Bitcoin Forum

I`m not evil or anything like that, so dont get mad at me, so only see this issue from economic standpoint: The more people lose access to their bitcoins the better.

Why? Because they cant be sold, and generate scarcity, lack of supply which later on contribute to raising prices:
https://en.wikipedia.org/wiki/Velocity_of_money

I`m not talking about hacks and thefts, those are not good, but when people just simply lose access to their bitcoins or they forget their passwords ,and the coins get locked there forever.

So I like to call this a bitcoin black hole, because your coins get locked on an address of which the private key is hard or insanely hard to recover, or impossible to recover.

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I estimate around 1-5 BTC gets lost daily based on the reported losses and accidents I see on reddit and the bitcointalk help sector, but there are many more unreported. And some of them get resolved after a while, while some of them don't, and the coins are lost forever in a black hole.

For example you have a few mBTC on a wallet and you send some of the coins elsewhere and leave the change there, and then delete the address with priv key. Those are much more frequent in the faucet community, I alone have wasted at least 0.1BTC like this, that are spread across many hundreds of addresses. And people dont even realize that they lose money, because its small amount, but over the long term it adds up.

So if hundreds of thousands of fauceters lose 100,000-1,000,000 satoshi daily in addresses they forget about and priv keys that are lost forever, then my estimation is much higher.

Plus now and then you see some dumb people losing 100-200BTC because their hard drives burned down without backup or something like that..

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So morality aside, let's analyze this from economic point of view, because it's an interesting phenomena.

So let this thread to be dedicated about bitcoin black hole discussion, and I want to focus on 2 topics:

1) Let's accurately research / estimate how much bitcoins fall into black holes daily

2) Let's compare that with the daily minted bitcoins (currently 3,600 BTC/day)

3) Also the psychological implications are also interesting: a person who loses a lot of money might hate bitcoin, and this hate might cause more economic harm than the lost bitcoins generate good for the community.

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Black holes identified:   740.6069999989BTC @ change addresses that were most likely briefly used

Ok this is not a black & white issue, there are nuances too.

For example we could classify the events in the following:

1) Supermassive Black Hole:  Address without private key, an address which fits the format of bitcoin addresses, but whose private key cannot sign a transaction = Whatever coin is sent here, can't be sent out, unless ECDSA get's broken . IMPOSSIBLE TO RECOVER.
Ex: https://blockchain.info/address/1BitcoinEaterAddress DontSendf59kuE

2) Regular Black Hole: Address with private key, but which's private key is lost beyond recovery, and no plausible backup exists:
Ex: -Throwaway addresses of blockchain.info with small satoshis left on them that you delete
      -1 Wallet file with password wrote down on piece of paper, but no other backup. Hard disk burns down, coins lost forever.
HIGHLY UNLIKELY TO RECOVER, UNLESS YOU CAN RECOVER DATA FROM BROKEN HARD DISK

3) Supernova Address:  Address with private key, where the key is temporarly or for a longer time inaccesible, but it can be recovered later
Ex: Electrum seed wrote down on a piece of paper , no digital wallet file, the paper is lost, but still in your house. After 3-4 years you find the piece of paper and access your coins again.
EASY TO RECOVER BUT ONLY AFTER A TIME

4) Dormant Address: Address with known private key, fully accessible for the owner, but he doesnt touch it for a longer time
Ex: Long term savings account in bitcoin, Hodlers, etc...

5) Hot Address: Addresses that send and receive transactions and bitcoins are frequently moved from here

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Now here are the implications:

1) and 2) are plausibly unbreakable. And from economic POV, it does help add to scarcity and make price go up in the longterm

3) and 4) is also good but it only serves a temporary role in this, however if different people do it in different times, then the net result is still positive and it adds to scarcity.

It's better if a person buys 1 BTC and sells it 1 minute later, than if he didnt bought it in th first place. Even just holding it for 1 minute benefits the community, so those 3-4 year long term holders are evidently good, and add to scarcity.

5) This is not good, but bitcoin still needs active users, to maintain active demand, but in this research we will only focus on the supply side.

Like Satoshi said:

I started another post asking if the number of bitcoins was getting smaller because of lost bitcoins.  I like the term "Bitcoin Black Holes".  It may be true that fewer coins means each one left is worth more, but if there isn't widespread use of bitcoin yet, then it could also be a bad thing if it happens too soon.  What I'm saying is that people need to be using and relying on bitcoin before we lose too many of them.  Once bitcoin has gotten widespread acceptance, then I think fewer of them is beneficial for value.

NO need to worry about that, bitcoin adoption and coin loss will grow in parallel.

The more people use bitcoin, the more unlucky or dumb people will lock out their coins eventually.

Isnt it really impossible to track lost coins.

Esp daily lost coins, thats awful loads of time trying to track 1 address that could lead to multiple ones.

Also what if they used a mixer and they lost it as well. If there was a website that doing this as a service to get donations, I`d donate just to see the data.

NO, just collect all reported reddit and bitcointalk posts about people losing coins.

There was a thread here that tracked most of them.

We just need to find it.

I think this is the thread you are talking about:

https://bitcointalk.org/index.php?topic=7253.msg106458#msg106458

I think it tracks some of the early lost bitcoins.

why a person that lose bitcoin should hate bitcoin? he should blame yourself, with fiat when you lose in a lottery for example or lose your money for a thief you don't hate fiat, unless i know i don't do it, it would look silly

this should be the same with bitcoin

Thats how humans are, they never take responsibility for their actions, they always look for scapegoats.

I think thee are some people that will lose bitcoins and decide that it's too risky for them.  They may not hate bitcoin, but they may not be comfortable with their ability to store private keys safely.

Here is one of my studies , about 740.6069999989 BTC of change address was identified as black holes, but it's just an estimation

This topic about the lost coins is very interesting. I haven't thought about this phenomenon till now at all. I wonder whether these inaccessible coins will have an impact on the price of Bitcoin in a couple of decades when the adoption will be way bigger and there will be a higher demand for coins. I would guess a higher demand and a lower availability would mean a higher price.

I think it already has impact, and after the halving it will be much bigger.

If there would be a way to measure how much coins are dormant by analysing the addresses that have bitcoins, and that had transactions years ago, it would be good.

I think you only need to analyze the addresses that didnt had transactions out of them for 2 years, those are pretty likely to be dormant or black holes.

Is there any way to analyze them? Anyone?

I wouldn't think that would be a very good measurement at all (am sure there are many people that have had Bitcoin in cold storage for more than two years already).

There was a topic a few years back about lost Bitcoins (from memory at least 100K have been likely lost) but even if we inflate this figure to 1M over the next ten years it really isn't such a big deal (we go from a possible 21M down to perhaps 20M).

Ships loaded with gold that sank hundreds of years ago are perhaps a similar thing (i.e. as we progress forward the chances of losing large chunks of Bitcoin by accident should be reduced by improved wallet implementations).

Also it doesn't really affect the velocity due to the divisibility (something not as easy to do with gold).

I think we need a lot of computing power, so i think a university or some bigger entity could analyze it and publish the research.

How to do it:
- Put all bitcoin addresses that are in the blockchain in a database
- Delete all addresses that had in or out transactions in the past 2 years
- Now you are left with probably a few ten thousand addresses, now search online for all bitcoin vaults and cold storages
ex: Satoshidice's cold storage which is public or any other gambing sites storage
or any other large exchange or gambling site's public cold storage address
- Remove those too

Now you are probably left with a few ten thousand addresses that have a strong possibility of being black holes, especially if they have smaller amounts on them, but also there are large amounts too, people who lost their coins back in 2010-2011.

Bad assumption - you could equally assume that you have found the cold storage amounts of many individuals (big or small).

I think it is simply going to be impossible to tell the difference between cold storage and lost keys (a bit like trying to locate every piece of gold ever sold).

Also in regards to small amounts people do use "canaries" for brain-wallets.

Small amounts have a very low probability of being in a cold storage, especially fund under 1 BTC

Most people with under 1 BTC will almost certainly hold their coins in coinbase, blockchain.info, xapo or other places.

And funds under 0.01 btc are also likely to be a faucetbox payment address, directly from faucets.

Phone wallet are also likely to hold up to 0.5BTC.

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I dont think people start cold storage before 1-2 BTC, so inactive small addresses have a high chance of being black holes.

Well - I know for a fact (not just an opinion) that some people create "canary" brain-wallet addresses with a small amount to act as a warning for their more complicated brain-wallet addresses that are based upon the "canary" one.

(and such addresses are quite likely to have under 1 BTC in them)

Yes but we need to measure how much coins are lost /day, an accurate average would be good.

So it's not enough to measure how much coins are lost, but also how frequently they are lost. We need a daily or weekly average.


Of course it does, the less coins are in circulation the less coins can circulate.

Plus that bitcoin is inherently dis-inflationary, so it's hard to tell what is causing slower money velocity.


That's right "some" people create, but not most of them.

We cant have a accurate number here, but an estimate that is as accurate as possible, and for that you use the majority not minority.

Most folks just have 0.01BTC-0.1BTC in blockchain.info that they got from faucets and sig campaings.

You are of course welcome to use whatever imaginary figures you like - but don't expect anyone else to actually take that seriously.

(as you are seemingly basing your figures upon assumption after assumption that you are making)

It's not assumption.

Do you deny that coins under 1 BTC are heavily spent??

Because i know for a fact that most people here spend all their coins, mostly gambling, that are held in online or phone wallets.


Most people here dont even know what cold storage is, and i highly doubt anyone under 1 BTC even takes his time to set up one.


Most people use BTC for gambling or shopping and that is a very high money velocity in the lower earner numbers.

But coins with 2 BTC or above may be in cold storages.

Of course there are gamblers with biggers sums too, but those are already filtered out if we only look at the past 2 years of spending.

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It's pretty likely that a gambler with 20 BTC will not have his coins inactive for 2 years, he is probably addicted and gambles every day.

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So because coins under 1 BTC are heavily spent, those that are not are most likely black holes.

I don't know anyone that uses Bitcoin for gambling for a start (and I know a lot of Bitcoin users with a lot of Bitcoin).

So if you're assuming that all Bitcoin users are gamblers (which it seems you are) then maybe you might have made a mistake.

But again - it's your theory and you're welcome to it (certainly I am never going to pay it any attention).

Then its you who dont understand the composition of bitcoin users :D

Just take a look around  the forum and sample the distribution, start here and here:

https://bitcointalk.org/index.php?board=5.0
https://bitcointalk.org/index.php?board=57.0
https://bitcointalk.org/index.php?board=56.0
https://bitcointalk.org/index.php?board=71.0
https://bitcointalk.org/index.php?board=207.0

These threads alone have more posts than all other forum combined.

High money velocity, money changing hands rapidly, in smaller amounts.

Its pretty safe to say that most people spend some or all of their coins.

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It's only the bitcoin elite and rich people that are HODL-ers. And maybe the miners if they dont spend their coins on uppgrade and maintenance.

Gamblers are the type who would do the most posting (especially when they get themselves into debt they generally start trying to scam others via Ponzi's and the like).

There is another whole side to the Bitcoin user-base which seemingly you know nothing of but I'm not really worried if you only want to pay attention to the gamblers (if you want to refer to the others as the "elite" then fine you are welcome to refer to me as an "elitist" then).

Who cares, they are the majority. Most folks have small bitcoins that's a fact, and they like to gamble or invest in scams.

Then there are traders and speculators.

Then there are shoppers, women who shop online, and the spenders in general.

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All these categories are high money velocity, and small bitcoin amount.

I estimate around 1BTC to be the limit but even 0.5BTC to be more conservative.

I saw tons of posts of people spending about 0.5BTC weekly, and then recharging their balance in the weekend from fiat.

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So these guys , girls are not savers. Period.

The true savers and HODLERS are those from 5-7BTC and above

Well 1 thing is for sure, I cant wait till block halving.

That lets out the cat out of the bag, and if the black hole impact is really that big, we shall be able to detect it much easier after that.

Well to be fair, most of us probably have gambled at one point on some of these sites. Just not with a serious addiction.

And they will do almost anything to get some bitcoin to intially play again at the same site they lost at.

Theres a bunch of those ponzis in the so called investment section that are run by the same operators.

I`m resuming this research, i havent worked on this lately, and maybe do a survey on this to reflect the issue.This project is pretty important from an economic standpoint to analyze and better understand how deflation works in bitcoin.

I`m sure many academics find this issue fascinating too, although i`m not a professional, i`ll try to be as accurate as possible.

An easy example is if there was 10 chickens available and 50 people to buy and then 3 chickens got sold, the remaining 7 chickens are now worth more as there is still alot of demand but less supply.

If there was a way of knowing how many coins were dead, then that might be a factor in possible market conditions. As it is there's no way of knowing and there are enough coins on the sidelines waiting to meet buying pressure elsewhere.

Most people have their price. I guess that might be slightly raised by lost coins but it's something we'll never be able to quantify.

That's kind of the beauty of Bitcoin, you never know what Bitcoins have been lost or have become ghost coins, and thus the price is always representative of the total potential amount of Bitcoin in circulation.

At the same time is does technically inflate the market cap of Bitcoin, but no-one really cares about it because it has no effect.

as more bitcoin get lost, less people will lose bitcoin.

but yeah, eventually bitcoin will become really rare.

but i still think for the next couple of decades the amount of bitcoins mined will be more than the amount of bitcoins lost.

bitcoin is eventually becoming rarer than ever for sure, yet doesn't matter if you lost it or not, if less bitcoin on demand, the less value of bitcoin.
i don't sure but we should take bitcoin on demand in order to make it as better as you said. ???

This bitcoin black hole is like another term for burning addresses (correct me if im wrong here) , i see users still sending to those address and the only reason i think this is happening is to make bitcoin more valuable than ever.

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RealBitcoin

I don't know how this little piece of information from my own BTC experience would be worth anything in your study , but I have used perhaps 100 different addresses since I started using BTC.  For a few reasons (some of which I do not understand), I have not gotten very small amounts of BTC from them, especially my mobile device wallet (blockchain.info on iPhone).

As a guess, I would have some BTC0.0001 on about 15% of my total wallets, so that would be maybe BTC0.0015, or $6.50 or so.

If my experience is typical (and my calculations roughly correct) that might be a start, but I am less skilled in BTC and (of course) not a programmer (etc.).

HTH

Meanwhile we forgot about the number of potential paper wallets lost in oblivion because the owner simply does not remember where it was. Or early adopters who simply changed machines and forgot about some "worthless at the time" experiments.

I was wondering why we have to discuss this at all ;D so the problem is people forgetting the password or simply not backing it up then something happens and they can't find it again. Those problem is all about themselves who are careless I would say. This will only increase the value of our coin a bit despite loss of someone else