So what happens to lost bit coins?

[xodustrance]

If its not only possible, but pretty easy to lose your wallet info - a bunch of people have lost their wallet info by now.

What happens with that currency? If its gone forever, then the bit coin pool would be constantly lowering, regardless of how low a rate, right? Which would mean value should sky rocket?

[Meni Rosenfeld]

If coins are lost the value of each coin will go up, yes. I think much less coins will be lost than you think - people can lose a few bits here and there but are more careful with large sums, and backing up the wallet is easy. Which means the effect on the economy should also be fairly small.

[kjj]

Yes, coins can be lost permanently.  At some point, probably many years from now, the losses will exceed the decreasing subsidy.  That means that in the long run, the value of the remaining BTC will increase, but it will be gradual.

Keep in mind that the subsidy makes the currency very inflationary right now.

[Jutarul]

If its not only possible, but pretty easy to lose your wallet info - a bunch of people have lost their wallet info by now.

What happens with that currency? If its gone forever, then the bit coin pool would be constantly lowering, regardless of how low a rate, right? Which would mean value should sky rocket?

Lost coins are like gold on the bottom of the sea. A very deep one..... like a black hole.

Actually that analogy is not true, since the bitcoin protocol is based on consensus. If society at some points determines that all coins which are not spend within 100 years should be recovered then they can just fix the source code of the validation nodes to accept an unsigned spend. Question is why would they do that

And you're right. Lost coins add to the deflation rate. It's like someone horting all those coins with the intent to never spend them.

[Kazimir]

If its not only possible, but pretty easy to lose your wallet info

Then again, note that it's much easier to backup bitcoins and keep them safe & secure, than to safely store or backup fiat money or bars of gold.

Which would mean value should sky rocket?

Only if we would *know* which coins are lost.

[xodustrance]

Didn't consider that part - if we have no real way of knowing, then the effect should be negligible.

[DeathAndTaxes]

regardless of how low a rate
..
value should sky rocket?

Lost coins do reduce supply and that (everything else being equal) raises the price because bitcoins are finite. Still your two statements are in conflict.

If coins are being lost at a slow rate then we would expect the price to rise at a slow rate.  If the price is skyrocketing due to lost coins it would be coins are being lost at a very high rate.  Right?

[kjj]

Didn't consider that part - if we have no real way of knowing, then the effect should be negligible.

What really happens is that the market sets the exchange rate based on supply and demand.  But the supply isn't the total supply, it is the active supply.  Coins that are lost, or forgotten, or being saved, are not active and do not influence the market.  Of course, if the price rises, that will give people an incentive to use (sell) their coins, pushing the price back down.  But there is no way to know which coins are being saved vs. which coins have been lost.

[DeathAndTaxes]

Didn't consider that part - if we have no real way of knowing, then the effect should be negligible.

They still affect supply and thus price.

[Gabi]

The same thing that happens to gold when the galleon that is transporting it sinks

[nevafuse]

If its gone forever, then the bit coin pool would be constantly lowering, regardless of how low a rate, right? Which would mean value should sky rocket?

This is true.  This is far from an issue now because such a small population uses bitcoin & the value isn't high enough.  But there could come a time when enough coins have been lost that even a satoshi (the current smallest denomination) is worth too much making small transactions difficult.  My gut is that the network would be too decentralized to change it at that point, but someone could batch the code to add a set amount of zeros to everyone's balance (I think - correct me if I'm wrong).  Then we could have a denomination smaller than a satoshi.  If for w/e reason this can't be done, someone could always start a bitcoin2 w/ a higher maximum to overcome this issue.  Then you could just exchange your 1 satoshi for 100 satoshi2's & buy something worth less than 1 satoshi.  This will probably happen regardless when private key algo's are close to being broken.

[Jutarul]

If its gone forever, then the bit coin pool would be constantly lowering, regardless of how low a rate, right? Which would mean value should sky rocket?

This is true.  This is far from an issue now because such a small population uses bitcoin & the value isn't high enough.  But there could come a time when enough coins have been lost that even a satoshi (the current smallest denomination) is worth too much making small transactions difficult.  My gut is that the network would be too decentralized to change it at that point, but someone could batch the code to add a set amount of zeros to everyone's balance (I think - correct me if I'm wrong).  Then we could have a denomination smaller than a satoshi.  If for w/e reason this can't be done, someone could always start a bitcoin2 w/ a higher maximum to overcome this issue.  Then you could just exchange your 1 satoshi for 100 satoshi2's & buy something worth less than 1 satoshi.  This will probably happen regardless when private key algo's are close to being broken.

The question is how this value transfer should happen. If people leave the bitcoin and start using a bitcoin2, the value of bitcoin is gonna plummet. Is is possible that bitcoin2 would be coded with the ability to process specially crafted bitcoin transactions and give you the equivalent in bitcoin2s... Even though the scenario is highly inlikely it still has some merit to think about a transition protocol from bitcoin to bitcoin2... maybe the two systems can operate together for a while ... similar to how the IPv4 to IPv6 transition operates...

[nevafuse]

If people leave the bitcoin and start using a bitcoin2, the value of bitcoin is gonna plummet. Is is possible that bitcoin2 would be coded with the ability to process specially crafted bitcoin transactions and give you the equivalent in bitcoin2s...

Bitcoin & bitcoin2 could coexist just like the dollar & euro do today.  And as bitcoin2 gains in popularity, bitcoin would fall in value in comparison.  But it'd probably happen gradually like dollar/euro vs bitcoin today.  And exchange would probably happen the same way we convert dollars/euros to bitcoins.  If bitcoins could be patched to facilitate easy conversion to bitcoin2...then bitcoin would just copy the reasons bitcoin2 are better preventing the need for bitcoin2.  I was kinda making the assumption that the code couldn't be patch due for one reason or another (i.e. too decentralized to convert 51% of the miners).  But for bitcoin2 to take on bitcoin, it would definitely have to have a decent advantage.

[DannyHamilton]

The question is how this value transfer should happen. If people leave the bitcoin and start using a bitcoin2, the value of bitcoin is gonna plummet . . .

Couldn't "bitcoin2" just be coded with a bitcoin address for which nobody knows the private key?  It seems the protocol could be designed such that any bitcoin sent to that address along with a message including a "bitcoin2" address would result in the next "bitcoin2" block including an equivalent amount of newly minted "bitcoin2" coins assigned to the "bitcoin2" address from the message.  In this way the bitcoin to "bitcoin2" exchange rate could be pegged to some constant and ensure that the value of bitcoin doesn't drop or skyrocket relative to bitcoin2.  The 2 markets would move up and down tied together relative to other currencies.  If for any reason there should be any drift between the individual exchange rates, it would create an arbitrage opportunity for speculators which would quickly close the gap.

Perhaps it isn't as easy as it sounds in my head?

[DeathAndTaxes]

Yes (there are some simplifications with your proposal but it that is the general idea.  It has been discussed before and would work.

One issue is how do you ensure nobody knows the key?

Hey everyone the destroy your Bitcoins address is:
1N2sTE2qG8dnvrsFE22Qf2aDkx3RYUGPdk

I promise nobody has the private key.

Alternatively you could simply include all bitcoin1 addresses and values (as of a certain omega block) in the bitcoin2 genesis block.

Still Bitcoin is pretty extensible.  It is very unlikely a Bitcoin2 would be needed.  For example new address types (say which don't use ECDSA because it is compromised) could simply be added to the Bitcoin protocol and then a tx used to transfer coins from the "old" addresses to the new addresses.

What I think is more likely is some niche chain co-existing (probably with merge mining).  For example a coin which escrows Bitcoins to provide a reserve so that the alt-coin can maintain a dollar parity.  Or an alt-coin optimized for micro transactions.   Possible a verified alt-coin (strong identities w/ CA or self signed GPG keys) for B2B transactions.   So far all alt-coins have been pump and dump cheap copies but I think eventually some alt-coins will co-exist by targeting niches rather than trying to be general purpose currency.   

[DannyHamilton]

One issue is how do you ensure nobody knows the key?

Hey everyone the destroy your Bitcoins address is:
1N2sTE2qG8dnvrsFE22Qf2aDkx3RYUGPdk

I promise nobody has the private key.

Yes, as you mentioned there are several ways to deal with the conversion.  I was thinking along the lines of changing the bitcoin mining programs and client programs such that they would refuse to relay, include any transactions, or recognize as valid any transaction/block that use inputs signed with the key for the exchange bitcoin address.  It would require that a significant number of clients upgrade to the new version.  Then there wouldn't be much incentive to accept these transactions.  Having the private key wouldn't help much in that situation.

I'm sure there are better alternatives, the point is just that forcing a move to a new system wouldn't necessarily drive up (or down) the value of the existing BTC.

[Kazimir]

One issue is how do you ensure nobody knows the key?

Well, it's very easy to generate 'custom' addresses that match the Bitcoin address format specs, without having the corresponding private key.

I'm pretty sure that nobody has the private key for any of the following addresses: (they all have coins)

1BitcoinEaterAddressDontSendf59kuE
1111111111111111111114oLvT2 ← I'm actually surprised this is even a valid address, seems too short!?
1QLbz7JHiBTspS962RLKV8GndWFwi5j6Qr ← note the hash160!

And also check out this transaction

[chriswen]

The lost coins will disappear until people hack it.  Cause you could guess the private key.

If it's worth enough.  I know someone lost 20k + bitcoins.  From way back then.

Why mine bitcoin for a bit of tx fee when you could hack someone's bitcoins.

[lassdas]

The lost coins will disappear until people hack it. 
...
Why mine bitcoin for a bit of tx fee when you could hack someone's bitcoins.

If you could hack someone's bitcoins, you could hack everyone's bitcoins.
If that happens, there's no need to try and get someone's lost 20k, better go get someone else's not actually lost 500k instead. 

[Kazimir]

The lost coins will disappear until people hack it.

In other words, until the end of time.

Cause you could guess the private key.

No, you couldn't.

This has been addressed numerous time, just yesterday there was another topic on this.

It doesn't matter how many coins there are on an address. Nobody will 'guess' or 'hack' the corresponding private key, not within a million billion trillion years.