Topic: Sending coins to trash -- probably the biggest threat to bitcoin (Read 4289 times)

You are a miner, right? Spend some BTC to come and visit me in Chicago... Perhaps for a local Bitcoin Meetup that's coming up on June 4th... We can chat privately then.



Sure, but in a face-to-face conversation only... There's already a sizable bid wall on Mt.Gox... Don't want for it to crumble, yet.

Hmmm... How about a hint then? 


Can you explain the difference?  To me the main driving factor of "Gold 2.0" phenomenon is bitcoins store of value function.  That's the only real similarity to gold that I see, and (at least to me) apparently the only reason people keep referring to bitcoins as "Gold 2.0".

Just to clarify, the poison pill is not designed to destroy the bitcoin use as a viable currency, it will merely target the bitcoin use as a GOLD 2.0 speculative asset. But to answer your question, for me to discuss any of its details now will introduce an abrupt change. Remember, I stand behind the gradual change approach... Let's just wait for the vaccine to work it's magic, shall we?




I do not demonize the bitcoin's store of value function... only the widespread GOLD 2.0 phenomenon.

What is this "poison pill"? 


But a storage of value is valuable.  Speculation that a store of value will gain value should be expected.  Why demonize it?

With a poison pill, if need be.  But let's hope it doesn't have to come to that... While gradual changes benefit the majority, an abrupt one would only benefit my ego and the pockets of those who had prepared for the change.



It's not the qualities of gold that's the problem, it is the pervasive treatment of those qualities as gold. Speculation is healthy for the bitcoin economy, but only if it is based on the expectations about future "economic" growth, and not on the proliferation of GOLD 2.0 worshiping.

How do you get all miners to agree to this?  How do you prevent miners from secretly retaining a key they "destroyed" in order to retain large volumes of wealth?

Also, why is it so bad that bitcoin acts like a "Gold 2.0"?  The world needs something like gold that does't require physical storage and can be easily transported worldwide.  Why would you want to destroy that?

It is precisely that. Thanks for noticing.

But don't just take my word for it.







Yes, something like that.

If we intentionally moved the decimal place every X amount of time, would that not simulate inflation?  Many economists assert that inflation encourages investment.  If we just intentionally destroy 18.9 million coins (leaving us with only 2.1 million), and then immediately slide the decimal place over and rename THAT a bitcoin, all of a sudden everyone holding 1 "bitcoin" now holds 10 "bitcoins".  It's the exact same thing the FED is doing.  $10 dollars now is worth the same as what $1 dollar was worth 100 years ago.  The blockchain would handle it seamlessly because it don't care what the numbers are CALLED, and all clients would just internally shift the decimal.

Basically you could invert the idea of Gold 2.0 and create the same kind of economy the US is based on.

Is this why are obsessed with the validity of the statement that 1 bitcoin could still service the entire world and keep referring to a "vaccine to gold 2.0"?

We discuss our opinions lol. It's valuable discussion.

It's only an abstraction anyway! Stupid abstractions...   Interesting form of nihilism.

Man, you tech guys are extremely patient. How on earth did this question about a basic economic misconception reach 3 pages?

Why do you and others still assume that when I'm discussing deflation or inflation I refer to BTC exchange rate fluctuations? Remember, I don't speak the GOLD 2.0 dialect... I speak straight up BTC!

Are you interested in learning how to speak proper BTC (will be offering classes soon)? In the meantime, may I suggest that you take maximum advantage of the GOLD 2.0 era exchange rates.

Bitconomist,

I have found one of your lunatic rogue miners, and they are using an ASIC!

"So we’re destroying the private key used by our Bitcon wallet. That leaves our growing pile of Bitcoin lucre locked away in a digital vault for all eternity..."

http://www.wired.com/wiredenterprise/2013/05/butterfly_live/

Of course they would never do anything like donate the coins to charity, or feel the slightest pity for all the people with pre-orders who have been waiting a year to get their own machine, only to see commercial samples given away first.

So you're saying that converting $1 bills into pennies would also cause the USD to go into an inflationary spiral?

It's not that you're doing a bad job of explaining your arguments, it's that your arguments are bad.

Did you mean to write deflationary spiral?  Or??

Anyway, adding more decimal places doesn't create more coins.     The same amount of money exists with $1 as does with 100 pennies.

Not at all a threat, deleted or lost coins dont really matter, im mean after all we can just all trade in billionths of a coin, just like we all wouldnt mind owning billionths of a cent!~

A lot of people hold this current maximum unit of division in special regard. A few people are even calling for using it as default unit for denominating BTC amounts. We should do a better job of informing that 10^8 is just a current implementation detail and not "holy" such as the 21,000,000 limit.

It's unlikely people lose Bitcoins by sending them to the wrong address. Just because one is lost, doesn't mean a vicious cycle of destruction.

It is more likely that you just don't have a clue. haha sorry couldn't resist.

Seriously, the problem is that you haven't stated what you think the problem is. Also, you keep bringing up Gold 2.0 like we know what you are talking about and like it is a real concept.

You don't have to write prose. Just write a series of steps -- cause and effect, and we can help fill in the details.

These are the fundamental errors in your logic:
(a) Lost coins are deflationary not inflationary.
(b) There is no spiral. Just because one coin is lost there is no causative connection so that more and more are lost because of the earlier losses.

Thanks for confirming that I have correctly interpreted the second point in SgtSpike's answer. Unfortunately, this now means that I have to go back to the drawing board and figure out at what point it would make sense to add more decimal places in order to avert an inflationary spiral that will eventually result from lost coins (if we ever succeed at building a flourishing BTC-based economy around the bitcoin protocol).

I know that the issues I'm trying to bring to the miners' attention may appear somewhat odd at this point, but please take note of the inferences that I've made throughout this thread, as understanding them would prove essential in a miner's ability to take maximum advantage of the GOLD 2.0 era we're passing through right now. I don't think that it will be years before I can finally share (in layman's terms) what had clicked in my head after I came across one of Gavin's old tweets, back in 2011 (see a hard copy below). It's just I haven't yet found a professional writer (with background in bitcoin and economic theory) to help me put the right words on paper, so to speak. Why would I need a professional writer? Well, as some of you may have already noticed, any attempt that I take to construct a structural argument around BTC money supply (not monetary base units, a.k.a. raw bitcoins) it only seems to take everyone's attention away from the main points of that argument... It appear that I'm just not cut out for explaining intricate things in prose.

Thats why I was talking about one of the cons of decentralization. There is no way to verify if an address has been generated or not because nobody distributes them. It's just something we have to deal with, but isnt a problem.

I understand your concern above, but my thinking is more skewed to applying the Hanlon's razor: a combination of two phenomenons:

a) intense misinformation about Bitcoin's properties both amongst its supporters and its detractors;

b) influx of extremely literally-minded people who have difficulty with abstract or transcendental thinking;

makes people worry that the bean-counting professions will either run out of beans to count or bean-counting will be supplanted by e.g. pea-counting.

I don't see any cunning or even any long-term planning: it is just a pre-conditioned response to an unfamiliar stymuli.

The decimal point is arbitrary. If we got down to 21 BTC we'd just have to divide the satoshi into 1 million smaller units. Problem solved.

Also as you throw away money, the result would be that the value of what's left must increase proportionately as the supply drops. This would happen gradually, so if someone dumped a load of coins it would take a while for equilibrium to be reached again. But essentially anyone doing this would be giving all of their money to everybody else. So let them go for it.

Even if a client doesn't check, the protocol requires that a tx have valid addresses otherwise the tx is invalid.

Note there is a difference between invalid address and a valid one in which the private key is lost/unknown (or was never known).

Miners can burn their money, but it is way to expensive to run such hardware to do so. As previously discussed, Bitcoin is infinitely divisible. I could see us breaking down Bitcoin 8 more decimal places when we have calculated that only about 10,000 BTC are left in existence. However this "trashing coins" process is one of the cons of having a decentralized currency. No central authority issues wallets, so there is no verification such wallets exist. Clients should check if the address coins are being sent to is in fact a valid address, but other than that there is almost nothing we can do about it.

Hasn't this topic already been discussed to death?

This recurring and overblown worry about lost coins has me wondering of the source.  

I'm presuming this has little to do with truly protecting bitcoin, but instead is all about getting a foot in the door with some method of demurrage (call it reclaiming of "lost" coins or whatever).   Get that implmented and then a protocol change for currency inflation or some type of taxation is just an incremental step further.

According to you, then burning a $100 bill would have a big effect on the U.S. economy, right? It would lower the GDP by $10 billion!

The first problem is your number.

If you are talking about fractional reserve banking, then the multiplier has traditionally been about 10 (though Goldman Sachs and its ilk managed to leverage it up to 40 for themselves, becoming a contributing factor to the financial crisis).

If you are talking about a fiscal multiplier, then the number is probably somewhere between 0.5 and 10. Read this: http://en.wikipedia.org/wiki/Fiscal_multiplier

The second problem is that the total wealth in the world is not equal to the total value of all the bitcoins. The portion of wealth in the world destroyed as a result of destroying a bitcoin would be imperceptible, even with the multiplier.

You have an imagination of some sort techno-taliban: like if dynamiting the Buddha statues would damage buddism.

Right. Given a suitable deployment horizon I would expect the only opposition would be Luke (or some disciple of his order, N generations removed) because the rescaling would break tonal bitcoin.

You can even get four more places while fitting in 63 bits (but not while fitting in a Decimal64).
 

It isn't a threat.  Fees for Bitcoin are likely to remain low.  Any attacker with >51% of hashpower can do a lot more than destroy coins at high cost.  Any attacker with less can't materially change the amount of Bitcoins.

Bitcoin fees have averaged 0.03% of value transferred.  Velocity (annual transaction volume / money supply) is ~10 and unlikely to be higher.  Let say Bitcoin stabilizes with fees at ~0.1% of volume transferred.  Then an attacker with 50% of hashpower could destroy 10*50%*0.1% = 0.5% of the money supply each year.  An attacker with less hashing power would have even less effect.

Now a small annual reduction in money supply has no detrimental effect but even if you think it does it would take 20 years to destroy just 10% of the money supply and 60 years to destroy 25%.  It is a complete non-issue.  Only the stupidest attacker in the world (who also has millions of dollars a year to burn) would engage in an attack like this and it would have absolutely no effect.

If 10% of the money supply was destroyed the exchange rate would rise ~10%.  With 8 digits of precision it would take centuries to raise the valuation of Bitcoin so high as to make transaction unweildly and if/when you did the protocol could be forked to add another 8 digits of precision.  In the process the "attacker" would massively increase the wealth of Bitcoin holders who don't destroy their coins.

I have said many times over the years that we would very likely switch to a 128 bit integer for the value field for aesthetic reasons (native word size of 128 bit CPUs) long before it became economically necessary.  I doubt that even a determined attack could deplete the bitcoin supply enough to change that.

The software change would be easy.  Getting the network to go along with it would be hard right now because there is no need, but would be (relatively) easy if the need ever develops.

P.S.  Your thinking seems clouded.  1 BTC is the fundamental unit, not the satoshi.  The network is currently using a representation that goes to 8 decimal places because 8 decimal places is more than enough for the foreseeable future.  We call the current minimum protocol unit the satoshi because it was the first such unit, and we are sentimental creatures.  That unit has no other special features.  The value of 1 BTC is infinitely scalable; the software and network can be adjusted as necessary.  One satoshi would be just as good for commerce as 21,000,000 BTC, it would just require a different scaling factor.

I'm afraid it's not quite that simple... You see, a single bitcoin that gets seeded into the BTC-based economy has the potential to grow BTC money supply (not to be confused with BTC monetary base of 21 million bitcoins) by 100,000,000 BTC (i.e. your average satoshi, but in a consumer-friendly notation). So, assuming that the BTC-based economy will eventually flourish, can you imaging the ripple effect an act of trashing a single bitcoin could have on that economy? This is precisely what I was hoping everyone here would look into, from a technical perspective (i.e. the resilience of bitcoin protocol to withstand such threats, if there were ever to be one), rather than focus their attention on bashing my concern as being invalid. My concern is just as valid as any other concern before it, even if it came about as part of diligent economic hacking, not code hacking. So, could some of you please take a look at the technical side of this -- is there an infinite loop (as perhaps was suggested by our very own SgtSpike) that a rouge miner would have to contend with when trying to carry out this type of an attack? Because if there is an infinite loop, then there's nothing to worry about -- bitcoin is poised to make history!

Yes it'd take quite some nihilism to dump sizable amounts of coins in the trash just to make a statement at this point   And if so you're only making other people's coins worth more.

Yeh, numbers mean nothing. 1 bitcoin or 21 million.

This does not threaten bitcoin any more than gold would be threatened by the prospect of people buying it and dumping it into the ocean.  If you do it, then you've just stupidly wasted money!

Are you saying that as soon as that one bitcoin is seeded into circulation, and another chunk of it is eventually trashed, the process can continue to repeat itself indefinitely?

No. We are saying that it is not feasible to trash a significant number of bitcoins, as the value of the remaining ones (or portions) increases, so there is always an adequate quantity of bitcoins for monetary use.

Basically, the bitcoin network would not have to undergo some major and costly tuning in order to accommodate such repeat cycles of coin trashing by rogue miners, am I right?

Right. There is no feedback mechanism  for the network to respond to coin trashing and no feedback process is required. The network, and indeed, whole ecosystem behaves perfectly well whether the number of bitcoins increases (through mining) or decreases (through trashing exceeding mining). 11 million are mined already, so "rogue miners" won't get them.

Check out this address: http://blockchain.info/address/1BitcoinEaterAddressDontSendf59kuE

No private key exists, so 0.41196588 BTC has been trashed and permanently unspendable. Yet, this has no effect on the network.

I didn't yet see anyone confirming whether I had correctly interpreted point 2 in https://bitcointalksearch.org/topic/m.2079488

The issue has been clarified until it is as crystal clear as a glacial melt-water stream. Please, please re-read all the responses above.

Sorry if that statement sounded a bit misleading from its intended purpose... I merely tried to passionately imply that I can't move forward with my plans to do something great for the bitcoin ecosystem (as the early bitcoin developers once did for the bitcoin protocol and client), unless those knowledgeable about the bitcoin technical side can help clarify the issue that nearly has me loose hope in the bitcoin's viability as a currency.

One is used to induce inflation in a BTC-based economy (in economic sense, not GOLD 2.0 sense), the other (the unspent one) is missing an opportunity to propel the creation and development of a BTC-based economy in order to induce deflation. Assuming that the majority of miners 1) will eventually come around and realize that the GOLD 2.0 era was just a myth, and 2) finally turn their attention to growing the BTC-based economy by commissioning various deflation-inducing projects, the right amount of trashed coins in the future could have just as serious of an affect on the BTC-based economy as the 2008 financial crisis once had on the global economy (except this time around we will be battling inflation, whereas in the 2008 financial crisis we were battling deflation, due to difference in the underlying economic theories for fiat-based and bitcoin-based economies).



Neither one would exist if miners would stop focusing so much on bitcoin being GOLD 2.0 to continue driving up the exchange rates and mining difficulty to new highs. Basically, miners can put an end to both of these threats by starting to commission the deflation-inducing projects (e.g. make investments in BTC, pay wages in BTC, etc -- essentially, use their might to jump-start the BTC-based economy without the help of financial intermediaries). Pay-it-forward already! Stop banking on the next GOLD 2.0 hype to create demand for your math-based treasure-trove. Remember, it took you almost 2 years to recover from the very first such hype. Yet, the current one is way bigger.

If you take that approach you will just get yourself ignored and lose your ability to get further questions answered. I ask you to be considerate of other people's time and to go back over the fairly specific answers you've been given by experienced Bitcoin users and developers, and if you have articulate questions— then ask them— but don't just keep repeating that we haven't convinced you because we don't agree with you.

Yes, it has been discussed many many many times. Miners like these are just burning THEIR money. Who care?

These statements make it clear that you are confused. But, to answer your question...

The number of coins that will be produced is 21 million. The number is completely arbitrary. It doesn't matter at all what the number is. It could have been 21 thousand or 21 billion, and the result would be the same (though the value of a bitcoin would be very different). So, even if all the remaining bitcoins to be mined were trashed (for example), it would simply mean that the limit becomes 11 million instead of 21 million. There is no reason why 11 million could not have been the original limit.

BTConomist. What is the economic difference between a coin permanently trashed and one which sits in a wallet unspent for many years? There seems to be a million coins from 2009 which have never moved. Arguably, Bitcoin is doing very successfully right now, and the sudden appearance of a million coins would cause quite a disturbance, perhaps more disturbance than the recent oscillations in the fx rate.

Bitcoin would function just as well if that million never reappeared, although I expect most will trickle out eventually.

As kjj explains, it becomes increasingly hard to implement any threat through a process of acquisition. The biggest threats are micro-transaction flooding (now being dealt with) and outright boycotts by all the fiat handling banks with governments banning Bitcoin use by merchants. Those are the real threats.

C'mon guys, have a little faith in the validity of what I'm trying to bring to your attention here. Remember, I’m still at the early stages of trying to put into words what has been creeping in my head since I first took a long, hard look at bitcoin back in 2011. But I know this much already --- the GOLD 2.0 vision that the majority still continues to talk about is dead wrong when it comes to the inner working of bitcoin-based economy. It won’t give you neither deflation nor inflation (not to be confused with bitcoin supply of 21mil bitcoins). So, instead of going back and forth with me about the “BTC spending” vs “BTC hoarding” debate, see if you can clarify the second point that's been brought up by SgtSpike... Or we can just wait for him to clarify it himself. Either way, I'm not leaving this issue alone until someone from the tech circles is able to clear up my concerns about the potential effect of coin trashers on the viability of bitcoin protocol. It's the only thing holding me back from jumping full force into this whole idea of developing a self-sustaining BTC-based economy.

This is basically a movie plot, but not one good enough to get made into an actual movie.  Also, it comes up every few weeks here on the forums.  You people gotta learn to search.  If we stickied every topic that was popularly assumed to be a new thought by each person, the real threads would start on page 23.

You will notice that no one is seriously worried that someone is going to buy all of the world's gold and drop it into a subduction zone in the ocean, removing it from circulation forever.  The first problem with this movie is that the concept of "buy all of the world's X" doesn't work, for pretty much all values of X.

And no, collecting transaction fees is not different from buying, in this context.  No one is ever going to pay more than a small percentage as a transaction fee for anything but a trivial transaction, so the most you can get in one iteration is a tiny fraction of a small percentage of all bitcoins, so you need to keep iterating over and over again if you want to collect a lot.  But, each batch that you remove from meaningful circulation makes the rest more valuable, so the average transaction size will go down over time, as will the fees people are willing to pay.

The same happens when trying to buy.  Buying 1% of all bitcoins today would not be too hard.  But you'd exhaust the willing sellers in a hurry after only collecting a small fraction.  This will drive prices up, which will entice more bitcoins onto the market.  But you are still shaving tiny portions off, and each slice costs you more and more.

Now assume an attacker with no budget, like congress or the fed, entities that can literally create money out of thin air.  They could afford higher and higher prices, or smaller and smaller fees for a long time.  But each batch they do makes their own money worth less and less, while it makes ours worth more and more.  At some point, the trillions of dollars created would finally tip the scales of credibility, and the fake money's value would crash, with consequences apocalyptic for those that survive solely by trying to boil the frog too slowly for it to notice.

No. It's not a concern in other cases either. At _most_ what you're describing could reduce the number of quanta by a factor of 2, and thats assuming every block mined from here on out was mined by a coin trasher.  If a factor of 2 quantization would problematic then the value precision would need to be increased in any case.

  0_o Improved technology _increases_ the cost. Right now it costs  about $72 per Bitcoin produced via GPU mining (at $.3/kwh) in electricity alone.  ((2^48/65535*10076292.88341872[diff])/2000000[h/j] * 2.7777778e-07 kwh/j * .3$/kwh)

Except in narrow windows of time when shortages of access to mining equipment disrupted the equilibrium (as in now, and early in 2011) mining has not been exceptionally profitable— nor should it be. If its very profitable more effort is spent mining, the difficulty goes up, and the rewards per unit investment go down... until people look at the payoffs and go "uh. no thanks, I'll let other people mine".

It may not be of any concern only if bitcoin's future rests on the idea of BTC being used strictly as a store of value (and not as a viable currency), which, let's face it, won't come from anywhere other than the increase in demand for products and services priced and sold exclusively for BTCs (e.g. satoshiDICE, etc)... No other form of developments around bitcoin would be able to keep the exchange rates above some miniscule margin over an average mining cost per bitcoin (whether that bitcoin is generated as part of a new lottery block, or as a cumulative total of transaction fees in a block, assuming that all 21mil bitcoins have already been mined).

And what is an average mining cost per bitcoin these days... about 3-4 dollars a pop, I assume (with equipment amortization and labor included)? And wouldn't you also say that this cost is bound to decrease as better equipment becomes available in the future (Moore's law et al.)? So, it's apparent that bitcoin miners would eventually focus their attention on financing BTC-based projects that drive increases in BTC spending, or would be forced to turn off their mining rigs (since it's unlikely that there will be anyone left foolish enough to pay 30-80x over something that costs less than $3 to produce). What would you do in that situation?

As you can see, large profits in bitcoin economy would no longer be made from mining operations per se, but from revenues of projects that a mining operation once helped to jump-start and turn into a profitable BTC-based business. (Hope you can forgive me for attempting to bust your GOLD 2.0 dreams this early?... It's just I want BTC to become a "viable" currency, not a "virtual" one.) As such, having at least one solid confirmation that "coin trashing" poses NO threat to the bitcoin protocol would do a great deal to further my cause, as I've already started laying the foundation for a BTC-based economy.

Not a concern in the slighest, sorry.

There are already plenty of coins in people's hands— even if the remaining half of all coins is destroyed ... its of no consequence.

Sometimes to win (say in a currency war scenario, perhaps politically driven) a group may choose to loose a battle in order to later win the war... Basically, if loosing money in one area would gain you more in another (i.e. one that matters to you the most), you'd do it in a heartbeat, wouldn't you? Because of this I'm not yet able to accept your mining costs inference as a feasible resolution of this potential threat to the bitcoin network. Perhaps you can clarify further?

Not a big threat.  That is basically spending a lot of money, just to throw away a lot more money.  There are clear counter-incentives against this

If the community's transactions are suddenly not being processed, then the community will en masse route around the problem, because the incentive to retain the value of one's bitcoins is similarly large.

Very unlikely that a private, non-governmental entity would mount such an attack.

It's not the price of the hardware, but instead of throwing away all the mined coins (no matter the mining cost) you could also just sell them for over 100 bucks a BTC. So it's as expensive as the current BTC price.

How much money are we talking? BFL mining equipment is not that expensive... And in the future the prices for mining equipment will come down even more relative to it's hash power.



Are you saying that as soon as that one bitcoin is seeded into circulation, and another chunk of it is eventually trashed, the process can continue to repeat itself indefinitely? Basically, the bitcoin network would not have to undergo some major and costly tuning in order to accommodate such repeat cycles of coin trashing by rogue miners, am I right? (If that's true, then there's no point in answering my question about the costs of such attacks.)

Agreed with Sgt Spike.

This may have been a risk when coins were worth a few cents. Not when they are worth $100. Danger over.

1) Anyone doing this would have to be wasting a lot of money doing so.
2) Even if half of all Bitcoins are destroyed/sent to the trash, it doesn't change the usability or functionality of Bitcoin.  You could only have 1 Bitcoin left, and it's still infinitely divisible, so everyone in the world could still use Bitcoin.

Has anyone here already addressed one very important issue brought up by OP in the Sweft's Law discussion? I'm referring to the claim that "rogue miners can mine the network, charging tx fees and sending the coins to the trash"? Is there a way to prevent this? Because if it can't be done, then BTC won't make it as a currency.