Topic: A proposed solution to adjust for lost Bitcoins: wallet 'heartbeats' - page 9. (Read 12206 times)

I don't understand why you think that knowledge of the number of coins available is important, nor why you think that the lack of that knowledge causes instability.  You keep stating it as if it were self-evident, but it clearly is not evident to other people, so you need to explain.

Oh no no no no no you got it all wrong.  See, someone saves 10,000 coins for 10 years, finds them and then BAM!! instant market imbalance!!  

/joke

In all seriousness though, there are new and interesting economical ramifications with a constantly inflating currency.  Though I can't say for certain, it doesn't seem likely that the above scenario will disrupt the economy in any substantially negative way.  In real-world terms, think "homeless man finds out he's actually rich". http://www.thedailybeast.com/cheats/2011/06/19/homeless-man-finds-out-he-s-rich.html

There may be merit to what you're saying, but are you positive it is addressing this scenario:

The problem is that the ratio of saved coins to lost coins becomes less knowable over time, while at the same time, the ratio of coins known to be in circulation to the coins that are currently not in circulation (lost or saved) becomes smaller and smaller, which leads to a system that becomes, at the extreme, so uncertain that it is unusable.

I just read this thread again, twice, to make sure I understood where you went wrong.  This post is the key:


Your entire argument is based on the notion that someone could calculate in advance the value of a bitcoin by dividing something by the number of coins available.  This notion is false; value is what the market will pay you.

The market performs price discovery, and it uses only participating coins to do so.  Coins that are not participating, whether they are lost or saved, do not factor into prices at all.  The uncertainty over the amount of coins remaining in the system has no particular effect on values.

If the value of bitcoins increases on the market, a feedback system will draw coins out of hiding to reach a new equilibrium.  If they decrease, feedback will push them back into savings.  This equilibrium will be somewhat higher or lower depending on how many coins are actually lost, but this does not indicate uncertainty of value, and it will not destabilize the system.  This change in equilibrium actually represents a transfer of the value of the lost coins into all of the remaining coins.

Oh, and read this, particularly question 6 and the reply.

I have written a solution for the problem you want to address in this thread:

http://forum.bitcoin.org/index.php?topic=20866.0

Some people still will not like the idea of transactions eventually expiring to be reclaimed by anyone, but I think the practical value of guaranteed 0% inflation/deflation is a good argument for the proposal.

In fact, it's clear that whole studies will arise, and papers will be written trying to estimate the rate coins are lost, attempting to create models that can valuate Bitcoins. But the studies will be based on hot air, because nobody will really know which coins are lost. Estimations will be made, and then those estimations will be rendered useless when some huge wallet is dumped on the market.

Then papers will be written trying to measure the rate at which coins previously thought to be lost are actually 'discovered' and dumped on the market. Terms will arise to label such events, such as 'sleeper' wallets, etc. Economists will be vexed, to be sure.

My final point, essentially the nail in the coffin is this:

Assuming nothing else destroys Bitcoin and its success is so phenomenal that it lasts a very long time, it is absolutely guaranteed to self destruct over time when the uncertainty of the ratio of coins in savings vs. coins that are lost is so great, that it will become impossible to realistically valuate them, thus rendering them unusable as a trading instrument.

I think this is worth considering if a new bitcoin-like protocol and hash chain is ever developed. I think it would be out of the question to try to add this to the current hash chain and client -- disrupting settled expectations like that would be one of the worst things imaginable for bitcoin's reputation.

It would be simple to solve from a technical perspective. All of this would have to be part of the original protocol though:

1) A lifetime would be defined for bitcoins, say 7 years (defined as a precise number of seconds to avoid leap years, leap seconds, and the like). Once a bitcoin had stayed unclaimed for 7 years, it would be subject to reclamation.

2) When each block is issued, any unclaimed bitcoins created or last transferred in blocks with timestamps more than the defined number of seconds ago become subject to reclamation. (Automatically, nothing need be put in the block to indicate this.)

3) To avoid an incentive for miners to fake timestamps a bit ahead, the actual reclamation must occur some fixed number of blocks after the bitcoins become subject to reclamation. (Say 50.)

4) On the block 50 after the block with the timestamp that made the bitcoins reclaimable (or on any subsequent block should a miner fail to reclaim a block), the miner may insert a reclamation transfer, transferring the unclaimed bitcoins to his account.

To avoid reclamation, simply transfer your bitcoins to another bitcoin account that you also control. (Or 'transfer' them to the same account, if that's legal.)

You can get a good idea of how many are in circulation, but as time progresses, you will have less certainty of how many are saved vs. lost.

Let's assume it's the future and all 21 million have been minted. Let's assume that we see 14 million in active circulation and 7 million that aren't circulating. Are they lost or being saved? Valuations will be less accurate over time. I don't see how they cannot be. Imagine valuations based on the assumption that they are mostly lost, and then have them dumped on the market from a dormant account.

Over time, there is a guarantee that bitcoins will be lost, but there will be no real way to measure the average loss over time. Requiring a heartbeat eliminates that problem and allows valuations to be more certain over time.

More importantly, and perhaps most importantly, the accuracy of valuations over time based on circulation will be relatively constant.

How many USD are in existence? I'm not sure that there is an exact number due to credit and such. And from people with old bills stored under mattresses, etc.

With bitcoins, you know there are at most 21 million, and by looking at active coins over the last X years, you can get a good idea of how many are in circulation.

I fail to see how adding another layer of complications to things will help address the supposed problem that you've found.

Clearly, you are stating then that a design decision was made to allow for the loss of coins because the total quantity of coins is unimportant. That is simply an indication that you are not reading what I have written.

It is one thing to design a system that allows for division of coins into ever more granular tokens, and justifying a design decision based on that. That, however, does not address the issue of increasing uncertainty in the system as it evolves.

Please show me in the papers written on the subject where it explicitly states that a design decision was made to allow and encourage increasing uncertainty in the system over time. If you can do that, I will accept that the original designers intended increasing uncertainty over time.

Again, it's not about increasing granularity or increasing deflation, neither of which are issues. It's about increasing uncertainty.

No.  The system was based on the notion that the total quantity of coins is unimportant.

From day one it has been understood that coins could be and would be lost.  I'm sorry you missed this in your research, but coin loss was a design decision, not an accident.

The point in reclaiming lost coins is not to:

1) Bilk unsuspecting savers out of their coins
2) Address any issues regarding granularity
3) Have fun with trivial data

The point in reclaiming lost coins would be to:

Know that the system, at any point in the future, possibly far future, has the same dynamics as it was intended to have at its inception. I believe you are mistaken if you think it will have the same dynamics over time if you do not allow lost coins to be reclaimed. Please read the following to understand the logic.

We know for a fact that coins will be lost. Take, for example, the Japanese earthquake and tsunami. Perhaps harddrives and flash drives were destroyed then. Also, there is the potential for failed electronics, unintentional and intentional deletion, etc. Logic says that this will happen and continue to happen for as long as Bitcoins exist. The logical conclusion, until the heat death of the Universe, is 100 percent loss.

Now, before we get into a debate about the Universe's heat death or the practicality of a system designed to last that long, let's at least entertain the idea that a robust and long lasting system is desirable. Given that, let's look at how the dynamics of the system change with a significant loss of coins from the system.

The system as it is now is designed to allow commerce and valuation to occur, assuming that valuations are based on the collective wisdom of the crowd, which is based on the notion that most all coins are not lost.

The system as it will inevitably be will not be as the above system is. Instead, it will be a system in which commerce and valuation occur, but based on the collective wisdom of the crowd operating on less information than when the system was founded. In other words, valuation will be based on a more uncertain model of how many coins are truly in existence.

The short synopsis: over time, valuation will become more uncertain and less able to assess the true number of bitcoins in circulation. Is that a good model?

To all of you saying that the 50 coin reward should go on forever - lol.

I'll keep my bitcoins thanks. Feel free to search on the forums for inflatacoin, and use a gimped version of bitcoin if you'd like.

-Garrett

EDIT: Additionally, there's no need to worry about lost coins. See above about granularity.

And as for the 'hoarders' (savers) having to pay a fee to hold coins, what? That's absolutely ridiculous. As long as coins aren't moving they're causing no stress on the network. Think about what you're saying.

Each bitcoin is currently divisible to 100,000,000 parts with the current software. If divisional granularity every became an issue the extra bit could be used to signal extended range.  This would be a simple, technical, and economically neutral change if it were ever required.

People who have invested resources and money into bitcoin did so with certain understanding and expectations of the dynamics of the system.  Your proposal would rob them of the expected return that was rationally factored into their decision.  Even if you'd benefit this time what reason would you have to expected that the _next_ change wouldn't rob you?   

There are some invariants in this system. Mess with them and you will completely and justifiably destroy all confidence in it. Other decisions are justifiable and are worth exploring but they should be explored in alternative systems (like beertokens) rather than by destroying this one and salting the earth for all similar systems.

Feel free to create a network that implements this idea.  I suspect that a couple dozen people worldwide will join you.

The rest of us have absolutely no desire to change from a system that is incapable of forcibly removing our coins to one that is.

This is a good idea.

Let's look at a scenario where we've got 20 people, each with about 10k bitcoins they've acquired over 10 years. These 20 people all happened to die in the next few years (car accidents, heart attacks, cancer, whatever). That is 200k bitcoins that are instantly taken out of circulation. With a continuing trend, over enough years bitcoins will fade out and the whole communities dreams of bitcoins replacing our current currency is destroyed. At this point in time, sure.. 200k doesn't seem like a lot when there are plenty to go around because they're still being generated. Once 21m coins are reached, the amount of "lost" or forgotten bitcoins will start to add up quickly.

Yes! Yes! Yes!

A permanent 50 BTC reward would solve quite a number of problems.  First, miners would always have an incentive beyond fees, which would make fees lower.  Second, it would eliminate the scarcity psychology that encourages hoarding, speculation, and the formation of bubbles.  This in turn would encourage people to actually spend their bitcoins, which will be essential if we're ever going to have a vibrant economy.  And finally, a constant reward means that inflation rate would asymptotically approach 0% without ever quite reaching it.  Therefore, inflation would still be so low that Bitcoin would remain for all intents and purposes a good store of value.

Mark my words: if Bitcoin does not introduce some limited inflation, some other P2P digital currency will do it and eat Bitcoin for lunch.

The first question you need to answer is what exactly is the problem this proposal is aiming to solve?

Sure, knowing the total number of bitcoins that have been lost makes for interesting trivia, but is it really worth the hassle and the inconvenience?

Therefore, this strikes me as a bad and purposeless idea.  (And mind you, I'm stating this as someone who would support some pretty fundamental changes to Bitcoin.  For one, I think the fixed 21 million cap is generally a bad idea, and I would very much prefer that the mining reward would stay at 50 BTC forever.  However, I do have a strong motivation for such a change.)

A better solution:  Don't let the 50-coin reward run out.

It technically makes inflation unending, but eventually, the rate of lost coins will average out to the rate of new coins generated.  Viola!  Problem solved.