Divisibility

Divisibility is the property of a good that can be broken into smaller amounts without losing value. Because economic transactions frequently occur in varying amounts, a currency must be divisible to be used broadly in an economy. The cumulative value of the currency must also remain the same after it has been divided into different denominations.

Not all goods that can be divided have strong divisibility. For example, a car provides great utility, but half of a car provides no utility at all.

Divisibility is one of the primary failings of gold as a currency; it is not easily divisible into smaller denominations. The U.S. dollar is printed and distributed in varying denominations, including coins, in order to make efficient use of money in transactions. Even so, the inconvenience of carrying around coins frays the dollar’s divisibility.

As a fully digital asset, bitcoin is infinitely divisible. On the Bitcoin blockchain, each bitcoin can be divided into 100 million pieces, called satoshis. However, spending a single satoshi on the blockchain is impossible due to transaction fees. Thankfully, bitcoin can be used in infinitely small denominations on other layers, including the Lightning Network. Importantly, division of currency, whether it be satoshis or U.S. dollars, into smaller denominations does not result in inflation.