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Author Topic: Bitcoin Black Holes  (Read 2002 times)
RealBitcoin
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March 23, 2016, 12:15:11 PM
Last edit: March 27, 2016, 02:00:17 PM by RealBitcoin
 #1


I`m not evil or anything like that, so dont get mad at me, so only see this issue from economic standpoint: The more people lose access to their bitcoins the better.

Why? Because they cant be sold, and generate scarcity, lack of supply which later on contribute to raising prices:
https://en.wikipedia.org/wiki/Velocity_of_money

I`m not talking about hacks and thefts, those are not good, but when people just simply lose access to their bitcoins or they forget their passwords ,and the coins get locked there forever.

So I like to call this a bitcoin black hole, because your coins get locked on an address of which the private key is hard or insanely hard to recover, or impossible to recover.



I estimate around 1-5 BTC gets lost daily based on the reported losses and accidents I see on reddit and the bitcointalk help sector, but there are many more unreported. And some of them get resolved after a while, while some of them don't, and the coins are lost forever in a black hole.

For example you have a few mBTC on a wallet and you send some of the coins elsewhere and leave the change there, and then delete the address with priv key. Those are much more frequent in the faucet community, I alone have wasted at least 0.1BTC like this, that are spread across many hundreds of addresses. And people dont even realize that they lose money, because its small amount, but over the long term it adds up.

So if hundreds of thousands of fauceters lose 100,000-1,000,000 satoshi daily in addresses they forget about and priv keys that are lost forever, then my estimation is much higher.

Plus now and then you see some dumb people losing 100-200BTC because their hard drives burned down without backup or something like that..



So morality aside, let's analyze this from economic point of view, because it's an interesting phenomena.

So let this thread to be dedicated about bitcoin black hole discussion, and I want to focus on 2 topics:

1) Let's accurately research / estimate how much bitcoins fall into black holes daily

2) Let's compare that with the daily minted bitcoins (currently 3,600 BTC/day)

3) Also the psychological implications are also interesting: a person who loses a lot of money might hate bitcoin, and this hate might cause more economic harm than the lost bitcoins generate good for the community.





Black holes identified:   740.6069999989BTC @ change addresses that were most likely briefly used

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RealBitcoin
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March 23, 2016, 12:34:33 PM
Last edit: March 31, 2016, 02:23:38 AM by RealBitcoin
 #2

Ok this is not a black & white issue, there are nuances too.

For example we could classify the events in the following:

1) Supermassive Black Hole:  Address without private key, an address which fits the format of bitcoin addresses, but whose private key cannot sign a transaction = Whatever coin is sent here, can't be sent out, unless ECDSA get's broken . IMPOSSIBLE TO RECOVER.
Ex: https://blockchain.info/address/1BitcoinEaterAddress DontSendf59kuE

2) Regular Black Hole: Address with private key, but which's private key is lost beyond recovery, and no plausible backup exists:
Ex: -Throwaway addresses of blockchain.info with small satoshis left on them that you delete
      -1 Wallet file with password wrote down on piece of paper, but no other backup. Hard disk burns down, coins lost forever.
HIGHLY UNLIKELY TO RECOVER, UNLESS YOU CAN RECOVER DATA FROM BROKEN HARD DISK

3) Supernova Address:  Address with private key, where the key is temporarly or for a longer time inaccesible, but it can be recovered later
Ex: Electrum seed wrote down on a piece of paper , no digital wallet file, the paper is lost, but still in your house. After 3-4 years you find the piece of paper and access your coins again.
EASY TO RECOVER BUT ONLY AFTER A TIME

4) Dormant Address: Address with known private key, fully accessible for the owner, but he doesnt touch it for a longer time
Ex: Long term savings account in bitcoin, Hodlers, etc...

5) Hot Address: Addresses that send and receive transactions and bitcoins are frequently moved from here




Now here are the implications:

1) and 2) are plausibly unbreakable. And from economic POV, it does help add to scarcity and make price go up in the longterm

3) and 4) is also good but it only serves a temporary role in this, however if different people do it in different times, then the net result is still positive and it adds to scarcity.

It's better if a person buys 1 BTC and sells it 1 minute later, than if he didnt bought it in th first place. Even just holding it for 1 minute benefits the community, so those 3-4 year long term holders are evidently good, and add to scarcity.

5) This is not good, but bitcoin still needs active users, to maintain active demand, but in this research we will only focus on the supply side.

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March 23, 2016, 01:42:00 PM
 #3

Like Satoshi said:

Lost coins only make everyone else's coins worth slightly more.  Think of it as a donation to everyone.

I wonder though, is there a point where the difficulty of generating a new coinbase is so high that it would make more sense to try to recover keys for lost coins or steal other people's coins instead?  The difficulty of that is really high so for now it makes a lot more sense to generate but I just wonder what the real figures are.. would that ever become more productive?  Maybe Satoshi can address this..
Computers have to get about 2^200 times faster before that starts to be a problem.  Someone with lots of compute power could make more money by generating than by trying to steal.

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March 23, 2016, 05:02:01 PM
 #4

I started another post asking if the number of bitcoins was getting smaller because of lost bitcoins.  I like the term "Bitcoin Black Holes".  It may be true that fewer coins means each one left is worth more, but if there isn't widespread use of bitcoin yet, then it could also be a bad thing if it happens too soon.  What I'm saying is that people need to be using and relying on bitcoin before we lose too many of them.  Once bitcoin has gotten widespread acceptance, then I think fewer of them is beneficial for value.
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March 23, 2016, 06:55:29 PM
 #5

I started another post asking if the number of bitcoins was getting smaller because of lost bitcoins.  I like the term "Bitcoin Black Holes".  It may be true that fewer coins means each one left is worth more, but if there isn't widespread use of bitcoin yet, then it could also be a bad thing if it happens too soon.  What I'm saying is that people need to be using and relying on bitcoin before we lose too many of them.  Once bitcoin has gotten widespread acceptance, then I think fewer of them is beneficial for value.

NO need to worry about that, bitcoin adoption and coin loss will grow in parallel.

The more people use bitcoin, the more unlucky or dumb people will lock out their coins eventually.


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March 23, 2016, 07:18:37 PM
 #6

Isnt it really impossible to track lost coins.

Esp daily lost coins, thats awful loads of time trying to track 1 address that could lead to multiple ones.

Also what if they used a mixer and they lost it as well. If there was a website that doing this as a service to get donations, I`d donate just to see the data.

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March 23, 2016, 07:24:15 PM
 #7

Isnt it really impossible to track lost coins.

Esp daily lost coins, thats awful loads of time trying to track 1 address that could lead to multiple ones.

Also what if they used a mixer and they lost it as well. If there was a website that doing this as a service to get donations, I`d donate just to see the data.

NO, just collect all reported reddit and bitcointalk posts about people losing coins.

There was a thread here that tracked most of them.

We just need to find it.

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March 24, 2016, 12:22:12 AM
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Isnt it really impossible to track lost coins.

Esp daily lost coins, thats awful loads of time trying to track 1 address that could lead to multiple ones.

Also what if they used a mixer and they lost it as well. If there was a website that doing this as a service to get donations, I`d donate just to see the data.

NO, just collect all reported reddit and bitcointalk posts about people losing coins.

There was a thread here that tracked most of them.

We just need to find it.

I think this is the thread you are talking about:

https://bitcointalk.org/index.php?topic=7253.msg106458#msg106458

I think it tracks some of the early lost bitcoins.
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March 24, 2016, 07:31:41 AM
Last edit: March 24, 2016, 08:54:22 AM by Amph
 #9

why a person that lose bitcoin should hate bitcoin? he should blame yourself, with fiat when you lose in a lottery for example or lose your money for a thief you don't hate fiat, unless i know i don't do it, it would look silly

this should be the same with bitcoin
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March 24, 2016, 07:56:30 AM
 #10

why a person that lsoe bitcoin should hate bitcoin? he should blame yourself, with fiat when you lose in a lottery for example or lose your money for a thief you don't hate fiat, unless i know i don't do it, it would look silly

this should be the same with bitcoin

Thats how humans are, they never take responsibility for their actions, they always look for scapegoats.

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March 24, 2016, 10:56:26 AM
 #11

why a person that lose bitcoin should hate bitcoin? he should blame yourself, with fiat when you lose in a lottery for example or lose your money for a thief you don't hate fiat, unless i know i don't do it, it would look silly

this should be the same with bitcoin

I think thee are some people that will lose bitcoins and decide that it's too risky for them.  They may not hate bitcoin, but they may not be comfortable with their ability to store private keys safely.
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March 27, 2016, 11:18:50 AM
 #12

Here is one of my studies , about 740.6069999989 BTC of change address was identified as black holes, but it's just an estimation

Ok we look at block 400,000  there exists 15,247,397.211 BTC in circulation.

I looked at bitcoinrichlist: http://www.bitcoinrichlist.com/charts/bitcoin-distribution-by-address?atblock=400000


Let's see what that distribution is:




First we ignore the 0 - 0.001 BTC balances because those are highly likely change addresses or black holes.



So that means we work with 15,246,656.603BTC

Here is the estimated distribution:



Which breaks down to:



And the  BITCOIN/% distribution:



We can see it's quite centralized, the most bitcoin goes to the smallest % distribution at the top

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March 27, 2016, 01:36:46 PM
 #13

This topic about the lost coins is very interesting. I haven't thought about this phenomenon till now at all. I wonder whether these inaccessible coins will have an impact on the price of Bitcoin in a couple of decades when the adoption will be way bigger and there will be a higher demand for coins. I would guess a higher demand and a lower availability would mean a higher price.

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March 27, 2016, 01:42:19 PM
 #14

This topic about the lost coins is very interesting. I haven't thought about this phenomenon till now at all. I wonder whether these inaccessible coins will have an impact on the price of Bitcoin in a couple of decades when the adoption will be way bigger and there will be a higher demand for coins. I would guess a higher demand and a lower availability would mean a higher price.

I think it already has impact, and after the halving it will be much bigger.

If there would be a way to measure how much coins are dormant by analysing the addresses that have bitcoins, and that had transactions years ago, it would be good.

I think you only need to analyze the addresses that didnt had transactions out of them for 2 years, those are pretty likely to be dormant or black holes.

Is there any way to analyze them? Anyone?

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March 27, 2016, 01:47:43 PM
 #15

I think you only need to analyze the addresses that didnt had transactions out of them for 2 years, those are pretty likely to be dormant or black holes.

I wouldn't think that would be a very good measurement at all (am sure there are many people that have had Bitcoin in cold storage for more than two years already).

There was a topic a few years back about lost Bitcoins (from memory at least 100K have been likely lost) but even if we inflate this figure to 1M over the next ten years it really isn't such a big deal (we go from a possible 21M down to perhaps 20M).

Ships loaded with gold that sank hundreds of years ago are perhaps a similar thing (i.e. as we progress forward the chances of losing large chunks of Bitcoin by accident should be reduced by improved wallet implementations).

Also it doesn't really affect the velocity due to the divisibility (something not as easy to do with gold).

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March 27, 2016, 01:55:44 PM
Last edit: March 31, 2016, 02:23:13 AM by RealBitcoin
 #16

I think you only need to analyze the addresses that didnt had transactions out of them for 2 years, those are pretty likely to be dormant or black holes.

I wouldn't think that would be a very good measurement at all (am sure there are many people that have had Bitcoin in cold storage for more than two years already).


I think we need a lot of computing power, so i think a university or some bigger entity could analyze it and publish the research.

How to do it:
- Put all bitcoin addresses that are in the blockchain in a database
- Delete all addresses that had in or out transactions in the past 2 years
- Now you are left with probably a few ten thousand addresses, now search online for all bitcoin vaults and cold storages
ex: Satoshidice's cold storage which is public or any other gambing sites storage
or any other large exchange or gambling site's public cold storage address
- Remove those too

Now you are probably left with a few ten thousand addresses that have a strong possibility of being black holes, especially if they have smaller amounts on them, but also there are large amounts too, people who lost their coins back in 2010-2011.

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March 27, 2016, 01:58:24 PM
 #17

Now you are probably left with a few ten thousand addresses that have a strong possibility of being black holes, especially if they have smaller amounts on them, but also there are large amounts too, people who lost their coins back in 2010-2011.

Bad assumption - you could equally assume that you have found the cold storage amounts of many individuals (big or small).

I think it is simply going to be impossible to tell the difference between cold storage and lost keys (a bit like trying to locate every piece of gold ever sold).

Also in regards to small amounts people do use "canaries" for brain-wallets.

With CIYAM anyone can create 100% generated C++ web applications in literally minutes.

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March 27, 2016, 02:03:22 PM
 #18

Now you are probably left with a few ten thousand addresses that have a strong possibility of being black holes, especially if they have smaller amounts on them, but also there are large amounts too, people who lost their coins back in 2010-2011.

Bad assumption - you could equally assume that you have found the cold storage amounts of many individuals (big or small).

I think it is simply going to be impossible to tell the difference between cold storage and lost keys (a bit like trying to locate every piece of gold ever sold).

Also in regards to small amounts people do use "canaries" for brain-wallets.


Small amounts have a very low probability of being in a cold storage, especially fund under 1 BTC

Most people with under 1 BTC will almost certainly hold their coins in coinbase, blockchain.info, xapo or other places.

And funds under 0.01 btc are also likely to be a faucetbox payment address, directly from faucets.

Phone wallet are also likely to hold up to 0.5BTC.



I dont think people start cold storage before 1-2 BTC, so inactive small addresses have a high chance of being black holes.

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March 27, 2016, 02:05:35 PM
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I dont think people start cold storage before 1-2 BTC, so inactive small addresses have a high chance of being black holes.

Well - I know for a fact (not just an opinion) that some people create "canary" brain-wallet addresses with a small amount to act as a warning for their more complicated brain-wallet addresses that are based upon the "canary" one.

(and such addresses are quite likely to have under 1 BTC in them)

With CIYAM anyone can create 100% generated C++ web applications in literally minutes.

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RealBitcoin
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March 27, 2016, 02:07:08 PM
 #20


There was a topic a few years back about lost Bitcoins (from memory at least 100K have been likely lost) but even if we inflate this figure to 1M over the next ten years it really isn't such a big deal (we go from a possible 21M down to perhaps 20M).

Yes but we need to measure how much coins are lost /day, an accurate average would be good.

So it's not enough to measure how much coins are lost, but also how frequently they are lost. We need a daily or weekly average.


Also it doesn't really affect the velocity due to the divisibility (something not as easy to do with gold).


Of course it does, the less coins are in circulation the less coins can circulate.

Plus that bitcoin is inherently dis-inflationary, so it's hard to tell what is causing slower money velocity.

I dont think people start cold storage before 1-2 BTC, so inactive small addresses have a high chance of being black holes.

Well - I know for a fact (not just an opinion) that some people create "canary" brain-wallet addresses with a small amount to act as a warning for their more complicated brain-wallet addresses that are based upon the "canary" one.

(and such addresses are quite likely to have under 1 BTC in them)


That's right "some" people create, but not most of them.

We cant have a accurate number here, but an estimate that is as accurate as possible, and for that you use the majority not minority.

Most folks just have 0.01BTC-0.1BTC in blockchain.info that they got from faucets and sig campaings.

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