The idea of “buying a bitcoin” might seem out of reach if you know what the price of bitcoin is lately, but the good news is that you don’t need to buy an entire bitcoin to buy this cryptocurrency.
That said, it’s important to note that there is a limit to how much bitcoins can be divided. This article will explain what this limit is and why it exists.
This article will also clear up a common misconception of many beginners comparing unit bitcoin prices with those of alternative cryptocurrencies (also known as altcoins). By the end of this article you should have a good understanding of why there is nothing wrong with buying a fraction of bitcoin.
Understanding Bitcoin Units
The smallest unit of bitcoin is a satoshi, named after the inventor of bitcoin. Each bitcoin consists of one hundred million satoshi (i.e. 1 satoshi = 0.000000001 bitcoins). This is in stark contrast to something like the US dollar, which essentially drops to only $0.01.
However, despite the fact that bitcoins can technically be divided into one hundred million satoshi, the smallest standard bitcoin transaction allowed is 546 satoshi. This limit is not enforced by the bitcoin protocol itself, but rather is put in place by most bitcoin mining software and cryptocurrency wallets. The reasoning behind this lower bound on bitcoin transactions is the result of the fees that are typically associated with bitcoin transactions. For example, it is not worth buying less than 0.00004000 bitcoins at a time ($0.40 USD at the time of writing), because transaction fees will usually be around 200 satoshis (0.00000200 bitcoins). So, buying less than 0.00004000 bitcoins will result in your transaction fees being worth more than 5% of your purchase.
You may come across the concept of a millisatoshi when you read about bitcoin. One millisatoshi is 1/1000 of a satoshi, or 0.000000000001 bitcoin. This bitcoin unit exists only on the bitcoin lightning network, which is a payment network built on bitcoin that allows for faster and cheaper payments. Millisatoshi do not exist on the bitcoin network itself.
It’s okay to own a fraction of Bitcoin
It is common in the bitcoin world for beginners to choose to buy altcoins instead of bitcoin when they realize that they can afford more altcoins than they can only afford a fraction of bitcoin. However, the motivation behind this choice is often based on the following misconceptions:
Misconception #1: The psychological desire to own a lot of something.
Many altcoins have a much lower price than bitcoin simply because there are many more units of those altcoins. For example, there will only ever be 21 million bitcoins, but there may be 21 billion altcoins you’re looking to buy. If the total value of all bitcoins were $100 billion, then each coin would be worth about $5,000, and if the total value of all coins of a specific altcoin was $100 billion, then each coin would cost less than $5. The fact that there are many more (cheaper) altcoins does not affect its ability to increase in value.
Misconception #2: The assumption that the low unit cost of altcoins means that they have more “room to grow” and can provide better returns than bitcoin.
It doesn’t matter if you buy 1,000 units of an altcoin for $1 each, or a tenth of a bitcoin for $1,000. Either way, you’ve spent $1,000, and if the price of cryptocurrency rises by 20%, you’ll make a profit of $200 in either scenario.
It is important to keep these misconceptions in mind when deciding whether to buy bitcoin or altcoins. Owning a fraction of a bitcoin doesn’t make your purchase less valuable than if you were to spend the same amount on one or more altcoins. The value of your purchase depends on the profitability and trajectory of the respective cryptocurrency, not the number of units the cryptocurrency is divided into.
conclusion
Bitcoin is divided into many smaller units called satoshi, which make it easy to buy only a fraction of bitcoin. However, keep in mind that there is a lower limit to bitcoin transactions imposed by most cryptocurrency wallets. Overall, when making the decision to buy bitcoin or other cryptocurrencies, remember that the number of coins in existence can affect the value of each coin, but it doesn’t affect the value or potential growth of your cryptocurrency purchase.
