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As far as I understand, the bitcoin has an upper limit of 21 Million possible coins. Thus, the price of 1 coin, can in theory climb and climb. However, on the other hand, it seems like the system can handle 10^(-8) of a bitcoin.

  1. Is this observation correct?
  2. Is it already possible to have transactions of fractions of bitcoins?
  3. If (1) is true, how can this fact influence the bitcoin's rate? In some sense, it means that the limit on the number of units is somehow much higher then 21M. Or more generally, how should its rate be interpreted given the existence of such tiny fraction of the unit?

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  1. Yes, there are 21 million whole bitcoins, each divisible up to 10^-8.
  2. Yes, transactions for fractions of bitcoins are quite common, just as transactions for fractions of dollars are common. I could send you 0.00000001 BTC if I were so inclined.
  3. I can give you 1 dollar or 100 pennies, but the existence of pennies doesn't really influence the exchange rate of the dollar.
  • While the existence of pennies does not affect the value of the dollar, I do not think that is the question OP was asking. The fact is that since total BTC is fixed at 21M, the value of a satoshi goes up when that limit is reached. As the number of BTC in circulation can only go down past 21M, bitcoin are intentionally deflationary. – fbrereto Apr 10 '13 at 5:37
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  1. Correct, but coins have been lost, so although up to 21 million will be mined, there will be fewer than that in circulation.
  2. Seeing fractions is routine, but sending and receiving bitcoins with a smaller fractions will incur a processing fee.
  3. #1 is true: The finite amount of bitcoins is actually expected to produce bitcoin deflation in the future, so its value will go up (constant supply and assuming increasing demand). However, the protocol can be adjusted to slice bitcoins even smaller then the current 8 decimal places. It's uncertain economic territory.
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    its pretty certain really. Deflationary economy cannot sustain itself. If the money becomes more and more valuable, why would anyone spend it now when they can get more for spending it later? That's exactly why bitcoin is a scam. – littleadv Apr 6 '13 at 8:47
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    Inflationary economy cannot sustain itself. If the money becomes less and less valuable, why would producers sell products now when they can get more money by selling it later? If you are going to argue against deflation based on consumers not spending money because it becomes more valuable over time then you must acknowledge that producers would not sell products in an inflationary environment since their products become more valuable over time. Also, why would anyone buy electronics knowing that if they wait they can always get more with their money? – Muro Apr 7 '13 at 18:21
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The Bitcoin protocol allows for 2,099,999,999,999,999 satoshis to be issued.

1.0 BTC = 100,000,000 Satoshis.

With about 7 billion people on the planet, that means the 2,099,999,999,999,999 satoshis divided among the populations leaves 300,000 satoshis per person.

If the value rises such that even a since satoshi rises significantly (e.g., above a penny) then further divisibility is an option.

But further divisibility is not something that impacts the value. A dollar doesn't buy more after you first convert it to 100 pennies. You still have a dollar's worth of funds.

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