Bit, which ultimately comes from the Old English bita, originally meant a morsel of food. From there it went on to denote any small thing, particularly a fraction of a larger whole. By 1683 in the English-speaking American colonies bit had come to denote a Spanish/Mexican real, or one eighth of a peso. The peso was a common form of currency in the colonies. And in the early days of the United States, pesos were commonly used as dollar coins and real coins represented twelve and half cents, hence two bits equaled 25 cents. - Dave Winton