Is 8 decimals enough?

As we now know, bitcoins can also be spent in parts. It is not necessary to always spend a whole bitcoin, but 0.0025 or even 0.00000001 is also possible. A bitcoin is divisible to 8 decimal places, but is that enough?

The promise of microtransactions

During the early days of bitcoin until about five years ago, when a bitcoin was still worth less than 100, one of the promises of bitcoin was the ability to make microtransactions. Now that the price of a bitcoin fluctuates around 10,000 and the fees are no longer negligible as they once were, making microtransactions via a regular bitcoin transaction is no longer feasible. The Lightning Network should make micropayments possible again. But what do we mean by a microtransaction or micropayment? There is actually no single exact definition that is widely used.

For example, one could say that sending a single eurocent (0.01) is a micropayment, but there are scenarios where sending an even smaller amount is desirable. Consider, for example, streaming video where payment is made per second, reading an online article for a fraction of a cent so that your web page no longer needs to be cluttered with advertisements, or data exchange between machines that pay each other directly without human intervention. . Payments of amounts well below the euro cent will have to be possible for this purpose.

So let’s assume what is seen in the metric system as a micro (????) transaction, ie, a Euro (0.000001). The smallest sendable bitcoin unit is called a “satoshi”, and is 0.00000001 bitcoin. So each bitcoin consists of 100 million satoshis. The total supply of satoshis is therefore 2,100,000,000,000,000, or 2.1 quadrillion. At the moment the value of 1 satoshi is about 0.000087, which is already more than one ????Euro.

To send a ????Euro it should be possible to send 0.01 satoshi. At the moment, bitcoin does not support micropayments. We are already calculating with fairly small amounts and we will probably get a long way with that. But what if the price of a bitcoin rises even further? Then we would quickly run into the fact that making really small payments is no longer possible, not even via the Lightning Network.

No problem for normal use

From old forum posts it can be concluded that this problem was thought about when designing bitcoin. The choice was then made to go for 8 decimals. Probably partly due to software technical reasons, but also due to advancing understanding of what should be possible with bitcoin if it were to be used as a global currency.

M1 : social money supply, comprising currency (coins and banknotes), insofar as it is in circulation outside banks, and book money, including electronic money. M1 also contains immediately available savings balances.

Ray Dillinger indicates in the forum post that he had a discussion about this with Satoshi Nakamoto and Hal Finney. The amount of money that is actively circulating worldwide within M1, M2 and M3 has been ignored. They came to the conclusion that even if the whole world switched to bitcoin and the entire amount of money within M1 were divided among the available 21 million bitcoins, the smallest unit of bitcoin (“satoshi”) would still be worth slightly less. than a penny. No problem, for daily use.

Scale down

However, if we want to create applications as described earlier, it must really be possible to make payments of fractions of cents. So once again creative solutions are needed to meet the wishes of the future, assuming that bitcoin will be used more and more widely. Fortunately, the developers of the Lightning Network are thinking ahead and are setting up the software in such a way that micropayments will be possible.

Milli satoshis

When we look into the source code of one of the Lightning Network implementations, we find that the Lightning Network already works with “milli-satoshis” by default. Milli-satoshis are the standard unit of calculation used in Lightning payments. A milli-satoshi is 1/1000th of a satoshi, so each satoshi consists of 1000 milli-satoshis. Because milli-satoshis are not supported for ordinary bitcoin transactions, milli-satoshis are only used within the transactions on the Lightning Network.

When settling Lightning payments through a regular bitcoin transaction, the value of the payment is rounded down to the nearest satoshi. So a payment of 4.4 satoshi is rounded to a payment of 4 satoshi, but a payment of 4.999 satoshi is also rounded to 4 satoshi. This is fair, because technically the recipient doesn’t lose any bitcoins on it; Receiving less than a satoshi was impossible anyway. In practice, the idea is that a channel remains open for a long time to facilitate milli-satoshi payments and save for settlement on the blockchain at some point in the future.

Probabilistic Payments

Another interesting approach is probabilistic payments, explained here by Tadge Dryja. Probabilistic payments are a solution to the fact that making a payment of 0.5 satoshi is not possible. What is possible is making a payment of 1 satoshi with a chance of 0.5 that the payment will actually go through. But that’s gambling, right? No not really. The idea behind micropayments is not to make a small payment every now and then, but thousands, millions or perhaps billions of transactions every day between all kinds of services and machines. When we talk about such large numbers, the payments will turn out statistically fair. Making one million trades, each for 1 satoshi with a 0.5 chance of success, will approach the average of 50% successful trades. Thus, 500,000 satoshi is ultimately paid – the same as a million transactions of 0.5 satoshi.

Prepared for the future

We do not yet know what exactly will be needed to facilitate microtransactions in the future. This completely depends on what the price of bitcoin is doing. We hope (and assume) that the price will stabilize at some point in the future. But whether that will happen with a value of 100, where these solutions are actually superfluous, or with a value of 1,000,000, no one knows. By thinking ahead, we are at least prepared for every scenario, and we can start building all kinds of applications for the future.

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