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Author Topic: Intruiging hypothetical question on lost bitcoins  (Read 567 times)
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April 21, 2013, 05:04:06 AM

This is just a mental exercise so only keep reading if you like what-ifs   Cool

So basically we all know that a lost BTC is basically unrecoverable (as per the current rule set).  And yes, I'm aware that bitcoins can be subdivided meaning that even though there are (supposedly) only going to be 21m coins they can be subdivided to represent a very large amount of money...

Now here's the rub:

Bitcoins can only be spent if there are enough in circulation where vendors start to accept them widely. 

According to a basic economic principle :  The lower the supply the higher the demand (so less bitcoins means the remaining ones will have higher value)

However, this is usually because there is an inherit benefit in the "owning" of the demanded item (i.e. last 3 Ferrari 250GTBs on the planet mean exclusivity).  This exclusivity can translate into a higher demand (and therefore higher price) for this item.  You can sell it and make money from it.

But what if the supply reaches a critically low threshold under which demand actually FALLS?  I mean it's nice to have the last Babe Ruth rookie baseball card, but if it's the last one even the people who know about it will shrug because their chances of owning it are infinitesimal.

Translated to Bitcoins, what if the loss of BTC brings the supply to 50% of the total (or less)?  There may not be enough to go around so vendors will stop accepting them, the price spirals downward (making the ones in existence represent even less of the total money supply)..Being backed by nothing but faith nobody wants to buy them because they are just computer code and eventually their acceptance is so low that they just fade away into history and take with them the monetary value of all the investors who couldn't get out...

I know, I know...This is an oversimplification of not just BTCs but the whole FOREX market and world economy, but there is a long list of extinct currencies (many of which were actually backed by hard assets -- gold, silver) that can speak to this possibility.

So how plausible is this if lost bitcoins are never recovered?

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batman, not crabman
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April 21, 2013, 05:13:10 AM

I read somewhere that theoretically you can divide bitcoins pretty much infinitely (don't have the link - sorry), it just requires an update of the code.  So 1 BTC or 0.1 BTC would still be enough for the entire world economy as you can divide it into 10e-30 (say) 'chunks' with a software update. Of course that 1 BTC would be worth trillions of dollars at that stage but each chunk would be fractions of a cent (as it is currently).

I guess it's like the situation in Zimbabwe recently where they just kept removing '0's from their currency to stop the numbers from becoming ridiculous...

A horse walks into a bar and the barman says "Give me some Bitcoin!"
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