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Author Topic: How are BitCoins that are stored offline still tracked in the network?  (Read 899 times)
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January 25, 2013, 07:28:49 PM
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 Huh If the BitCoins are offline, how could the BitCoin network know if they are destroyed, lost, or never to be used again?

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January 25, 2013, 07:33:32 PM
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Huh If the BitCoins are offline, how could the BitCoin network know if they are destroyed, lost, or never to be used again?

The bitcoin blockchain is essentially a ledger system.   The ledger contains transactions that transfer funds from the address(es) on the left side (inputs) to the address(es) on the right side (outputs).    From this ledger, the status (unspent balance) of every address can be determined.

A Bitcoin address in a wallet has a corresponding private key.   That private key is needed for spending any funds sent to that address.  So if a private key is destroyed, lost or never used, that just means those coins sent to that address can never be spent.    It happens.  It isn't a problem ... except for the party whose coins were destroyed, lost or never to be used again.

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January 25, 2013, 07:34:17 PM
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It's the private keys used to spend the bitcoins that are stored offline.

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January 25, 2013, 07:35:50 PM
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Huh If the BitCoins are offline, how could the BitCoin network know if they are destroyed, lost, or never to be used again?

The bitcoins are not actually stored offline. Only the private key. Imagine it like a mailbox, anybody can put money in, but only the person with the key can move the money to another box. When you make a transaction, it is like sticking some of the money out of the box with a receipt saying where to put it; the miners come along and whoever wins the miner lottery takes all the money sticking out of the boxes and puts it where the receipts say, keeping whatever tip is sticking out with it (the transaction fee) and adding a new bunch of money out of thin air (the block reward, currently 25 btc).

Having an "ofline" wallet just means that the private key for that bitcoin address is stored somewhere like written on a piece of paper, instead of having it loaded in the bitcoin wallet on your computer. In order to spend any money from the offline wallet, the address must first be imported into the client.

Bitcoins cannot be destroyed or lost, and the network does not care if you never plan to move them again (but if you lose the private key then they are pretty much lost, since there is no way to use them. I guess there are ways to destroy bitcoins, by sending them to an unusable address, but the normal client will not let you do that, there have been some people who destroyed bitcoins accidentally using custom software).

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January 25, 2013, 07:39:06 PM
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Do you mean offline as in sent to a wallet that isn't being used?

For one, BitCoins cannot be destroyed (to my knowledge). If they're in an address linked to a wallet file that gets deleted, the BitCoins are still in that address: it's the access to them that's lost.

There isn't really a way to tell if BitCoins are "lost" or never going to be used again: you could see an address with BitCoins that haven't been used in a long time, but you can't tell if the owner lost the keys, gave up on BTC and abandoned the wallet, or is simply sitting on them as an investment.

For additional clarification: the coins themselves are never offline. They're in the network stored in an address. The wallets that hold the address keys, however, can be offline (or even printed on paper). If I make a paper wallet offline and send coins to the address, the coins are still on the network in that address. It's the access to the address that is not linked to any online source.
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January 25, 2013, 08:42:38 PM
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. . . For one, BitCoins cannot be destroyed (to my knowledge) . . .
They can be, but not by an average user using any of the commonly used wallets.

As an example, a miner can choose not to claim the miner fees in the coinbase transaction when they mine a block.  In this case all the bitcoins that would have been fees are no longer associated with any address and have therefore vanished from existence.

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January 25, 2013, 08:44:35 PM
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. . . For one, BitCoins cannot be destroyed (to my knowledge) . . .
They can be, but not by an average user using any of the commonly used wallets.

As an example, a miner can choose not to claim the miner fees in the coinbase transaction when they mine a block.  In this case all the bitcoins that would have been fees are no longer associated with any address and have therefore vanished from existence.


So it would have to be done by someone who is willing to give up money just to mess with a handful of people? That's a depressing thought...  Sad
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January 25, 2013, 10:12:21 PM
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So it would have to be done by someone who is willing to give up money just to mess with a handful of people?

Who are these people being messed with?  There's no victim other than the perpetrator who does it to himself.

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January 25, 2013, 10:15:10 PM
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. . . For one, BitCoins cannot be destroyed (to my knowledge) . . .
They can be, but not by an average user using any of the commonly used wallets.

As an example, a miner can choose not to claim the miner fees in the coinbase transaction when they mine a block.  In this case all the bitcoins that would have been fees are no longer associated with any address and have therefore vanished from existence.


So it would have to be done by someone who is willing to give up money just to mess with a handful of people? That's a depressing thought...  Sad

Nobody is being messed with.  It is the Bitcoin equivalent of intentionally lighting a stack of cash that belongs to you on fire.

For some reason the Bitcoin network doesn't require a miner to take the fees.  A block is valid if the coinbase is less than or equal to the max computed block reward (subsidy plus sum of block outputs minus sum of block inputs).  A miner giving themselves too much reward will produce an invalid block but a miner giving themselves too little reward (or none at all) will still result in a valid block.

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January 26, 2013, 03:23:50 AM
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. . . For one, BitCoins cannot be destroyed (to my knowledge) . . .
They can be, but not by an average user using any of the commonly used wallets.

As an example, a miner can choose not to claim the miner fees in the coinbase transaction when they mine a block.  In this case all the bitcoins that would have been fees are no longer associated with any address and have therefore vanished from existence.


So it would have to be done by someone who is willing to give up money just to mess with a handful of people? That's a depressing thought...  Sad

Nobody is being messed with.  It is the Bitcoin equivalent of intentionally lighting a stack of cash that belongs to you on fire.

That's even more depressing.
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January 26, 2013, 03:28:51 AM
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That's even more depressing.

Why???  Huh

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January 26, 2013, 03:34:18 AM
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That's even more depressing.

Why???  Huh

They're just throwing away money, right? Why on Earth would anyone intentionally turn down the free BTC?
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January 26, 2013, 03:48:03 AM
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That's even more depressing.

Why???  Huh

They're just throwing away money, right? Why on Earth would anyone intentionally turn down the free BTC?

There is no evidence that it is intentional.  Bitcoin is an experiment it is more likely software errors resulted in taking a reduced reward.  I haven't heard of anyone intentionally mining blocks for no reward.

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January 26, 2013, 11:53:48 AM
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Bitcoins cannot be destroyed or lost,
If you lose your wallet (private key), the analogy used for it is that it's like shooting it into space. Sure, NORAD knows where it is but it's almost impossible to get it back without launching your own space programme.
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January 26, 2013, 11:02:50 PM
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Bitcoins cannot be destroyed or lost,
If you lose your wallet (private key), the analogy used for it is that it's like shooting it into space. Sure, NORAD knows where it is but it's almost impossible to get it back without launching your own space programme.

On a long enough timeline it is highly probable that the cryptographic primitives used in Bitcoin (SHA-256, RIPEMD-160, ECDSA) will become compromised to the point that a brute force search is possible so in your analogy eventually people will build space craft to go look for stuff. Smiley

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January 26, 2013, 11:16:50 PM
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Well, that is both some what worrisome and somewhat reassuring to hear. One of my concerns was that people are not always great about backing up their files and if enough people fail to back up the wallets and their computer goes down you may end up with a great deal of money just sitting around outside of the system because they can no longer get to it. The ability to at some point in the future bring that money back into circulation seems like it could get rid of that problem. The part that worries me is that those same people could also get into active wallets and take money that was not lost. I may be horribly misunderstanding something and be horribly off base with this statement. I am new to this and have only seen a few videos and what not, so I am no expert.
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January 26, 2013, 11:29:35 PM
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so in your analogy eventually people will build space craft to go look for stuff. Smiley
Yup. All asymetrical encryption - including that used by HTTPS and bitcoin - rests on mathematical functions that are faster to do in one direction than the other. If computing power grows beyond your key size, your secret is no longer safe, but no matter what the key size is, it would also be short-circuited if somebody makes a quantum computer or proves that P = NP. Both would get you a Nobel Prize and send the security sector into a frenzy.
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January 26, 2013, 11:30:10 PM
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Well, that is both some what worrisome and somewhat reassuring to hear. One of my concerns was that people are not always great about backing up their files and if enough people fail to back up the wallets and their computer goes down you may end up with a great deal of money just sitting around outside of the system because they can no longer get to it. The ability to at some point in the future bring that money back into circulation seems like it could get rid of that problem. The part that worries me is that those same people could also get into active wallets and take money that was not lost. I may be horribly misunderstanding something and be horribly off base with this statement. I am new to this and have only seen a few videos and what not, so I am no expert.

It is nothing to worry about.  Today performing a brute force attack on a 256 bit key is simply impossible.  It won't become possible without breakthroughs in physics that give us access to energy on a scale the human race has never seen before.  Just counting from 0 to 2^256 would require more energy than our star has left (yes the entire lifetime output of our sun).  

The only theoretic scenario where addresses could be attacked is that on a very long timeline (potentially decades or centuries) the cryptographic algorithms which make up Bitcoin could be compromised allowing a faster than brute force attack.  Generally these types of attacks take years if not decades to develop from an academic paper to something which can be done in the real world.  That would give active users plenty of time to move funds to "new" (as of yet not invented) address types based on stronger cryptography.  Long before any such attack could be made the only coins left in vulnerable addresses would be the ones that couldn't be moved because the private keys have been long since lost.

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January 27, 2013, 08:51:54 AM
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The network tracks bitcoin transactions. When your wallet comes online, the bitcoin wallet client checks the blocks available and displays a balance. The wallet is really a personal key that ensures the bitcoins connected to the address can only be spent by YOU, the controller of the wallet. Thus,

1. Wallet comes online again
2. Downloads blocks, catches up on news.
3. Displays balance.
4. You enter your password/private key
5. Spend the bitcoins.

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February 10, 2013, 03:02:28 AM
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The ability to at some point in the future bring that money back into circulation seems like it could get rid of that problem.

"That problem" is not a problem to anyone except for the party who lost the funds.  Or do you have a different opinion on that?

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