Bitcoin Black Holes and it's effect on price

[RealBitcoin]

So how it would affect the price of bitcoin if people keep forgetting their private keys and send bitcoin to an address with an unknown private key (black hole address)?

For example it's inevitable that somehow, somewhere, someone will forget his private key and will lock that bitcoin away forever. And eventually this will happen more and more, continuously and perpetually, up to the point that it will start affecting the price.

Also for example: let's suppose if an exchange loses the access , forever, to 1.000.000 bitcoin, but those bitcoins would stay there. Would the price go up or down, or it would not move?

Technically the price would have to go up, since we got the same value distributed across lesser addresses, thus the individual value of BTC would rise. If i can now buy 1 flower for 0.01 BTC, and the total amount of bitcoins could buy an entire field of thousands of hectares of flowers in Netherlands, then if somebody loses 1 mil BTC i could still buy the same with it, it's just that since 1 mil bitcoin is locked, i can now buy 2 flowers with 0.01 BTC

But there are more scenarios that could happen:

1) Price goes up because you now have the same network value of bitcoin, just distributed amongst less addresses. And also traders can't sell those bitcoins in the market into fiat, so the price will be skewed in the upwards direction until the effect lasts.

2) Price doesn't move because only the amount of bitcoin held at exchanges can affect the price, thus if 1 guy puts 1.000.000 bitcoin for sale in an exchange will drop its price. But 1 guy storing 1 m bitcoin in a cold storage, and 1 guy storing 1m bitcoin in cold storage while he forgot his private key, is equivalent.

3) Price would go down because people would lose faith in bitcoin, and also because the individual value represented by those coins goes down. It would be like burning your own house. The house represents a unit of value in the house network, if you burn your house then the market cap of the $ decreases or the GDP of the country, thus the price too, since people start panicking.

--

I would bet on 2) , perhaps 1) if the media pumps up the news, but if satoshi were to throw away his private keys (which he probably did), while he still owns a few million bitcoins, and nobody knows about this, would theoretically not affect the price!

[emelac]

There is a thread that invited people to post the number of Bitcoins they had irretrievably lost. In the post below someone added up all the honest looking answers he could find and came up with the total of 134578.27864659 Bitcoins. There must be far more than that number lost though. I think there are probably one or two million Bitcoins already lost. In the early days people didn't consider them valuable enough to protect and lost them because they didn't make backups.

I don't know if it's affected the price though. There are people holding massive amounts of Bitcoins who can move the market any time they want.

In your list of options I would choose the second, the price would not move because 1 guy storing 1 m bitcoin in a cold storage, and 1 guy storing 1m bitcoin in cold storage while he forgot his private key, is equivalent.

Went through all the honest posts from #100 onwards...

38669.33589602
+1300
+2
+3
+7000
+.25
+27000
+5
+1
+5
+3.14482421
+31.22782779
+150
+500
+88
+0.1
+78
+4.0624
+7500
+.3
+2130.83766357
+.05
+55
+.67
+.000035
+50000
+50
+1.3

New total
BTC134578.27864659

EDIT: First post really?... I guess I've just visited and never contributed.  

[RealBitcoin]

There is a thread that invited people to post the number of Bitcoins they had irretrievably lost.

Thats cool but that wasnt the question, and also there is no way to verify it. I can even be honest and say that i lost 1000 BTC, if i find the private key written down on a piece of paper 2 years later.

The point is how do you measure it accurately.And my original question is how this affects price.

Because bitcoin is just like other currencies, it has M1,M2,M3.

M0 = bitcoin in exchanges, it can be easily swapped into other currencies
M1 = online wallet bitcoin (blockchain.info, xapo, coinbase, etc wallets)
M2 = cold storage wallet with known private key
M3 ? = cold storage wallet with lost private key (black hole addres, that can be recovered in a few thousand years when we will have more powerful PC's that could crack AES-256, if that is ever possible)

So it's all about the velocity of money, we could scan through the addresses in the blockchain and see how much time does it take for a transaction to take place.

Usually the higher the transaction counts, it is associated with positive things since more people use the currency , but in this case its opposite since the more people have their funds locked the less people can sell them , IF  1) and 2) is correct @ post #1

[Amph]

it should not affect the price too much, at least until there is a mining activity, because if the demand stay the same(and it will not raise just because someone has lost 100k coins or whatever) having more coin that are already produced, lost forever will not do much to the market, there will be the same dumping

so the real game changer is the mining, if the demand stay the same

[gentlemand]

There'll always be buying, selling and hoarding of coins. Look at the current levels of coins on all the exchanges. It's a small fraction of the total number.

You'd have to lose a gargantuan percentage of all the coins for it to truly affect values and still we wouldn't know whether they were dormant or lost unless it was publicly announced and verified, which the average coin loser would not be keen to do anyway. I think this will be a forever unknowable element.

[emelac]

If a big holder who intended to keep on holding lost his keys I don't think it would affect the price and we would probably never find out about it.

If someone like the bear whale lost his private keys immediately before he intended to start dumping then it would obviously affect the price by preventing it from crashing.

If a big Bitcoin exchange lost its keys it would be unable to keep it secret forever and its affect on the price would probably depend on public perception of the incident. I expect if the public genuinely believed the keys were lost it might increase the price. Although it's unlikely the public would believe the keys were genuinely lost, and attribute it to a hack. In that case the price would crash because the public would expect stolen coins to be dumped.

[RealBitcoin]

There'll always be buying, selling and hoarding of coins. Look at the current levels of coins on all the exchanges. It's a small fraction of the total number.

You'd have to lose a gargantuan percentage of all the coins for it to truly affect values and still we wouldn't know whether they were dormant or lost unless it was publicly announced and verified, which the average coin loser would not be keen to do anyway. I think this will be a forever unknowable element.

A gargantual percentage now, or small percentages later. If we lose 1% now thats the same as losing 0.01% in 100 days.

The point is that it does come up in price. Because if there is a big panic in bitcoin, and everyone (except the most hardcore people) sell their coins, then the price cannot go below a certain amount if there are still bitcoins locked away.

For example if we would only have 1000 bitcoin in existance and 100 were on an exchange, and 900 woulld be lost forever. Then if the currenct price of bitcoin is 10$, and we lose that 900 coins forever, and if the other guys with 100BTC sell them all, the lowest the price can go is 9$ because they cant sell the 900 other BTC.

So my guess is that if the nr of lost bitcoin is really big, and it gets bigger every single day (but still lower than the daily coin minting), then the price of bitcoin does go down until 2016 when the next halving will ocur.

But after the halving if the number of lost bitcoins will be more than the minting, then the price will go up again in 2016

[AgentofCoin]

The price of bitcoin is based on what people are willing to pay, currently, on the exchanges.
If over time, many bitcoins are lost to the blackhole, that is less bitcoins that can be placed on those exchanges.

Not only will the halvings cause less bitcoins to enter the economy, but also the blackhole bitcoins.
Price is always based on supply. Supply goes down, price goes up. That is pretty much it, in theory.

When will you see an actual effect due to lost coins?
Probably far in the future when 90% of all coins are mined and we all see how many coins are actually circulating.

[RealBitcoin]

The price of bitcoin is based on what people are willing to pay, currently, on the exchanges.
If over time, many bitcoins are lost to the blackhole, that is less bitcoins that can be placed on those exchanges.

Not only will the halvings cause less bitcoins to enter the economy, but also the blackhole bitcoins.
Price is always based on supply. Supply goes down, price goes up. That is pretty much it, in theory.

When will you see an actual effect due to lost coins?
Probably far in the future when 90% of all coins are mined and we all see how many coins are actually circulating.

Yes we can set a more accurate formula for monetary inflation on bitcoin:

 Yearly inflation from minting - Yearly bitcoins lost in blackholes = Actual yearly inflation.

I said in my previous post that if the blackholes swallow more bitcoins than it gets mined, then we will see a price increase.

However we dont necessarly have to wait until 90% mining completion, since bitcoin is getting more centralized, newbies lose all their coins to gambling sites or exchanges all the time, thus eventually the bitcoins will be held by less and less people.

It's easier for a gambling site to accidentally destroy 10.000 bitcoins by forgetting private key, than for 100.000 newbies who hold 0.1 BTC isn't it?

So the more centralized the ownership it becomes, the more bitcoin will be lost eventually.

Price is always based on supply. Supply goes down, price goes up. That is pretty much it, in theory.

Haha that is not true, that is Keynesian woodoo economics BS.

Price =  Demand / Supply.

While Supply is generally precise and measurable, Demand is more subjective and harder to measure, but demand is not always correlated with supply. In most cases it isnt.

The demand for a bread can be high, if the supply truck is stuck in the mud and it will delay 2 weeks, the price will still stay high and not move to equilibrium.

Demand and supply are in most cases not moving in parralel. That is some inefficiency of the markets.

[fatguyyyyy]

Logically, the price would have to go up

[unamis76]

I think the price would have to go up, too...

As for me, I've lost a total of 0.003 BTC I think, more or less

[jbrnt]

I think bitcoin price is determined by demand more than supply. We are never short in supply, there are millions of bitcoin in circulation and there are always people who want to sell. Demand on the other hand is on the weak side. So, lost coins do not have much influence on price unless everyone is holding.

[RealBitcoin]

I think bitcoin price is determined by demand more than supply. We are never short in supply, there are millions of bitcoin in circulation and there are always people who want to sell. Demand on the other hand is on the weak side. So, lost coins do not have much influence on price unless everyone is holding.

Well price=demand/supply , but yes bitcoin doesnt not have an underlying economy strong enough yet to make a difference and to add an trusted value.

Technically speaking bitcoin is not a currency yet , because its not widely enough used to make transactions in exchange for goods and services.

But that will change in the future, so good point about the weakness in demand. So far the only thing adding to bitcoin's price is people buying it, because the other side of the economy is not that visible yet.

Ex: I built a skyscraper and sell it for bitcoin, normally should pump up the price of bitcoin, but actually it doesnt do it yet.
      But if i sell the skyscraper for $, and then use that $ to buy bitcoin, then it does pump it up.
      So the trust is the missing link!

[medialab101]

That's a feature... not a bug 

[Beliathon]

Doesn't matter at all. Bitcoin is a black hole for all other wealth, and is divisible to 8 decimal places.

[AgentofCoin]

The price of bitcoin is based on what people are willing to pay, currently, on the exchanges.
If over time, many bitcoins are lost to the blackhole, that is less bitcoins that can be placed on those exchanges.

Not only will the halvings cause less bitcoins to enter the economy, but also the blackhole bitcoins.
Price is always based on supply. Supply goes down, price goes up. That is pretty much it, in theory.

When will you see an actual effect due to lost coins?
Probably far in the future when 90% of all coins are mined and we all see how many coins are actually circulating.

Yes we can set a more accurate formula for monetary inflation on bitcoin:

 Yearly inflation from minting - Yearly bitcoins lost in blackholes = Actual yearly inflation.

I said in my previous post that if the blackholes swallow more bitcoins than it gets mined, then we will see a price increase.

However we dont necessarly have to wait until 90% mining completion, since bitcoin is getting more centralized, newbies lose all their coins to gambling sites or exchanges all the time, thus eventually the bitcoins will be held by less and less people.

It's easier for a gambling site to accidentally destroy 10.000 bitcoins by forgetting private key, than for 100.000 newbies who hold 0.1 BTC isn't it?

So the more centralized the ownership it becomes, the more bitcoin will be lost eventually.

Price is always based on supply. Supply goes down, price goes up. That is pretty much it, in theory.

Haha that is not true, that is Keynesian woodoo economics BS.

Price =  Demand / Supply.

While Supply is generally precise and measurable, Demand is more subjective and harder to measure, but demand is not always correlated with supply. In most cases it isnt.
The demand for a bread can be high, if the supply truck is stuck in the mud and it will delay 2 weeks, the price will still stay high and not move to equilibrium.
Demand and supply are in most cases not moving in parralel. That is some inefficiency of the markets.

When I stated price was based on supply, I was referring to how many bitcoin's were in circulation and on exchanges.
The theory that price = supply/demand, is common sense.
I did not mention demand because as supply decreases, demand will have to go up, otherwise blackhole bitcoins have no effect on future prices.
If bitcoin has no demand, then supply is worthless. Thus no need to mention demand in this bitcoin blackhole thought experiment.

[jjacob]

If the velocity of money (bitcoin) increases a lot, then bitcoin black holes may not have any effect.
It is the equivalent of one person hoarding coins - shouldn't affect the price when the velocity is very high.

[Amitabh S]

After sending some coins to a blackhole while experimenting with some code, I see this as a potential problem. But there is also a simple solution (at the cost of an interaction).

Before sending to any address, the client can additionally do a challenge-response with the received to ensure that the private keys are indeed correct.

Ideally the non-interactive way would be for the sender to verify that the coins are indeed retrievable from the receiving address. This could be in the form of a signature on some public random string.

[NorrisK]

Current price is not based on the potential maximum number of coins, who would now pay for something more than 100 years from now? It would only affect price if those coins lost were actively being traded, affecting the price on a daily basis.

[daddybios]

If Bitcoins are lost they will be less. In this case, the price must go up. But all this will be invisible to us.
+ As it was written a long time if the price is very high then Bitcoin can be divided into even smaller share than Satoshi.