Bitcoin Forum

Hi everyone. I have been thinking about BTC a lot lately and I've spotted an interesting problem.

Suppose, we have a not too bright newbie, who has started mining for bitcoin in a pool, had got something about 1-2 BTC and did not back up his wallet.
Now, suppose that something happens with said newbie's computer and his hdd gets damaged beyond repair. This leads to him losing his wallet and the bitcoins, as I understand.
The blame for loss is on the newbie, naturally, but this situation also is a problem for the whole bitcoin-community, because the bitcoins are not only lost for the newbie, but they are lost from the system as well. And as the system is programmed to have no more than 21 million bitcoins ever generated, active use of bitcoins will make situations like the one I described, inevitable and will mean, that the number of bitcoins will slowly decrease over time.
I would like to know, if there are some mistakes in my theory, and if no, is there a way to compensate for the loss of coins?

OMG!!! I was going to post exactly this right now. :D

Hello!


You've pretty much nailed it.


In practicality, they're gone. Lost forever along with the private key.

Cheers,
Kermee

Perhaps after a 5 year period, all accounts that have not been in use can be wiped and a short mining period can commence.

well if you lose your walet.dat and redownload the program on a new pc you would get a new id so yea im guessing you would lose your coins but they might have a failsafe that if a id has not been contacted in a long time the coins get recyed back into the system im not sure.

Seems like a reasonable way, but is there actually a way to check this?

When they're lost (deleted wallet.dat for instance), they're gone forever.  No, the coins are not "recycled" back or anything (which would be EXTREMELY bad for users that just keep a wallet around, inactive, for many years).  The total pool of bitcoins is decreased and the ones that are still around gain value (deflation).  This is completely by design in the system.

Yup, they're simply lost forever. Can't really see how you could ever determine which coins are lost and which ones are stored in a "treasure chest wallet", even after years and years of noone touching them. So the maximum 21 million number is really theoretical and the number of Bitcoins in actual use will start declining eventually I guess.

Ok, so I guess, bitcoin has a limited lifespan even in the best-case scenario. After the 21 mil will be generated, it will be only a matter of time, before bitcoins will become too rare to be practical. It could take decades, but it's inevitable.

As long as the software is updated to add more zeros after the decimal, there's a good chance bitcoins can surivice just fine on a fraction of a BTC. In any case there is a long way to go before that happens. Anyway, the chances that it will be a problem are probably about the same as running out of coins and dollar bills, if it happens there are bigger problems to deal with.

The practical answer is that yes, the bitcoins are lost.

But they're not, not really. There is the miniscule chance that some time before the heat death of the universe, a collision would be generated, and someone makes the same private key. This would result in those bitcoins popping up in their wallet. Think of it as the digital equivalent of finding a $5.00 bill in your pocket when pulling your jacket out of summer storage, except that in the meantime, it's turned into a $100.

It's inevitable, but it won't take decades, it will take millennia.

First, as bitcoins become more valuable, people will transact and hold smaller quantities of them. So the average loss will be of many fewer bitcoins.

Second, as bitcoins become more valuable, people will take more care in guarding them. It's quite probable that future computer technologies will make these kinds of losses nearly impossible. Hard drives are already being replaced by more reliable storage means, and as costs go down, redundancy and history will be routine.

Third, bitcoins are very divisible. Even if a bitcoin is worth a million dollars, people can still exchange one hundred millionth of a bitcoin. And extending the protocol to support even smaller fractions would be possible if it actually became necessary.

There are proposals for bitcoin-like schemes where lost coins can be recovered by miners. However, with the present scheme and hash chain, it is not going to happen.

think i better back up my wallet.dat before this happens. Whats the drill just like whack it on a truecrypt drive?

Truecrypt + Dropbox (or other cloud duplication service) is the best bet.

edit: Oh! and back up after every send. recv is not necessary, but couldn't hurt.

That happened to me once. Plus, what is that story about fishes and loaves?

With a pool like bitcoins.lc, the coins stay in your user account until you press withdraw. If you lose your wallet, you can't send coins you had in there any more, effectively losing all your money, but the coins you've been mining in the pool are still there.

Solution: after you create a new wallet and bitcoin has gotten all the blocks in the block chain, shut down bitcoin, and make a copy of your wallet.dat. Encrypt it (easy: 7-zip it with a long password) and put it on removable storage. See: https://en.bitcoin.it/wiki/Securing_your_wallet

This is why I recommend http://bitprotection.info :) always good to back up your wallet.

This problem is being analyzed in depth in another thread right now. There seems to be some contention among the users here as to the ultimate ramifications of this. I contend that increasing uncertainty will creep into the Bitcoin market as result of Bitcoin loss over time, ultimately rendering the entire system to be not as robust as it could've been. This may take some significant portion of eternity, but I think it's an indisputable fact.

Please read the thread, and contribute, if you will. Pay attention to the discussion further into the thread about ratios and increasing uncertainty. And please, don't bring up the fact that Bitcoins are nearly infinitely divisible. That's not relevant to the discussion. Here's the thread: http://forum.bitcoin.org/index.php?topic=20799.0

The Bitcoin currency was designed to be deflationary.  Most other fiat currencies are inflationary.  What that means is with Bitcoins, the longer you save, the more valuable it would become, so long as the currency succeeds and people trust it.  With most other currencies that aren't backed by anything but trust, they can print as much money out of thin air as they want, so long as trust is maintained.  However, saving money with these inflationary currencies means you'll lose money the longer you save.  Right now many worldwide fiats are becoming more fragile and trust is gradually being lost as countries try to print more money to bail out the rich people, allowing them to maintain their wealth with the newly printed money while everyone else gets devalued money in return.  The disparity between rich and not rich has widened at a greatly accelerated rate since the economic collapse.

jollyjim,
Could someone dump 6 billion Bitcoins on the market right now? You and I both know the answer to that.

In the far future, when for many years, it appears that only 1,000 Bitcoins are in circulation, the rest presumed lost, could someone dump a million Bitcoins on the market?

In this scenario, the presumed lost coins weren't really lost at all; they were saved.  It does show that whoever saved those million Bitcoins have gained tremendously from saving.  However, when they start to dump those coins onto the market, it would appear to be inflationary as the prices of everything goes up to reflect the amount in circulation.

It would be similar to someone finding a 2000 year old pottery and someone willing to pay $1m for it due to its presumed rarity.  However, if a year later some finds a site with thousands more of those same pottery, the presumed value would drop significantly, even though the amount produced hasn't changed at all, only the ones in circulation.

My point exactly.

The difference is, You see a problem with that. (btw, a smart millionaire would trickle them out, rather than dump)

Yeah, I do. I'd rather a system that, when it appears that 1,000 Bitcoins are in circulation, we know that the balance is lost. More certain valuations, and less fear in general, and as a result, the holders of those 1,000 Bitcoins continue to choose to hold them, as opposed to cashing them out.

Perhaps it would be best to assume that there are always 21,000,000 in circulation, for just this reason.

Sure, and you can even assume that others are assuming that you are assuming that. Bottom line, the numerical boundaries on the possibilities are more undefined the further into the future you go. And with larger numerical boundaries on the possibilities, one's assumptions just aren't as good.

Yes, That's the way the world works. We can't know the specifics of the future with any certainty.

We can't even tell for sure if it's going to rain on a specific day. And yet, people still go out in public without constantly wearing raincoats.

No, no, no. That's not what I mean by uncertainty in the future. What I mean is that the current state of Bitcoins in the present has a certain amount of uncertainty associated with it based on the dynamics of its supply. To individuals in the far future, which will be their present, they will view Bitcoins with a much greater degree of uncertainty than we do, again due to Bitcoins built in rules.

Not if they assume there are always 21 million in circulation. ;)

Remember, saved coins and 'lost' coins are functionally identical. And there's always the chance of that collision...

Let's say it's the far future and you have a lot of Bitcoins and you're one of the ones who assumes that. However, it appears that most others don't assume that. As a result, the price is really high as compared to your assumptions. Logically, what would you do? The point is, you can't impose your assumptions on the market. You can assume all you want, but that doesn't change the dynamics of the market, which will be different in the future.

Check your premises.

If the rest of the world assumes that there are 1000 Bitcoins out there, and I assume that there are 21 million, Prices would be lower than my expectations. I would be able to buy even more than I expected with the bitcoins I had.

...I don't see a problem with that.

This might be related, but if I kept multiple backups on my wallet.dat all over the place and all of a sudden lost all my most recent backups.... would an old wallet.dat still count as my wallet and my recent transactions will show up after a re download of blocks?

Thanks!

I was referring to the value of Bitcoins. You're referring to the price of goods.

You seem to be trying to convince me that being rich is a bad thing.

No. I am not. You can go back and read my entries again if you wish to continue.

Make a lot of money?



*(Italics are my clarifications)

Only if you sell them. And sell them before someone else who thinks like you. And maybe everyone will think like you, thus the valuation won't be as high as you hoped. In fact, suppose everyone walks around with this currency of which there's only apparently 1,000 in circulation, but they all assume there's 21 million out there. Not much of a currency then, is it? Not a lot to go around, but everyone operates under the assumption that there might be 21 million out there.

That's exactly the point. You see 1,000 in circulation, but have to assume that 21 thousand times that number could be dumped into the market. That clearly is a different set of dynamics than today's market in Bitcoins. Thank you for clarifying my point by indicating your need to assume that 21 thousand times the number of Bitcoins could exist than what are in circulation in such circumstances.

Can you tell me how many are in circulation right now? 'cause I don't have this magical market-vision all the people in the future are going to have.

Do you see the three words underneath your cat picture?

I should, I put them there. But for once, I'm going to re-rail the thread. You are claiming that people can 'see' 1000 or a million or however many Bitcoins are in circulation. I'd like to know how, exactly. 'Lost' coins are identical to saved coins, as far as the market is concerned. You can't even tell by examining the blockchain.

You have this thread and the one I linked to earlier in this thread. Read. I'm done.

Awww... it was just getting good. You were going to explain to me how people could tell which coins were saved and which ones were lost.

I was? If you'd bother to read what you have been encouraged to read, you'd realize that's why the uncertainty becomes greater in the future. At this point, I could point you to the dictionary's definition of obtuse, but you just sound like a troll.

Yes, yes, you worry that because bitcoins might be 'lost', and might suddenly come back on the market, that people will be uncertain of the total amount in circulation. I contend that if they assume that there are 21million available for circulation, no currency dump, no matter how large, will depress the price significantly or long-term. Since coins that are gone for good because someone lost the private key and coins that are out of circulation because someone is saving are functionally identical, the only way for the market to function is to assume 21 million coins. Any other assumption leads to exactly the problem you point out.

So you're basically not a risk taker and are fine with being mediocre with no chance of becoming rich?  That's fine for risk adverse people but there are plenty of others that enjoy investing/saving in hopes of becoming rich.

...
And when you want to sell one hour of your time for 1BTC and everybody say no, it worth only 0.0000001 BTC. What will you do ?

If everybody think there is 21 000 000 BTC in world and there is only 1 000. What will happen ? BTC will be really rare, so they will worth a lot. It's stupid to assume there is 21 000 000BTC. You must only watch the flows and adapt to them.

I will either work for 1 satoshi an hour, or I won't work. More likely, though, I'll find someone willing to pay more, even if it is less than what I was asking.

As the recent instability has shown, It's stupid to think the bitcoins you see are the only ones there are.

Of course we must be watching sleeping wallet. But we have to adapt to market.

P.S: Everybody: don't panic about lost BTC, when computer will become more powerfull, we will upgrade all our addresses to prevent cracking. And addresses that were not updated will be cracked. So BTC will never be lost. That's my point. I want to break the myth about lost BTC.

You are spot on. Simply put, make a copy/backup of your wallet file and store it on another medium (i.e. hard drive, flash drive, separate pc, etc.).

I'm sorry but I don't get the point of this thread.

Can you lose bitcoin currency?

Hmmm

Yesterday I threw my laptop overboard and watched it sink beneath the waves. I guess I lost all of my bitcoin currency that was on in it. I guess I should have backed-up my wallet.dat and kept it in a secure location.

Who would throw their laptop into the water if it wasn't broken?

Sell it to me for BTC!