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Author Topic: Will occasional losses of bitcoin wallets limit available maximum bitcoins?  (Read 13467 times)
Minsc
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April 15, 2010, 12:06:17 AM
 #1

What happens if somebody has some data issue and completely loses their bitcoin wallet for good?  Will this mean the bitcoins that they had would be lost permanently from the potential maximum bitcoin money supply?  Then as this happens occassionaly, the maximum bitcoin money supply shrinks.

As this happens over time, will it destroy bitcoin or can bitcoin recover?

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The Madhatter
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April 15, 2010, 12:55:04 AM
 #2

Bitcoins that are lost are lost forever. No it doesn't recover. It is "natural deflation". Tongue
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July 13, 2010, 11:40:34 PM
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Well, if in some case EVERYONE loses their coins, they can just start the whole coin generation process all over again.
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December 25, 2010, 07:44:54 AM
 #4

Bitcoins that are lost are lost forever. No it doesn't recover. It is "natural deflation". Tongue

Sorry to bump this old thread, but it seemed mildly less obnoxious than starting a new one on an already-discussed topic.  This problem was actually my first thought when I heard about bitcoin--given that wallets are often stored on run-of-the-mill computers, and that a huge proportion of computers crash without proper backups in place, won't the resulting deflation be quite significant?  Even if it's just small amounts lost by reckless users(think digital equivalent of teenagers losing spare change due to holes in pockets), this would add up fast if bitcoin were in widespread use.  And this in a system that is naturally deflationary to begin with!  Isn't this a pretty huge systemic problem?

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December 25, 2010, 08:41:17 AM
 #5

Some idiot loses his wallet. My wallet becomes worth more. No problem!  Cheesy

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December 25, 2010, 10:08:12 AM
 #6

And this in a system that is naturally deflationary to begin with!  Isn't this a pretty huge systemic problem?

Most people in the Bitcoin community think that deflation is actually good for the economy.

The last three months we've already had massive deflation (approx. -75%)  and the Bitcoin economy is doing fine.

See:

https://en.bitcoin.it/wiki/Deflationary_spiral

Also, the deflation from losing wallets is going to be negligible compared to deflation from new users joining. 

Unlike credit cards, Bitcoin feels like real money to people, and I think that most users treat a wallet.dat file differently to just any data stored on their harddisk. I would be very surprised if many people who own more than few hundred BTC don't keep at least one backup of their wallet.






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December 25, 2010, 01:48:15 PM
 #7

Too bad one cannot find someone else's lost wallet on the street. Wink

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December 25, 2010, 07:45:32 PM
 #8

Bitcoins are never lost. just that the key is lost in the ocean somewhere.

One day, some guy might get very very very lucky to find a key to a vault full of bitcoin.

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December 25, 2010, 07:59:45 PM
 #9

Bitcoins are never lost. just that the key is lost in the ocean somewhere.

One day, some guy might get very very very lucky to find a key to a vault full of bitcoin.

You mean by brute-forcing private key of the wallet owner or what ?

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December 25, 2010, 08:04:03 PM
 #10

Bitcoins are never lost. just that the key is lost in the ocean somewhere.

One day, some guy might get very very very lucky to find a key to a vault full of bitcoin.

You mean by brute-forcing private key of the wallet owner or what ?

Just randomly generating a key that was lost and held lots of money

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December 26, 2010, 09:18:00 AM
 #11

Just randomly generating a key that was lost and held lots of money
But of course there's no way to know that it is a lost key that was generated. It's more likely to be a key that someone else still holds but hasn't yet used to spend the associated bitcoins.

Anyway, the odds of that happening are so microscopically small that I'm not going to lose sleep over it. Also, I understand that a distributed system like Bitcoin can't have a central way to prevent duplicate keys, so I accept it on a philosophical level too.
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December 27, 2010, 02:12:55 AM
 #12

Some idiot loses his wallet. My wallet becomes worth more. No problem!  Cheesy

For bonus points, can you tell us how this info is transmitted? Smiley

How long does it take for your wallet to be worth more?

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December 27, 2010, 02:24:22 AM
 #13

Allowing this weakness to persist just because of the individual gain incurred by deflation is callous and corrosive to the system as a whole.

One need not be "stupid" to have an ill-timed (redundant?) house fire, or be the subject of a clever coordinated attack.

The system at the very least needs a way to liberate lost coins.

Coins that stay dormant for say 100 years are divided up among all current users? Is something like that possible? Ideally the problem should be obviated in some way, but as I say in the following post, those most capable of solving the problem are those least motivated to do so.

It's exactly why trickle down was laughable.

Related: http://bitcointalk.org/index.php?topic=2436.msg33326#msg33326

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theymos
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December 27, 2010, 02:29:28 AM
 #14

For bonus points, can you tell us how this info is transmitted? Smiley

How long does it take for your wallet to be worth more?

People find it more difficult to obtain bitcoins because fewer bitcoins are being sold/traded. The price is then raised because demand has stayed the same (or risen), but supply has been reduced.

How long it takes depends on how the person was using the coins previously. If they were actively trading, the market will notice immediately. If they were saving for a short period or trading only occasionally, it might take a few months. If they were hoarding for a long period of time, the market might have already adapted to the loss of the coins from circulation.

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December 27, 2010, 04:41:05 AM
 #15

Some idiot loses his wallet. My wallet becomes worth more. No problem!  Cheesy

For bonus points, can you tell us how this info is transmitted? Smiley

How long does it take for your wallet to be worth more?
It's hard to say how long deflation would take to kick in.  It depends on many variables not easily quantified.  Hell, even though we know, for example, roughly how much larger the USD money supply is today compared to several years ago, its effect on inflation hasn't really been seen.  The economy will have to pick up a lot more in order to create a sufficiently-high-enough increase in demand in order for us to see inflation.

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December 27, 2010, 05:08:54 AM
 #16

Some idiot loses his wallet. My wallet becomes worth more. No problem!  Cheesy

For bonus points, can you tell us how this info is transmitted? Smiley

How long does it take for your wallet to be worth more?
It's hard to say how long deflation would take to kick in.  It depends on many variables not easily quantified.  Hell, even though we know, for example, roughly how much larger the USD money supply is today compared to several years ago, its effect on inflation hasn't really been seen.  The economy will have to pick up a lot more in order to create a sufficiently-high-enough increase in demand in order for us to see inflation.

Yes, I think I understand it, but it is pretty tricky to explain imo. You will essentially 'notice' it when those coins would have been bidding against you for something, but now they aren't and this lack of competition will happen over and over.

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December 27, 2010, 05:53:55 AM
 #17

lost coins will eventually be recovered when quantum computers become large enough... as the rest of the network will have already moved all the active coins to stronger addresses well before that time.  Grin

But that may be at least 40 years in the future.

One off NP-Hard.
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December 27, 2010, 06:02:24 AM
 #18

lost coins will eventually be recovered when quantum computers become large enough... as the rest of the network will have already moved all the active coins to stronger addresses well before that time.  Grin

But that may be at least 40 years in the future.

Do you think there will be a period where bitcoin is still used, but big accounts are getting 'sniped' by fast computers? I guess with certain assumptions it might be possible. It's funny to think about the protections people would take, splitting down coins to many addresses to avoid being targeted, maybe moving them around quickly (might not help I guess).

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December 27, 2010, 06:23:40 AM
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Do you think there will be a period where bitcoin is still used, but big accounts are getting 'sniped' by fast computers? I guess with certain assumptions it might be possible. It's funny to think about the protections people would take, splitting down coins to many addresses to avoid being targeted, maybe moving them around quickly (might not help I guess).

Quantum computers will not be able to develop to a threating size without it escaping public knowledge.
When it becomes likely that a quantum computer of a attacking size will been developed within the next say - 10 years. A security update will be developed that will make Bitcoin much more difficult to attack.

This update will consist of three parts:
1. Increasing the length of the hashes used for the block chain. (maybe SHA256 => XXX8192)
2. Massively increasing the asymmetrical private/public key length used to secure transactions.
3. Massively increasing the length of a Bitcoin address (the hash of the public part of a key). (maybe the new address will be 1024 + 8 character long)

This security patch will be released well before a quantum computer is developed to a stage that can attack it.  For anyones bitcoins to remain secure, they will need to 'spend' the coins to the new secure addresses.

Since 'lost' coins cannot be 'spent,'  they will on day be collected (and moved to new secure addresses) by somebody who can take the effort to crack the old (insecure) addresses.

Once, quantum computers become common, bitcoin could even use cypto that requires quantum computers to do the calculations, otherwise it would be prohibitory slow.

One off NP-Hard.
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December 27, 2010, 02:37:46 PM
 #20

The system at the very least needs a way to liberate lost coins.

The system for handling lost coins is that remaining coins are highly divisible.  When a wallet is lost, there may be 100 BTC fewer available for trading, but the remaining bitcoins can be split into smaller pieces to handle remaining transactions.  Even if all but 1 BTC was lost, the currency would continue to function as a viable medium of exchange because that 1 coin could be divided into small enough pieces to facilitate meaningful transactions.

In the United States, about .725% of the coin supply is lost each year.  Since all Bitcoin transactions are public, it should be easy to calculate how many bitcoins are lost annually and the markets will adjust accordingly.

Trading unpredictable central bank inflation for predictable annual coin loss seems like a good design decision to me.
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