What Is A Satoshi?
"Stacking Sats" is a common phrase in the crypto community that refers to purchasing Bitcoin as a long term investment, but what is a "Sat"? A "Satoshi", or simply "Sat" is a unit of account that is equivalent to 1 / 100,000,000 Bitcoin. In this article, I'll cover the basics of what a Satoshi is, why such a small denomination is important, and compare the concept of a "Satoshi" to traditional currency divisions such as cents.
Importance of Divisibility
One of the key characteristics of money is that it is divisible. Suppose for a second that that Bitcoin was not divisible and that it was only possible to transfer one full Bitcoin. This would make it nearly impossible for the vast majority of people to invest in Bitcoin because they simply wouldn't be able to come up with $13,000 to purchase the full Bitcoin.
It would also limit Bitcoin's role in commerce as merchants would have to offer bundles of merchandise that totaled exactly $13,000. It simply wouldn't be possible to buy a computer for .06 BTC. If BTC wasn't divisible, you'd need to either buy 17 computers or be content with losing a full $13,000 worth of BTC for an $800 computer.
Thankfully, the concept of divisibility solves this issue. Instead of investing (or paying with) a full Bitcoin, we can make fractional transactions. This is the same as how the USD is divided into Dollars and Cents, but there is a small difference. The smallest denomination of a Dollar is 1 / 100. But a Bitcoin can be divided into 1 / 100,000,000. This means that Bitcoin can be used in transactions with much smaller values than USD can.
Other cryptocurrencies have developed this concept further by using very small denominations to allow "streams of payments" in which users are charged exactly for the amount of services that they use as they use them. For example, instead of paying $5 per month for a VPN, I could pay for exactly the amount of VPN data that I need when I need it through the Orchid protocol. Especially as we move into the "Internet of Things" era, I predict that the especially small denominations of cryptocurrency (that started with the Satoshi) will play an increasingly important role in enabling real-time payments for things such as data, electricity, and so on.
In conclusion, a "Satoshi" or "Sat" for short is simply a term used to describe the smallest denomination of Bitcoin. It is similar to the "Cent" used to describe the smallest divisible unit of the US Dollar or the wei used to describe the smallest unit of Ether. Having such a small unit of account is important because it allows for micro-transactions and also allows people to invest in fractional amounts of Bitcoin.
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