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Author Topic: Will the gradual loss of coins lead to a price increase over time?  (Read 1267 times)
tenakha (OP)
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August 30, 2012, 11:17:19 AM
 #1

Hi,

inevitably some coins will be lost - broken laptops, irrecoverable wallets etc. Same as losing real coins under the sofa.
As there is a limited number of coins (presumably these won't be replenished), then in effect we have an ever dwindling supply of coins.
Over time the supply will just get less and less. 21 million isn't a huge number of coins.

Would this be an additional factor to cause the price to increase?
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August 30, 2012, 11:32:42 AM
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I think the factor of coins lost will be insignificant compared to the number of coins available. But this is just an assumption.. I too am a newbie
tenakha (OP)
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August 30, 2012, 11:46:24 AM
 #3

I guess what I am thinking is as follows:

a) Some coins will just get lost - lost wallets, crashed harddrives, people passing away (!) and not leaving access to their wallets.
b) some people will be BTC hoarders (like myself) .. stashing away BTC for the long term .. if 1000 people stash away 1000 BTC - thats 1 million gone from the liquidity straight away! 5% of the total number of bitcoins... and thats not really very difficult to happen - 1000 people putting away 1000 BTC (approx 10,000 dollars)....

I think its a good thing...! I'd rather invest in a currency that has limited supply (like BTC) than a currency which gets devalued continuously because they keep printing more of it! USD/GBP +others.

 Smiley
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August 30, 2012, 11:53:40 AM
 #4

I guess what I am thinking is as follows:

a) Some coins will just get lost - lost wallets, crashed harddrives, people passing away (!) and not leaving access to their wallets.
b) some people will be BTC hoarders (like myself) .. stashing away BTC for the long term .. if 1000 people stash away 1000 BTC - thats 1 million gone from the liquidity straight away! 5% of the total number of bitcoins... and thats not really very difficult to happen - 1000 people putting away 1000 BTC (approx 10,000 dollars)....

I think its a good thing...! I'd rather invest in a currency that has limited supply (like BTC) than a currency which gets devalued continuously because they keep printing more of it! USD/GBP +others.

 Smiley

The answer to your questions is YES, lost coins lead to price increase.
Same thing with gold, lose your bullion and there's fewer of them for sale, thus raising the price.

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August 30, 2012, 12:20:24 PM
 #5

Hi,

inevitably some coins will be lost - broken laptops, irrecoverable wallets etc. Same as losing real coins under the sofa.
As there is a limited number of coins (presumably these won't be replenished), then in effect we have an ever dwindling supply of coins.
Over time the supply will just get less and less. 21 million isn't a huge number of coins.

Would this be an additional factor to cause the price to increase?


Yes, that's a factor. However as coins cost more, there is a higher pressure to be careful with your coins.

21 million is not the "number of coins" but the nominal amount in BTC. The indivisible unit is the Satoshi, and there are 1E+9 satoshis per BTC. That's 1 American billion. As a result, there are 8 decimal places of precision when counting in bitcoins. So yep, in time it's possible that we end up using cents of BTC more than BTC, and continue that trend downwards, however 8 decimal places allow for a very long time. With a 7 billion people economy, there would be about 300,000 satoshis per person.

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August 30, 2012, 02:01:50 PM
 #6

Hi,

inevitably some coins will be lost - broken laptops, irrecoverable wallets etc. Same as losing real coins under the sofa.
As there is a limited number of coins (presumably these won't be replenished), then in effect we have an ever dwindling supply of coins.
Over time the supply will just get less and less. 21 million isn't a huge number of coins.

Would this be an additional factor to cause the price to increase?
Someone else posted more or less the same question a few days ago.

And forget the "21 million". This number is completely arbitrary, it doesn't matter! Current bitcoin clients support up to 8 decimals, and this can be increased further whenever the need arises.

Would the total amount of gold available in the world ever become insufficient? No! Cause if there aren't enough kilograms, people would deal with grams, or milligrams, etc.
And unlike gold, which can only be divided up to individual atoms (which would be impossible to handle in practice), bitcoins can be divided with unlimited precision, and paying 2 nanoBTC is exactly as convenient as paying 2 BTC)

So, forget the 21 million limit. There might have been just as well 800 trillion coins, or just 5. By definition, there is an infinite amount of units available.

In theory, there's no difference between theory and practice. In practice, there is.
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tenakha (OP)
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August 30, 2012, 02:13:37 PM
 #7

OK, that makes more sense. If the individual Bitcoin is divisible to 9 decimal places then I can see it has the potential to handle growth too.

21,000,000 is arbitary .. it makes more sense.

At the end of the its all about the 'perceived' value by the masses. That is what drives every market = supply and demand of course, but also - the madness of crowds and crowd psychology.
This can lead to runs on banks or overinflated housing prices .. and often both at the same time.! :-)
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August 30, 2012, 02:21:26 PM
 #8

Yeah, psychology-wise, "21 million bitcoins" doesn't sound like a lot.

Perhaps it should be referred to as "21 quadrillion bitcents" (i.e. satoshi's), which are probably more units than any other existing currency worldwide.
Of course, still with the notion that these "cents" can be further divided into arbitrarily small fractions whenever necessary.

In theory, there's no difference between theory and practice. In practice, there is.
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August 30, 2012, 02:30:51 PM
 #9

I think the factor of coins lost will be insignificant compared to the number of coins available. But this is just an assumption.. I too am a newbie

I agree with this. People will tend to lose fewer and fewer as they become used to Bitcoin, and as the value per coin goes up. It's only a problem for the person who loses it, anyway.
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August 30, 2012, 03:34:11 PM
 #10


And unlike gold, which can only be divided up to individual atoms (which would be impossible to handle in practice), bitcoins can be divided with unlimited precision, and paying 2 nanoBTC is exactly as convenient as paying 2 BTC)

So, forget the 21 million limit. There might have been just as well 800 trillion coins, or just 5. By definition, there is an infinite amount of units available.


So at the point where bitcoin is supposed to become deflationary and reward hoarders and early adopters, it can easily stagnate or even inflate?
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August 30, 2012, 04:45:10 PM
 #11

So at the point where bitcoin is supposed to become deflationary and reward hoarders and early adopters, it can easily stagnate or even inflate?
Eh, no? I was merely addressing the supposed shortage of total units available (which is nonexistent), not the economic value per unit.

In theory, there's no difference between theory and practice. In practice, there is.
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August 30, 2012, 05:01:26 PM
 #12


And unlike gold, which can only be divided up to individual atoms (which would be impossible to handle in practice), bitcoins can be divided with unlimited precision, and paying 2 nanoBTC is exactly as convenient as paying 2 BTC)

So, forget the 21 million limit. There might have been just as well 800 trillion coins, or just 5. By definition, there is an infinite amount of units available.


So at the point where bitcoin is supposed to become deflationary and reward hoarders and early adopters, it can easily stagnate or even inflate?

No a change in the discrete units won't change the value of the base unit.

USD have traditionally only had coins for one penny or larger.  We consider dollar to have 2 discrete units.  Yes it gets "fuzzy" because digital dollars can use smaller units but for the sake of this excercise lets ignore it.

Say today you can buy a candy bar for $1.00.  If tomorrow the treasury announced they are going to make 1/10th cent coins and the store changed the price tag from $1.00 to $1.000 did you lose any purchasing power due to inflation?

Of course not.

If on the other hand if the Treasury announced they doubled the money supply and the store changed the price tag from $1.00 to $2.00 you would have lost purchasing power.

Bitcoin has 21M bitcoins.   If you own 210,000 BTC you own 1% of all Bitcoins in the system.   Let say a video game costs 2.1 BTC. If the number of decimal places is increased from 8 to 12 how many BTC do you own?  Still 210,000.  What % of the Bitcoin money supply do you have?  Still 1%.  How many BTC are available?  Still 21M. How many video games can you buy?  Still 100,000.

Lets compare that to what happens if the number of Bitcoins was doubled to 42M.  You still have 210,000 BTC but you now only have 0.5% of the total money supply and the price of the game will likely inflate to 4.2 BTC meaning you can now only buy 50,000 copies.


When a central bank ADD money to the money supply they make all the existing units less valuable.  If you break existing units of money into tinier and tinier pieces you don't change the value of the base unit.
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August 30, 2012, 05:32:58 PM
 #13

. . . Current bitcoin clients support up to 8 decimals, and this can be increased further whenever the need arises . . . By definition, there is an infinite amount of units available.
I was under this same mistaken impression (and made a similar comment in https://bitcointalk.org/index.php?topic=102756.msg1128037#msg1128037)  until I took a closer look at the blockchain layout.  The blockchain doesn't use decimals to represent bitcoins, it uses integers representing satoshis.  The bitcoin representation is just something that the client program does to display the value (the client takes the number stored in the blockchain and places a decimal 8 places to the left before displaying it.  This means that we can't just "add more decimals".  We would have to change what the number in the blockchain represents.  There would be a upgrade time period during which some people might still be running software that used the old representation while others use software with the new representation.  This would be a problem (one program sending 100000000 thinking that it is sending 1 BTC, and another program thinking that the amount it is receiving is only .01 BTC), and would require a hard fork in the blockchain.  There are ways to deal with the situation, but it isn't as simple as "just add moar decimals!"
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August 30, 2012, 07:09:56 PM
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The supply grows faster than it declines.
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August 30, 2012, 07:19:13 PM
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. . . Current bitcoin clients support up to 8 decimals, and this can be increased further whenever the need arises . . . By definition, there is an infinite amount of units available.
I was under this same mistaken impression (and made a similar comment in https://bitcointalk.org/index.php?topic=102756.msg1128037#msg1128037)  until I took a closer look at the blockchain layout.  The blockchain doesn't use decimals to represent bitcoins, it uses integers representing satoshis.  The bitcoin representation is just something that the client program does to display the value (the client takes the number stored in the blockchain and places a decimal 8 places to the left before displaying it.  This means that we can't just "add more decimals".  We would have to change what the number in the blockchain represents.  There would be a upgrade time period during which some people might still be running software that used the old representation while others use software with the new representation.  This would be a problem (one program sending 100000000 thinking that it is sending 1 BTC, and another program thinking that the amount it is receiving is only .01 BTC), and would require a hard fork in the blockchain.  There are ways to deal with the situation, but it isn't as simple as "just add moar decimals!"

No different than the half dozen protocol enhancements which have occurred in the past.   Nobody said it is as easy as MOAR decimals however it wouldn't be that difficult to implement.  It would have a whole lots less risks than implementing P2SH did and that went off rather smoothly.  The easiest way to prevent what you fear is to have a new transaction type (high precision tx).  Non compliant nodes would see those transactions and blocks as invalid and not even attempt to process them.

IIRC Gavin had expressed interest in implementing protocol versioning and then using that in existing clients to en and version checking in client nodes.  If that is done it would be even easier to extend the protocol.  Older clients would be warned to upgrade, the developers would ensure there is sufficient hashing power to support the new protocol version.  At a preset block compliant nodes & miners would switch to new protocol version.  Older clients seeing the newer protocol blocks would warn the user.
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August 30, 2012, 07:37:26 PM
 #16

As the price goes up, more people will get involved and individuals will hold less coins, therefore any loss will of coins due to hardware failure etc will decrease.

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