the January 2016 money figures used in the example above), not 5% as supposed in that example.
[B][I]If[/I][/B] all of that were to occur, then all the cumbersome numbers in the table, above, would become very simple and easy to remember —
1 satoshi (we need a symbol for this!) – would be $0.01 (1¢)
1 bit (one µBTC) = 100 satoshi – would be $1
1 milli-bitcoin (one mBTC, should be renamed one kbit) = 1,000 bit – would be $1,000
1 bitcoin (BTC, or XBT*) = 1,000,000 bit – would be $1,000,000
Maybe those are the prices Satoshi Nakamoto had in mind from the beginning.
[B]*[/B] The following info was copied-and-pasted from – [B][I]bitcoin wiki[/I][/B]
The ISO 4217 currency code for Bitcoin is XBT. However, at the moment it is an unofficial code according to the ISO 4217 standard. The unit name BTC is also commonly used to represent one bitcoin, but it violates ISO 4217 because it begins with “BT”, the country code of Bhutan. Bhutan does not actually use the code BTC for any currency, and XBT has not yet defined which unit it represents (just that it represents some unit of bitcoin), so the Bitcoin community is likely to continue using mainly BTC as a unit name and currency code for some time.
A formal application by the Financial Standards Working Group of the Bitcoin Foundation is nearing completion [still true?]. This application would request ISO 4217 standard to support XBT.