Bits refer to a unit of digital information primarily used in the context of Bitcoin and other cryptocurrencies. A bit is a smaller denomination than a Bitcoin. In practical terms, one Bitcoin can be divided into 1,000,000 bits.

This allows for transactions of smaller amounts, which can be crucial for everyday purchases or microtransactions. For example, if an item costs 0.0001 Bitcoin, it can also be represented as 10 bits. The use of bits simplifies the understanding of cryptocurrency values for users who may find whole Bitcoins too expensive or cumbersome to work with.

Bits make it easier to communicate smaller values and increase accessibility for everyday users. Overall, bits serve as a practical way to express and transact with fractions of a Bitcoin, enhancing usability within the currency system.