Idea: Bitcoin Denominations

[Elliander]

I had this idea for a while: What if, instead of using entirely separate kinds of alt coins for specific sized transactions, a special kind of alt coin were created which would act as denominations of Bitcoin?

1 bit equals 100 Satoshis or 0.000001 BTC, but these are just words. They still transfer the same way. If I want to send a Satoshi to someone I really can't because the transaction fee of .0001 Bitcoin exceeds that. Even if you could it would likely congest the network to send many transactions like this.

What if "bits" were an actual coin? Instead of being created via mining, you "destroyed" an amount of bitcoin to create an equivalent number of bits (and vice versa, so no new coins are really being created keeping the value intact). From there these bits would be optimized as limited size transactions which might work better on computer hardware than dedicated mining hardware. With a smaller data size more transactions could be processed at once which would realistically allow for a lower fee and thus allow for smaller amounts to be sent. This could be done easily behind the scenes. For example, attempting to send anything below a certain threshold would trigger it to be sent as the most appropriate denomination.

If, for example, I send 100 Satoshis it would send as .01 Bit which would occupy 4 digits. The transaction fee could be 0.001 Bits, or a single Satoshi. It would only be possible to send a transaction as a Bit if it was 0.00009999 BTC or smaller.

0.00009999 BTC = 99.99 Bits = 9999 Satoshi.

Above that is another denomination of 6 digits in size: Millibitcoin. It's 6 digits in size because it must include everything of a lower denomination or risk creating problems with a single transaction trying to verify in multiple ways at once. So if I want to send 10,000 Satoshi (or 0.0001 BTC) it would have to be sent as a single mBTC transaction of .01 mBTC. (Not part mBTC and part Bit) An mBTC transaction would include transactions in size smaller than 0.01 BTC and larger than 0.00009999 BTC.

Above that, the normal Bitcoin Protocol could take over for transactions .01 BTC and larger with the normal fees.

The point is that it requires less memory to send a 4 or 6 digit number which means that more transactions could be processed at once. More importantly, it would facilitate a decentralized approach to micro transactions and prepare us for the day when Bitcoin is worth enough for a single Bit to be worth enough to buy a cup of coffee. (which it would be if Bitcoin increased in value 100 fold)

Of course, if I am wrong about any of my assumptions please correct me. Assuming my assumptions are at least mostly correct the only real problem I see is that since the miners would be working on transaction fees only (not minting any coins) it might be a challenge getting enough hardware online unless the existing miners would be set up to process these smaller sized transactions in multiples. If, for example, a miner can process enough smaller transactions at once to equal the time it takes to verify a larger transaction they would get the same reward for the time spent which would make them happy.

Any thoughts? Would it work? Would it not work? Why or why not? As far as the exact conversions go, that's just a general idea based on the names that exist. The overall idea is to use denominations to streamline transaction processing.

EDIT: This idea does not propose removing any Bitcoin from circulation.

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[mymenace]

Had this same thought yesterday

1 satoshi = 1 bit and 10000000 bits = 1 bitcoin

as well the bit is another altcoin that is tied to the blockchain and transferable to bitcoin in equal value

I never had the patience to work it out completely but it is a similar idea, I like where you are going with this

really do not like the term satoshi but i suppose it does have a ring to it, 100 satoshi for a cup of coffee as opposed to 100 bits for a cup of coffee

 using the word bits is smaller and easier

+ 1

[hyphymikey]

Bitcoin price fluctuates so much that I don't even look at denominations. When I am sending or spending coins on something usually it is priced in dollars, and has some widget that shows the current price in bitcoin as well. I usually just whip out my phone, open my blockchain app and scan the QR code, never looking or typing in some 8 digit number and trying to properly place the decimal. When I am sending money to friends I usually just type in 5 dollars, and whoosh, there goes 5 dollars in bitcoin straight to my friend. I am never like hey I am about to send you 500 millibits, because in 2 years 500 millibits might be 10,000 USD. So I am not going to get used to terms just yet.

If and when bitcoin becomes the main currency, the price will be so high that nobody will be sending anyone one whole bitcoin, and I'm sure by then we will have 100 ways to say denominations of bitcoin just like we do now with fiat money. By then, I bet 1 bit will be 1 satoshi, just like 1 penny is today, so 100 bits would be like saying 1 dollar and so on. So 600 bits for a starbucks coffee for example. Sending bits would be easy, thats just software, so my app would default to sending satoshis or bits, so I just type in 600 and whoosh, I just paid for my coffee.

As far as mining goes, thats way to much to change for such a small gain on the mining computations side. Its already configured properly to work down to the satoshi with no problem. The software on the user side would turn my 600 bits into .00000 whatever it is, to be properly processed by miners and the blockchain.

[franky1]

What if "bits" were an actual coin? Instead of being created via mining, you "destroyed" an amount of bitcoin to create an equivalent number of bits

no to this part.

any concept involving destroying bitcoins is foolish.

.. but..

there is nothing stopping an altcoin that has a stable exchange rate from continuing to be traded alongside bitcoins(and its multiple denominations) if people find it easier to handle the alt for small purchases and bitcoins for large purchases.

bits is a term being adopted by many to represent 100 satoshi's of a bitcoin, and if any altcoin was to find a way to be at a stagnant/fixed exchange rate for bits, then people are more than free to exchange between the two at that fixed rate and use that alt.... well as long as merchants accept it.

i think this will probably spark peoples imaginations to attempt to get dogecoin (due to popularity) to be this fixed/stagnant exchangeable coin for 100sats.. and maybe eventually litecoin for exchangeable value for milibitcoin...... who knows..

either way 'destroying' denominations of bitcoin (permanent removal of small amounts of bitcoin from circulation) is the ludicrous part of your idea

[Elliander]

Had this same thought yesterday

1 satoshi = 1 bit and 10000000 bits = 1 bitcoin

as well the bit is another altcoin that is tied to the blockchain and transferable to bitcoin in equal value

I never had the patience to work it out completely but it is a similar idea, I like where you are going with this

really do not like the term satoshi but i suppose it does have a ring to it, 100 satoshi for a cup of coffee as opposed to 100 bits for a cup of coffee

 using the word bits is smaller and easier

+ 1

Actually, the word "bit" is already a standard. I'm not suggesting a new terminology, just a new way of processing smaller transactions so to allow for smaller fees to make them actually possible.

Here is the predefined values: http://www.btcsatoshi.com/

1 Satoshi is the smallest unit. 100 Satoshi = 1 Bit. 100,000 Saoshi = 1 Millibitcoin. 100 Million Satoshi = 1 Bitcoin.

Bitcoin price fluctuates so much that I don't even look at denominations. When I am sending or spending coins on something usually it is priced in dollars, and has some widget that shows the current price in bitcoin as well. I usually just whip out my phone, open my blockchain app and scan the QR code, never looking or typing in some 8 digit number and trying to properly place the decimal. When I am sending money to friends I usually just type in 5 dollars, and whoosh, there goes 5 dollars in bitcoin straight to my friend. I am never like hey I am about to send you 500 millibits, because in 2 years 500 millibits might be 10,000 USD. So I am not going to get used to terms just yet.

Oh, I know that the average user won't really care. They measure everything in fiat and adjust accordingly. I'm talking about more on the back end to make it possible to send small amounts of bitcoin without congesting the network. Of course, once implemented it might make it easier for the average person to use the values once Bitcoin becomes the world reserve currency.

As far as mining goes, thats way to much to change for such a small gain on the mining computations side. Its already configured properly to work down to the satoshi with no problem. The software on the user side would turn my 600 bits into .00000 whatever it is, to be properly processed by miners and the blockchain.

I know that it LOOKS that way, but the point is to use a separate kind of chain optimized for smaller transactions with smaller data sizes. If, for example, you can process 10 times as many small transactions with the hash power required to process 1 normal transaction the smaller fees end up balancing out, and might actually benefit the miners even more. The only question is if the suggestion would actually result in that type of gain which is what I was hoping to get feedback on.

The difference here is that 0.00000001 Bitcoins requires 9 digits of information whereas converting them to a different form of data called bits would only use 4 digits of data. In actual computer terms a single digit on a screen is represented by data and the more digits you add the more data that is required.

What if "bits" were an actual coin? Instead of being created via mining, you "destroyed" an amount of bitcoin to create an equivalent number of bits

no to this part.

any concept involving destroying bitcoins is foolish.

You didn't read it all the way through. The point is to not create new Bitcoins outside the existing algorithm. If you convert 1 Bitcoin to 100 Million Satoshi you don't want to be dealing with an exchange rate. You want them to actually be equal in value. The only way to do that is to make that 1 Bitcoin disappear while the 100 Million Satoshi exist and then the 100 Million Satoshi disappear when the 1 Bitcoin exists. It's not increase or decreasing the number of Bitcoins.

i think this will probably spark peoples imaginations to attempt to get dogecoin (due to popularity) to be this fixed/stagnant exchangeable coin for 100sats.. and maybe eventually litecoin for exchangeable value for milibitcoin...... who knows..

I really doubt that any altcoin, as they exist right now, can ever be directly equal in value to any specific denomination of Bitcoin at any reasonable consistency. The problem is that each altcoin creates it's own coin in it's own way at it's own rate. Then there are issues of supply and demand. You might have more people selling one coin and buying another. The values fluctuate each time and exchange takes place. 1 American dollar can never be expected to be exactly equal in value to 100 Canadian pennies for very long if ever.

However, some altcoins have been optimized for smaller transactions. If we took that feature of an altcoin, took away their ability to create new coins, and made them directly transformable to and from Bitcoin it would guarantee that the value remains fixed just as a an American dollar can never be worth more or less than 100 American pennies.

either way 'destroying' denominations of bitcoin (permanent removal of small amounts of bitcoin from circulation) is the ludicrous part of your idea

ya, you completely missed it. I even explained specifically that the value is fixed and specifically said that nothing new is being created and said that it worked the other way around. There is no permanent removal from circulation.

If you want to think of an analogy, take a dollar and 100 pennies. In fiat both exist at the same time, but that limits versatility. Now imagine that 1 dollar can magically be turned into 100 pennies. The dollar no longer exists, but now 100 pennies do. While the pennies exist that dollar doesn't. Now imagine that you can take 100 pennies and magically fuse them into a dollar. Those pennies no longer exists, but now the dollar exists. The difference between saying 1 Penny and .01 dollar is in the amount of data required to store the value. Smaller values with shorter transaction details is really the goal here.

If we had a limit of 21 Million dollars in the world and they were all turned into 2100 Pennies the value would remain fixed. If they were all turned back into dollars the value would also remain fixed. There is no change in how much money is in circulation, only the form and way it circulates. The wallets would still store the Bitcoin the same way. You will still see the same number of Bitcoins. When you send a really small number you don't even see the conversion taking place, except for when it comes time for the paying of fees. That's just an analogy I'm using to get the idea across.