Why is Bitcoin defined as having 8 decimal places? At the protocol level bitcoins don't actually exists, but rather base units (recently called “satoshis”). Bitcoins are defined as 108 base units, meaning that for a 50 BTC mining reward, you are actually earning 5 000 000 000 units.

So, why was 108 chosen as the value of one bitcoin relative to the base unit?
When developing Bitcoin, Satoshi had already come with the idea that no more than 21 million of them will ever be made. However, there was an unsolved issue: how to accomodate all bitcoins in case it was actually used as a worldwide currency? Comparing to the current (2008?) world's M1 supply, it was determined that 8 decimal places was enough to cover the supply and still have the smallest division smaller than enough for daily usage.1

It's also worth noting that this decision means the total Bitcoin supply is approximately 250.89, which means it's smaller than the maximum value for a 64-bit integer (263-1), and smaller than the first integer that can't be exactly represented in a double-precision floating-point number (253 + 1), so that standard programming languages can deal with Bitcoin amounts without requiring custom implementations or dealing with overflowing.2


Ray Dillinger's response to: Why 1BTC should equal 10^8 satoshi ?
Satoshi’s Genius: Unexpected Ways in which Bitcoin Dodged Some Cryptographic Bullets