Sending coins to trash -- probably the biggest threat to bitcoin

[BTConomist]

Has anyone here already addressed one very important issue brought up by OP in the Sweft's Law discussion? I'm referring to the claim that "rogue miners can mine the network, charging tx fees and sending the coins to the trash"? Is there a way to prevent this? Because if it can't be done, then BTC won't make it as a currency.

[SgtSpike]

Has anyone here already addressed one very important issue brought up by OP in the Sweft's Law discussion? I'm referring to the claim that "rogue miners can mine the network, charging tx fees and sending the coins to the trash"? Is there a way to prevent this? Because if it can't be done, then BTC won't make it as a currency.

1) Anyone doing this would have to be wasting a lot of money doing so.
2) Even if half of all Bitcoins are destroyed/sent to the trash, it doesn't change the usability or functionality of Bitcoin.  You could only have 1 Bitcoin left, and it's still infinitely divisible, so everyone in the world could still use Bitcoin.

[solex]

Agreed with Sgt Spike.

This may have been a risk when coins were worth a few cents. Not when they are worth $100. Danger over.

[BTConomist]

1) Anyone doing this would have to be wasting a lot of money doing so.

How much money are we talking? BFL mining equipment is not that expensive... And in the future the prices for mining equipment will come down even more relative to it's hash power.

2) Even if half of all Bitcoins are destroyed/sent to the trash, it doesn't change the usability or functionality of Bitcoin.  You could only have 1 Bitcoin left, and it's still infinitely divisible, so everyone in the world could still use Bitcoin.

Are you saying that as soon as that one bitcoin is seeded into circulation, and another chunk of it is eventually trashed, the process can continue to repeat itself indefinitely? Basically, the bitcoin network would not have to undergo some major and costly tuning in order to accommodate such repeat cycles of coin trashing by rogue miners, am I right? (If that's true, then there's no point in answering my question about the costs of such attacks.)

[whydifficult]

How much money are we talking? BFL mining equipment is not that expensive... And in the future the prices for mining equipment will come down even more relative to it's hash power.

It's not the price of the hardware, but instead of throwing away all the mined coins (no matter the mining cost) you could also just sell them for over 100 bucks a BTC. So it's as expensive as the current BTC price.

[jgarzik]

Not a big threat.  That is basically spending a lot of money, just to throw away a lot more money.  There are clear counter-incentives against this

If the community's transactions are suddenly not being processed, then the community will en masse route around the problem, because the incentive to retain the value of one's bitcoins is similarly large.

Very unlikely that a private, non-governmental entity would mount such an attack.

[BTConomist]

How much money are we talking? BFL mining equipment is not that expensive... And in the future the prices for mining equipment will come down even more relative to it's hash power.

It's not the price of the hardware, but instead of throwing away all the mined coins (no matter the mining cost) you could also just sell them for over 100 bucks a BTC. So it's as expensive as the current BTC price.

Sometimes to win (say in a currency war scenario, perhaps politically driven) a group may choose to loose a battle in order to later win the war... Basically, if loosing money in one area would gain you more in another (i.e. one that matters to you the most), you'd do it in a heartbeat, wouldn't you? Because of this I'm not yet able to accept your mining costs inference as a feasible resolution of this potential threat to the bitcoin network. Perhaps you can clarify further?

[gmaxwell]

Not a concern in the slighest, sorry.

There are already plenty of coins in people's hands— even if the remaining half of all coins is destroyed ... its of no consequence.

[BTConomist]

Not a concern in the slighest, sorry.

There are already plenty of coins in people's hands— even if the remaining half of all coins is destroyed ... its of no consequence.

It may not be of any concern only if bitcoin's future rests on the idea of BTC being used strictly as a store of value (and not as a viable currency), which, let's face it, won't come from anywhere other than the increase in demand for products and services priced and sold exclusively for BTCs (e.g. satoshiDICE, etc)... No other form of developments around bitcoin would be able to keep the exchange rates above some miniscule margin over an average mining cost per bitcoin (whether that bitcoin is generated as part of a new lottery block, or as a cumulative total of transaction fees in a block, assuming that all 21mil bitcoins have already been mined).

And what is an average mining cost per bitcoin these days... about 3-4 dollars a pop, I assume (with equipment amortization and labor included)? And wouldn't you also say that this cost is bound to decrease as better equipment becomes available in the future (Moore's law et al.)? So, it's apparent that bitcoin miners would eventually focus their attention on financing BTC-based projects that drive increases in BTC spending, or would be forced to turn off their mining rigs (since it's unlikely that there will be anyone left foolish enough to pay 30-80x over something that costs less than $3 to produce). What would you do in that situation?

As you can see, large profits in bitcoin economy would no longer be made from mining operations per se, but from revenues of projects that a mining operation once helped to jump-start and turn into a profitable BTC-based business. (Hope you can forgive me for attempting to bust your GOLD 2.0 dreams this early?... It's just I want BTC to become a "viable" currency, not a "virtual" one.) As such, having at least one solid confirmation that "coin trashing" poses NO threat to the bitcoin protocol would do a great deal to further my cause, as I've already started laying the foundation for a BTC-based economy.

[gmaxwell]

It may not be of any concern only if bitcoin's future rests on the idea of BTC being used strictly as a store of value (and not as a viable currency),

No. It's not a concern in other cases either. At _most_ what you're describing could reduce the number of quanta by a factor of 2, and thats assuming every block mined from here on out was mined by a coin trasher.  If a factor of 2 quantization would problematic then the value precision would need to be increased in any case.

And what is an average mining cost per bitcoin these days... about 3-4 dollars a pop, I assume (with equipment amortization and labor included)? And wouldn't you also say that this cost is bound to decrease as better equipment becomes available in the future (Moore's law et al.)?

  0_o Improved technology _increases_ the cost. Right now it costs  about $72 per Bitcoin produced via GPU mining (at $.3/kwh) in electricity alone.  ((2^48/65535*10076292.88341872[diff])/2000000[h/j] * 2.7777778e-07 kwh/j * .3$/kwh)

As you can see, large profits in bitcoin economy would no longer be made from mining operations per se

Except in narrow windows of time when shortages of access to mining equipment disrupted the equilibrium (as in now, and early in 2011) mining has not been exceptionally profitable— nor should it be. If its very profitable more effort is spent mining, the difficulty goes up, and the rewards per unit investment go down... until people look at the payoffs and go "uh. no thanks, I'll let other people mine".

[kjj]

This is basically a movie plot, but not one good enough to get made into an actual movie.  Also, it comes up every few weeks here on the forums.  You people gotta learn to search.  If we stickied every topic that was popularly assumed to be a new thought by each person, the real threads would start on page 23.

You will notice that no one is seriously worried that someone is going to buy all of the world's gold and drop it into a subduction zone in the ocean, removing it from circulation forever.  The first problem with this movie is that the concept of "buy all of the world's X" doesn't work, for pretty much all values of X.

And no, collecting transaction fees is not different from buying, in this context.  No one is ever going to pay more than a small percentage as a transaction fee for anything but a trivial transaction, so the most you can get in one iteration is a tiny fraction of a small percentage of all bitcoins, so you need to keep iterating over and over again if you want to collect a lot.  But, each batch that you remove from meaningful circulation makes the rest more valuable, so the average transaction size will go down over time, as will the fees people are willing to pay.

The same happens when trying to buy.  Buying 1% of all bitcoins today would not be too hard.  But you'd exhaust the willing sellers in a hurry after only collecting a small fraction.  This will drive prices up, which will entice more bitcoins onto the market.  But you are still shaving tiny portions off, and each slice costs you more and more.

Now assume an attacker with no budget, like congress or the fed, entities that can literally create money out of thin air.  They could afford higher and higher prices, or smaller and smaller fees for a long time.  But each batch they do makes their own money worth less and less, while it makes ours worth more and more.  At some point, the trillions of dollars created would finally tip the scales of credibility, and the fake money's value would crash, with consequences apocalyptic for those that survive solely by trying to boil the frog too slowly for it to notice.

[BTConomist]

C'mon guys, have a little faith in the validity of what I'm trying to bring to your attention here. Remember, I’m still at the early stages of trying to put into words what has been creeping in my head since I first took a long, hard look at bitcoin back in 2011. But I know this much already --- the GOLD 2.0 vision that the majority still continues to talk about is dead wrong when it comes to the inner working of bitcoin-based economy. It won’t give you neither deflation nor inflation (not to be confused with bitcoin supply of 21mil bitcoins). So, instead of going back and forth with me about the “BTC spending” vs “BTC hoarding” debate, see if you can clarify the second point that's been brought up by SgtSpike... Or we can just wait for him to clarify it himself. Either way, I'm not leaving this issue alone until someone from the tech circles is able to clear up my concerns about the potential effect of coin trashers on the viability of bitcoin protocol. It's the only thing holding me back from jumping full force into this whole idea of developing a self-sustaining BTC-based economy.

[solex]

BTConomist. What is the economic difference between a coin permanently trashed and one which sits in a wallet unspent for many years? There seems to be a million coins from 2009 which have never moved. Arguably, Bitcoin is doing very successfully right now, and the sudden appearance of a million coins would cause quite a disturbance, perhaps more disturbance than the recent oscillations in the fx rate.

Bitcoin would function just as well if that million never reappeared, although I expect most will trickle out eventually.

As kjj explains, it becomes increasingly hard to implement any threat through a process of acquisition. The biggest threats are micro-transaction flooding (now being dealt with) and outright boycotts by all the fiat handling banks with governments banning Bitcoin use by merchants. Those are the real threats.

[odolvlobo]

And what is an average mining cost per bitcoin these days... about 3-4 dollars a pop, I assume (with equipment amortization and labor included)? And wouldn't you also say that this cost is bound to decrease as better equipment becomes available in the future (Moore's law et al.)?

These statements make it clear that you are confused. But, to answer your question...

The number of coins that will be produced is 21 million. The number is completely arbitrary. It doesn't matter at all what the number is. It could have been 21 thousand or 21 billion, and the result would be the same (though the value of a bitcoin would be very different). So, even if all the remaining bitcoins to be mined were trashed (for example), it would simply mean that the limit becomes 11 million instead of 21 million. There is no reason why 11 million could not have been the original limit.

[jl2012]

Has anyone here already addressed one very important issue brought up by OP in the Sweft's Law discussion? I'm referring to the claim that "rogue miners can mine the network, charging tx fees and sending the coins to the trash"? Is there a way to prevent this? Because if it can't be done, then BTC won't make it as a currency.

Yes, it has been discussed many many many times. Miners like these are just burning THEIR money. Who care?

[gmaxwell]

I'm not leaving this issue alone until someone from the tech circles is able to clear up my concerns about the potential effect of coin trashers on the viability of bitcoin protocol.

If you take that approach you will just get yourself ignored and lose your ability to get further questions answered. I ask you to be considerate of other people's time and to go back over the fairly specific answers you've been given by experienced Bitcoin users and developers, and if you have articulate questions— then ask them— but don't just keep repeating that we haven't convinced you because we don't agree with you.

[BTConomist]

What is the economic difference between a coin permanently trashed and one which sits in a wallet unspent for many years?

One is used to induce inflation in a BTC-based economy (in economic sense, not GOLD 2.0 sense), the other (the unspent one) is missing an opportunity to propel the creation and development of a BTC-based economy in order to induce deflation. Assuming that the majority of miners 1) will eventually come around and realize that the GOLD 2.0 era was just a myth, and 2) finally turn their attention to growing the BTC-based economy by commissioning various deflation-inducing projects, the right amount of trashed coins in the future could have just as serious of an affect on the BTC-based economy as the 2008 financial crisis once had on the global economy (except this time around we will be battling inflation, whereas in the 2008 financial crisis we were battling deflation, due to difference in the underlying economic theories for fiat-based and bitcoin-based economies).

The biggest threats are micro-transaction flooding (now being dealt with) and outright boycotts by all the fiat handling banks with governments banning Bitcoin use by merchants. Those are the real threats.

Neither one would exist if miners would stop focusing so much on bitcoin being GOLD 2.0 to continue driving up the exchange rates and mining difficulty to new highs. Basically, miners can put an end to both of these threats by starting to commission the deflation-inducing projects (e.g. make investments in BTC, pay wages in BTC, etc -- essentially, use their might to jump-start the BTC-based economy without the help of financial intermediaries). Pay-it-forward already! Stop banking on the next GOLD 2.0 hype to create demand for your math-based treasure-trove. Remember, it took you almost 2 years to recover from the very first such hype. Yet, the current one is way bigger.

[BTConomist]

I'm not leaving this issue alone until someone from the tech circles is able to clear up my concerns about the potential effect of coin trashers on the viability of bitcoin protocol.

If you take that approach you will just get yourself ignored and lose your ability to get further questions answered. I ask you to be considerate of other people's time and to go back over the fairly specific answers you've been given by experienced Bitcoin users and developers, and if you have articulate questions— then ask them— but don't just keep repeating that we haven't convinced you because we don't agree with you.

Sorry if that statement sounded a bit misleading from its intended purpose... I merely tried to passionately imply that I can't move forward with my plans to do something great for the bitcoin ecosystem (as the early bitcoin developers once did for the bitcoin protocol and client), unless those knowledgeable about the bitcoin technical side can help clarify the issue that nearly has me loose hope in the bitcoin's viability as a currency.

[solex]

I'm not leaving this issue alone until someone from the tech circles is able to clear up my concerns about the potential effect of coin trashers on the viability of bitcoin protocol.

If you take that approach you will just get yourself ignored and lose your ability to get further questions answered. I ask you to be considerate of other people's time and to go back over the fairly specific answers you've been given by experienced Bitcoin users and developers, and if you have articulate questions— then ask them— but don't just keep repeating that we haven't convinced you because we don't agree with you.

Sorry if that statement sounded a bit misleading from its intended purpose... I merely tried to passionately imply that I can't move forward with my plans to do something great for the bitcoin ecosystem (as the early bitcoin developers once did for the bitcoin protocol and client), unless those knowledgeable about the bitcoin technical side can help clarify the issue that nearly has me loose hope in the bitcoin's viability as a currency.

The issue has been clarified until it is as crystal clear as a glacial melt-water stream. Please, please re-read all the responses above.

[BTConomist]

The issue has been clarified until it is as crystal clear as a glacial melt-water stream. Please, please re-read all the responses above.

I didn't yet see anyone confirming whether I had correctly interpreted point 2 in https://bitcointalk.org/index.php?topic=199542.msg2079488#msg2079488