The smallest monetary unit of bitcoin. It is used as a unit of value in every bitcoin transaction recorded on the blockchain. Developers chose this name as a homage to the original inventor and founder of bitcoin: Satoshi Nakamoto. It takes 100 million satoshis to make one bitcoin.
It exists to facilitate transactions at lower prices as Bitcoin increases its value and also the account for transaction fees. All amounts in the block are expressed in satoshi and then converted in bitcoin at the time of display.
There are a total of four echelons of value within bitcoin today:
bitcoin (BTC) = 100,000,000 satoshis
millibitcoin (BTC) = 100,000 satoshis
microbitcoins (µBTC) = 100 satoshis
satoshi = 1 satoshi
Satoshis are already used to express transaction costs. When a user posts a transaction on the network for miners to process, he also offers a reward. Miners are allowed to prioritize those transactions that yield the highest return. Therefore they look for the highest “satoshi per byte” vale. Such a value is calculated by taking the reward amount in satoshi offered by the user and divide it by the number of bytes contained in that specific transaction.
From a practical viewpoint, millibitcoin and microbitcoin are just labels to identify fractions of a bitcoin. Being a digital currency, bitcoin does not have “smaller coins” like cents, dimes, or pennies. Every transaction amount is always expressed in satoshis and then converted into bitcoins for display. Yet these echelons will be helpful to express smaller decimal values in the future.
Wallets can be programmed to display values in any format. In the future, fractional echelons will help cope with the future shortage of bitcoins.
Prices for commodities will be expressed using intermediate echelons and more tiers are likely to emerge, with the satoshi remaining the smallest possible fraction of a bitcoin.