Bitcoin Forum

The anonymity concept is unique. Just like the Swiss Secret Accounts. But I have a question of Attrition of BitCoins and inflation. As I understand it there will only ever be about 21 Million (full BitCoins). It is understood that it can be fractionalized down to the eighth place holder (i.e. 0.00000001 Bitcoin) and that would solve the Human:Money ratio.

But as .dat files are lost, corrupted, forgotten, or people just die with out passing on the file to their relatives, BitCoins will disappear from the system overtime. There is a finite amount of them. You can't make more, the odds of recovering them but duplicating the account through guessing the .dat file is zero (or very close to it). Unlike IRL Money as money is lost it can be replenished over time. You can print more to avoid attrition. Unfortunately it is printed for other reasons too.

So over time, there would be a built in inflation of the BitCoin to a point to where there would only be 1 account holder left. What good would that be. Unlike Gold that was hidden in the back yard, it is way more likely to recover the finite resource (someone will find it and use it); where the BitCoin is essentially lost forever.

This happens in the Swiss Bank Accounts today, after a period of time with no activity they try to find the relatives of the account holder, if they are unable and after a period of time, they take the money. Hence the money is recirculated.

How does this happen in the BitCoin world. You would have to set up a trusted central account. The BitCoin Anonymous Bank to insure that BitCoins are continually circulated.  An account holder would provide the necessary data to pass on the account to relatives, donate it, or let the bank recover the money but unless every BitCoin user used it, attrition would only be delayed.

Invest to start the IBB (International BitCoin Bank) Address:  1LUGkSQhzn9djTvPD9GbGnfkpfeGA2cr7o

Are you serious? You’re undermining the whole concept of Bitcoin. There can be no central institutions. Also, it doesn’t even matter if Bitcoins are lost, you could run the whole economy on one Bitcoin. Other people’s Bitcoins will be just more valuable. And I think that people will be careful – it’s money after all.

No one will invest in a bank with zero reputation backing.

A topic like this seems to appear once or twice every week.

Yes, it would take time to run out, but running out will happen. The BitCoin will not inflate due to supply issues because no one will ever know that money has been lost in the system.  As far as people will be more careful:

  Scenario:

   You make a transaction worth 1 Million BitCoins from selling something doesn't matter. You walk outside to celebrate, and die of a heart attack. Your money is gone. It is lost into the system. Now if you used a holding company (escrow) account and leave the funds there there would be away for relative to retrieve the money.  Or are you going to tell your wife ahead of time, she wouldn't need a lawyer to get your money, she could just take it.

Or any number of scenerio's

The proposal is the same type of system the Suisse offers on password accounts. BitCoin's deposited into a password account, you are provided with a Key. In order to withdraw money you must have the Account #, the password, and the Key.  Anybody can deposit into the account with just the account #, only a select one or few could withdraw. It would work the same as the IRL Suisse Bank with the exception that the bank never needs to meet you.

Trust is the issue. But just like the Real Suisse accounts, if the bank stole everyones money no one would use them. And every bank knows the real money is not the holding and storing of it but the flow of it. It is the "Transaction Fees", not the 5 BitCoins.

The biggest difference is even if "someone" want the records of accounts, anything that could provided an identity, there would not be one. IRL the Suisse charge a lot of money for that privilege but even you must show up to open the account and then to withdraw, because IRL the "Key" is a small gold bar with numbers on it but they can use another "Key" of your choosing. One has to be present to use the Key, know the password, and account # before withdraw.

In the Online version, the "Key" is probably something electronic, password, and account# would still be used. The Trust would have to be earned by the bank, but that is usually done with a financial backing. (Investment Funds).  If a bank wants to handle a $10 transaction but hast a $1 billion dollars you can usually trust them. If they do the same and have only a .01¢, you can't.  It is a natural credit system.

The whole idea is a method of preventing attrition. BitCoins must have a way of being reclaimed. Out of curiosity, I will find out what the natural attrition rate is on IRL Money, apply it to BitCoins, and see how long it would be before we would run out.  Taking into account you wouldn't need to run dry because as BitCoins become inactive there would be less and less transactions. The breaking point is probably somewhere around 60% when there would not be enough BitCoins left to effectively keep a market going. I will have to factor in some X factors like what if "Bill Gates" lost his wallet.

I know it will take a long time, but it would happen. Just curious.

As far as running an economy off of 1 BitCoin, correct me if I am wrong, there are only 8 places to the right (0.00000001) so the lowest possible BitCoin unit would be ( $00,000,000.00000001) So 1 BitCoin could only have 100,000,000 million people holding each BitCoin but there are 5 Billion people.  An the Maximum would be 2,400,000,000,000,000 quadrillion BitCoins. Now if we are a share the wealth type of society, that would give everybody evenly split 480,000 BitCoins each. Which should go to prove, there will always be poor people.

The numbers are getting hard to source to give an accurate rate of attrition.

But I think I came up with a workable solution.

After a certain % of BitCoins are lost due to attrition. A second system, call it BitCoin v2 with the same amount of BitCoins could be started and give everyone a couple of years to transfer there money from BitCoin v1 to v2 and the difference will be the reclaimed lost BitCoins. If you fail to transfer after a few years than well its your fault.

That way everyone could stay anonymous and yet reclaim unused or lost BitCoins for recirculation.

We can always add more decimal space.

doing that would be catastrophic. Not to mention you defeat the purpose. But think about it you have 1 BitCoin / 0.00000001 = 100 Million units. But if you add 1 place, ( 1 / 0.000000001 ) you would have 1 Billion units. That would be Quantitative Easy to the absurdity. You just devalued everyones money 10 fold.  Talk about inflation. Instead of 5 BitCoin for Milk, it would be 50 BitCoin for Milk.

No, you do not want to add a decimal place.

I have to concede that point. Adding a decimal place is akin to inflating the money supply. Unless someone can explain why this idea is wrong.

Actually, I change my mind.

Adding a decimal space allows us to go to a smaller number. Whereas if we add 21 million more bitcoin, the price would actually go up.

As long as we don't MOVE the decimal place, we're fine - allowing more divisibility is a good thing.

The system would allow it anyway, you would have to start a new one.

If an authority had control over the decimal places, we would be right back to regular old money and monetary policy controlled by whomever is in charge.

As of now, now one is in charge.

It's just code somewhere. All the coder have to do is change the source code. Then it's up to bitcoin users if they want to accept the new monetary policy.

Heh, this is an ideal democracy, if you can even call it that. If you don't like the current system, create a new one.

Alternatively, online wallets could become predominant and their internal transaction databases could handle ultra small transfers.

True, Just don't see people accepting a voluntary devaluation of their money. But if the supply is still finite and there are no other systems it would not matter because all products were similarly affected.  Milk costs more but your proportionally have more just as everyone else also has more. So in theory, no real effect. But it would have to be a leading monetary system. It would sort of be like a stock split.

You think it is inflation of the money supply. I think it is increasing the divisibility of the money supply.

Got that?

Not that I think this would actually happen, but someone in a similar thread posted that if it ever did get bad enough to where there was only one bitcoin in existence, we could just start another block chain. Not sure if that's true or not.

Yea, I get it. But IRL there is a lag. And that Lag causes problems. There will be a certain number of things sold at one value before people get around to repricing the products, their will be an affect.

Just like the minimum wage joke:  They raise the wage, so product price will raise overtime to eat the increased cost, and then everyone is back to the same position. The time between those two positions there is an affect on the economy.

Tell everybody they will make 50 bucks and hour; they love you. But then the cost of products go up to counter the inflated wages.

The losers are people with contracts that don't cover changes in CPI (Consumer Price Increases).  Like mortgage and car loans. It will help the consumer but kill the business.  All the Big Boy contracts put in the CPI clause.  The "little guy" mortgage and car loans are covered in surprising ways. A little secret. Yea, the amount you pay on your loan will stay the same, but I bet you a 100 BitCoins that the insurance on those loans go up. Guess what, You are forced to carry insurance on Cars, and Houses until you own them.  The Big Boys are good at hiding the details.

That would be pretty bad, there would be 1 person on the planet with 0.00000001 BitCoin. I think the rest of the people moved on to something else like trading sea shells. ;D

Have you see a loan market in bitcoin? Not really.

Well, I was one of the first to be loaned with bitcoin once to go shorting. I shorted once, then I try to short again..but I gave up and paid all my debt(with a positive inflation rate!)

Anyway, if the loan market is really small or non-existent, than loans aren't really a problem in the bitcoin economy.

What the OP is talking about here would likely take hundreds of years to happen.  BitCoins aren't going to leach out of the system that fast.  Besides, if BitCoins succeed I bet it will only be 5 or 10 years before someone else starts another digital currency akin to BitCoins.  It is likely that if Crypto Currency takes off you will have several different ones competing with each other and so the whole world won't have to exclusively use BitCoins. 

Adding another decimal place to the RIGHT of the zero isn't inflation.  1 BTC will still be 1 BTC, you simply will be able to use smaller portions of it in your transactions.

If the Federal Reserve suddenly started minting 1/10th penny coins the US dollar wouldn't suddenly inflate.  Of course in the case of the US dollar no one would use them because a penny is already a very small amount which is only used when exact change is required.

Am I wrong?

Isn't this just psychological? If the client tomorrow started fully working with all the 8 decimal places, would that hurt the Bitcoin economy in any way? I wouldn't expect things to be any different when a nineth or more places get added...

Yes, I've been thinking I should try and write out a very careful response to this and a couple other common ones that we could sticky.

Bitcoins are infinitely divisible. The protocol currently supports 8 decimal places and can easily extended to support as many as needed.

This has been discussed thoroughly before in the forums.

Perhaps a thread on the matter should be stickyfied....