A proposed solution to adjust for lost Bitcoins: wallet 'heartbeats'

[BeeCee1]

I think this proposal has a lot of promise.  I doubt that it would get incorporated into this version of the block chain but maybe a competing chain will pop up with it.

Markets work best when all participants have access to the same information and the more complete the information is, the better markets are at setting an accurate price.  Having coins that could be lost or could be being hoarded adds uncertainty which negativily affects the price.  If one trader knows that a certain set of coins is lost when everyone else thinks they are hoarded he has an advantage in the market.  Letting everyone be certain that lost coins will eventually be recovered makes pricing more accurate in the same way that letting everyone know that there will be at most 21 million bitcoins makes the pricing more accurate.

There are also sound technical reasons to do this.  There is no agreed upon way to switch hashes or encryption keys even though at some point we will need to.  After switching, current clients and miners will still have to be able to process new transactions signed with old keys which means that code will have to be kept around forever.  Code that is old, rarely used and poorly maintained is a prime place for a hacker to look for weaknesses.  If we could say with certainty, after block number XXX there will be no more transactions using old coins we could then remove that code.

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[gmaxwell]

Clearly, you are stating then that a design decision was made to allow for the loss of coins because the total quantity of coins is unimportant. That is simply an indication that you are not reading what I have written.

It is one thing to design a system that allows for division of coins into ever more granular tokens, and justifying a design decision based on that. That, however, does not address the issue of increasing uncertainty in the system as it evolves.

Please show me in the papers written on the subject where it explicitly states that a design decision was made to allow and encourage increasing uncertainty in the system over time. If you can do that, I will accept that the original designers intended increasing uncertainty over time.

Again, it's not about increasing granularity or increasing deflation, neither of which are issues. It's about increasing uncertainty.

I think this is an excellent point which I missed previously because of all the distraction related to restoring the lost coin and the common misconception that the loss of coin itself is a problem.  I think you undermined your argument in the first post by arguing for more than was strictly necessary to achieve these ends.

To remove the uncertainty you simply need to take the coins out of circulation forever, it's not required that they be remined.  Otherwise you end up with another kind of uncertainty: e.g. say bitcoin manages to deflate to the point where 1 BTC = $1m in todays relative value... and a ton of lost coins miss their long hearbeat and show up mining. So no matter what algorithm you choose for dishing out the expired coin it could end up making mining ludicrously and socially destructively valuable compared to any other occupation. Even if there is a long delay from the point where the coin expires to when it shows up again that just moves around the point at which everything blows up.

In some ways your proposal as stated only removes uncertainty in that it makes sure the pessimal case _always_ happens: that after the currency deflates due to high usage, lost money appears out of the abyss and screws everyone up.

However, I don't think that "heartbeat it" _or lose it forever_  violates any of the system invariants in the way that "keep printing" as proposed explicitly by SgtSpike,  and jon_smark. Nor does it create the possibility of a crazy gold rush appearing randomly in the future. (Heartbeating, incidentally would simply mean forming a new transaction, not an explicit heartbeat event.)

The obvious time to implement this would be at the same time as doing a cryptosystem upgrade, as the first expiration could be timed to adequately prevent a bunch of actually lost coins returning from the grave as ecc keys are cracked.  It would be easily argued for then because people will easily see that the failure to implement it will allow the lost coins to return and blow the economy up.

I would expect the only debate at that point would be over if it should be a one time cutoff or a rolling one.

[tubro]

It is guaranteed that the number of total number of lost Bitcoins tomorrow will be greater than or equal to the total number of lost Bitcoins today, until the end of time, or until there are no more Bitcoins. There is no point in disputing it. We can argue all day long about what the rate of loss will be, but we'd only be guessing.

Try the following: Add 1/1 + 1/2 + 1/4 + 1/8+ 1/16 ...  forever
It is guaranteed that the number you get tomorrow will be greater than or equal to the number you get today, until the end of time, or until you stop adding. Still, if you give me 2 bitcoins today, I will give you the sum that you get in bitcoins anytime. See what I'm trying to say? There will never be a problem. Don't try to fix a system that ain't broken.

[ascent]

Try the following: Add 1/1 + 1/2 + 1/4 + 1/8+ 1/16 ...  forever
It is guaranteed that the number you get tomorrow will be greater than or equal to the number you get today, until the end of time, or until you stop adding. Still, if you give me 2 bitcoins today, I will give you the sum that you get in bitcoins anytime. See what I'm trying to say? There will never be a problem. Don't try to fix a system that ain't broken.

I totally don't understand what you're saying, at all. Bitcoin attrition will happen until there are no more Bitcoins. It may take a million years, but it will happen. As loss occurs, uncertainty increases. That is a problem.

[ascent]

To everyone,

The issue is increasing uncertainty, which progressively renders Bitcoins an unreliable vehicle for commerce activities and storage of wealth. The reason why is stated in this thread more than once.

It may take near an eternity for that uncertainty to become a real issue, but the mathematics are sound, which calls into question whether a system really needs increasing uncertainty designed into it. The solution is to require Bitcoin holders to connect to the network in some form or another, probably on a timeframe on the order of several years or even decades. This is not unreasonable. We all live with this requirement in regard to bank accounts today anyway, without feeling overly burdened.

It is one thing to accept that a currency may become unsound in the future because of external events. This is reasonable. However, it is questionable that a currency, by its own internal design, should be allowed to become more uncertain over time precisely because of its own internal design.

[kjj]

I just realized something.  All of the current money systems in the world today are already more uncertain than bitcoin will ever be.  Bitcoin actually gives us boundaries on the uncertainty which do not exist in the real world.  The amount of bitcoins that might potentially show up on the market tomorrow is strictly limited by powerful mathematics.  The amount of dollars (or whatever) that might potentially show up on the market tomorrow is limited by human discipline.

And we know which one has a better track record.

[ascent]

I just realized something.  All of the current money systems in the world today are already more uncertain than bitcoin will ever be.  Bitcoin actually gives us boundaries on the uncertainty which do not exist in the real world.  The amount of bitcoins that might potentially show up on the market tomorrow is strictly limited by powerful mathematics.  The amount of dollars (or whatever) that might potentially show up on the market tomorrow is limited by human discipline.

This isn't really true. Towards the end of Bitcoin's life, the ratio goes towards zero, which means that a near infinite change can occur.

However, if some form of the heartbeat is implemented, then things really are good.

[kjj]

I just realized something.  All of the current money systems in the world today are already more uncertain than bitcoin will ever be.  Bitcoin actually gives us boundaries on the uncertainty which do not exist in the real world.  The amount of bitcoins that might potentially show up on the market tomorrow is strictly limited by powerful mathematics.  The amount of dollars (or whatever) that might potentially show up on the market tomorrow is limited by human discipline.

This isn't really true. Towards the end of Bitcoin's life, the ratio goes towards zero, which means that a near infinite change can occur.

However, if some form of the heartbeat is implemented, then things really are good.

The ratio for dollars is zero right now.

[ascent]

The ratio for dollars is zero right now.

True, but there is only one entity that could dump a quantity that is many times the current number of dollars in circulation, and they do have an interest in not doing something too drastic.

In the case of Bitcoins, as the ratio goes towards zero, the number of entities that could dump an amount many times Bitcoin's perceived circulation onto the market will be unknown, and their motivations will be unknown.

[kjj]

The ratio for dollars is zero right now.

True, but there is only one entity that could dump a quantity that is many times the current number of dollars in circulation, and they do have an interest in not doing something too drastic.

In the case of Bitcoins, as the ratio goes towards zero, the number of entities that could dump an amount many times Bitcoin's perceived circulation onto the market will be unknown, and their motivations will be unknown.

If history is any guide, they have every incentive to do this, just not all in the one day.  The value of each and every fiat currency not currently in use ended up at zero.  Actually, a lot of metal currencies ended up turning into fiat currencies through debasement, and then end up at zero.

Did you see the image I posted?  It wasn't caused by some unknown entity, it was caused by the entity in control of that currency.  And it wasn't for unknown motivations, it was caused by a desire to spend money that the entity did not have, a motivation common to everyone.

For further amusement, I chuckle that you find the system-preservation motive sufficient when applied to a type of entity with a 100% track record for destroying currencies, but reject (or at least ignore) the same motive when applied to an entity with enough coins to ensure that he and his family live like kings for all eternity so long as they don't destroy the system that is willing to give them goods and services, essentially for free.

[ascent]

I know all about Zimbabwe's currency. That's not the point.

The point is: what would you do if it was the far future and the apparent circulation of Bitcoins is about 1,000, and as a result, due to the public's general fear that 10,000 or even 100,000 Bitcoins could be dumped on the market tomorrow, people, in general, when receiving payment in it, immediately cash it out for something else, driving its value down even further? Would you place much of your wealth in it? Would you be so confident that nothing might happen tomorrow?

Or, would you prefer a version of Bitcoins that mandates heartbeats, thus ensuring the above situation could never occur for all time?

[kjj]

I know all about Zimbabwe's currency. That's not the point.

The point is: what would you do if it was the far future and the apparent circulation of Bitcoins is about 1,000, and as a result, due to the public's general fear that 10,000 or even 100,000 Bitcoins could be dumped on the market tomorrow, people, in general, when receiving payment in it, immediately cash it out for something else, driving its value down even further? Would you place much of your wealth in it? Would you be so confident that nothing might happen tomorrow?

Or, would you prefer a version of Bitcoins that mandates heartbeats, thus ensuring the above situation could never occur for all time?

Do you know about every fiat currency ever tried over the last 4 thousand years or so?

The point is:  what do you do if it was today and, due to the public's general fear that 10 trillion or 100 trillion dollars could be dumped on the market over the next year or two, people, in general, when receiving payment in it, immediately cash it out for something else, driving its value down even further?

To answer your questions, I would not "put my wealth" in it, not for your reasons, but because I never do that; I know the difference between money and wealth, it involves using one to buy the other, but I'll let you sort out the details on your own.  And yes,  I would still be pretty confident, for reasons already explained, by me and several other people, in several unique and colorful ways, all of which you have ignored.  And finally, no, I still prefer a system that is capable of neither destroying nor redistributing bitcoins.

Perhaps in the year 3535, people will rue the day we rejected your idea, but I'll leave that to them.

[ascent]

And finally, no, I still prefer a system that is capable of neither destroying nor redistributing bitcoins.

Why the preference?

[ascent]

The point is:  what do you do if it was today and, due to the public's general fear that 10 trillion or 100 trillion dollars could be dumped on the market over the next year or two, people, in general, when receiving payment in it, immediately cash it out for something else, driving its value down even further?

I'll answer your question. I don't hold Zimbabwe currency or currencies like it. On the other hand, some currencies are rather stable, and are fine for holding for periods of time. Bitcoins, while volatile, are an interesting investment, and there's a strong chance they will rise significantly. But in the end, they will become unstable.

Given a choice, I would much prefer to hold a version of Bitcoins that requires a heartbeat, for the reasons clearly stated above. I would have zero fears of losing it.

[kjj]

And finally, no, I still prefer a system that is capable of neither destroying nor redistributing bitcoins.

Why the preference?

Because we finally have a system where what is mine will always remain mine (even after I die) unless I fuck it up myself.

[kjj]

I'll answer your question. I don't hold Zimbabwe currency or currencies like it. On the other hand, some currencies are rather stable, and are fine for holding for periods of time. Bitcoins, while volatile, are an interesting investment, and there's a strong chance they will rise significantly. But in the end, they will become unstable.

Given a choice, I would much prefer to hold a version of Bitcoins that requires a heartbeat, for the reasons clearly stated above. I would have zero fears of losing it.

I think you are very, very wrong about the bolded part.  You know my opinion of the unstable comment, so I won't bother repeating it.

[Gr.Green]

I started writing this post thinking that I agree with ascent but couldn't articulate the agreement.

Then I imagined the world where a car costs 0.00000001BTC. Then I imagined a news report that 10 BTC has been discovered by someone finding an old wallet.dat on grandpa's old computer. What would a discovery like that mean when all the bitcoins have been minted and the market has adjusted to the limited supply (including the lost coins)? Most likely that would result in inflation. As the supply of bitcoins increases, the prices will rise. We'll be where we are now with USD and other currencies. As coins get lost the system will have to adjust because there will be not enough coins to go around. As coins get more expensive, the hoarders will release them into the system, thus stabilising the price.

What ascent seems to object to the most is the fact that nobody knows how much currency is available. Everyone knows that there's no more than 21M, but no exact numbers. Supposedly, this leads people to be uncertain about the currency. As long as the algorithm is strong and new money cannot appear from nowhere, there's no uncertainty. Just because you know that I have 1K BTC, doesn't mean you can be certain how I will use it to take advantage of the market. When the story unfolds in such a way that earning 0.01 BTC per year is enough for you, the fact that I gained 10BTC will have no radical immediate effect on you. I'll just be able to employ 1000 of you which would keep you feeling happy. There will not be an overall uncertainty, just like not everyone thinks that there will be a war tomorrow.

When 10BTC is enough to employ 1000 people for a year, I believe I will take all the necessary steps to make sure I, or my descendants, do not lose the funds. Any coins lost today, will have such a big bounty on them in the far future, that it may be the biggest driver of innovation in cryptography with an aim to recover lost/inactive coins. Inactive wallets that are not kept up-to-date with technology will be more easy to compromise and the BTC will enter the circulation again.

I know there are wallets being lost today and I'm not uncertain about BTC. I think BTC is still good.

[tubro]

It may take near an eternity for that uncertainty to become a real issue, but the mathematics are sound,

No, they are not. That is why I showed you the geometric series, which is an infinite series of positive values that add up to a constant, even if you keep adding FOREVER.

Saying that more and more bitcoins get lost does NOT mean that the number or ratio of bitcoins still in circulation goes towards zero! Not at all. That is the point. It might mean that, but in all probability it does not mean that. If fact, as I have pointed out above, the yearly ratio of bitcoins lost is bound to converge toward zero very fast, which implies that the number of bitcoins still in circulation will remain above a large constant, say 10 million, FOREVER. That is why your problem will never be a problem.

[killerstorm]

Cryptographic weaknesses can be also seen as an argument FOR coin expiry.

Bitcoin protocol is flexible enough to allow transactions with different levels of security: you can use different hashes, require multiple signatures etc.

Even now two different kinds of transactions exist: ones with explicit public key and ones with public key hash.
First is resilent to hash collision attacks, while second, perhaps, makes attack harder because you first need to figure out public key.

So, if you refresh your money by sending it to yourself from time to time then it helps to keep it fresh and secure as transaction might use more secure protection available in new version of client. Even if algorithm is the same refreshing could help if somebody was working to find public key hash collision for years, for example: they will have to restart their work from scratch.

Some people here say that market forces will force people to refresh their coins and if they don't then coins might be eventually reclaimed by code crackers.

But they forget that not everybody is a cryptographer so they cannot carefully assess risks. Even if there is a recommendation to refresh coins from time to time they might choose to ignore it.

If, however, coins expire after a certain time (say, five years) then they WILL have to plan for it and reconnect their wallets periodically.

And this also solves security woes (e.g. if some old algo can be cracked with ease, what will we do with old outputs which use it -- let code crackers to get obscene number of coins OR block them forever OR block & redistribute to miners? It is much better when it is known beforehand).

And it also nicely solves size of block chain problem (it doesn't grow forever as old blocks can be simply dropped), it solves deflation problem making money supply more predictable and it gives additional awards to miners which might help to reduce transaction fees. (If there are no awards they might charge obscene high fees.)

And it only causes problem for people who want to keep their wallets offline for decades.

Well, keeping them offline is not the brightest idea:

 * crypto algorithms do not provide 100% unbreakability guarantee, they merely make sure that attacker needs to spend a lot of computation resources. But if you leave challenge for decades, with a good incentive to break it, and given advancements in crypto-analysis it becomes possible that attacker will have enough resources.
 * To get your money back you need software which still understands your wallet but can use new network. It is very well possible that it won't be available.
 * Storage media are not designed with that much durability in mind. CD-R and similar things rot in few years unless you buy expensive archive-grade ones, which might be rated for 25 years of storage. But nobody will guarantee that it will actually last for 25 years. Flash drives are not designed with durability in mind. Neither are hard drives. People cope with this by refreshing their archives from time to time, but if you refresh archive, can't you also refresh coins?

So absence of coin expiry only helps people who follow bad security and archival practices.

[o]

I agree with you that it is a weakness of the system that there are no ways to distinguish whether a coin is loss or simply hoarded. From the economic view, it may raise concern of sudden discovery of the old wallet in the future. However, your solution is not good and it is too complex to be accepted into the current protocol.

My proposal: Unmoved Bitcoin with age more than, say, 40 years are marked as lost and cannot be used for further transaction.

Imposing a time limit has many advantage over the supposed infinite time model:
1. All cryptography keys in use today need to update periodically, for security reason. Leaving the same public key in block for a long time will simply increase the risk of being hacked. So moving the Bitcoin into a new wallet could secure their Bitcoin.
2. It allows the network drop old blocks.
3. This proposal can be implemented very easily with few lines.
4. The proposal implies that value of the lost Bitcoin will be automatically go to all others wallet.
5. It allows the differentiation between lost Bitcoin and hoarded Bitcoin to reduce uncertainty.
6. They should know that Bitcoin can be lost so that they wont put everything into Bitcoin.

There is no such need to reclaim the lost Bitcoin or allow for new mining. Otherwise, if there is 100000 Bitcoin lost for 40 years, you just give the miner with the ability to manipulate the market which make no difference with someone who discovers it. Also, the time interval is should not be too short, say, 1 year. It will only create an instability for the Bitcoin economy. For example, you might want to destroy others wallet in order to maximize your own profit.

Using the proposal, everyone else is actually gaining a very tiny value of their own Bitcoin and it is the most fair method to handle lost of Bitcoin. Remember that the creation of Bitcoin out of nothing is simply a way to make an initial distribution of Bitcoin, there is no need to mining in a sustainable system anymore in the future. I know someone do not like to see that the decimal in their account is smaller and smaller over year. But it is just a game of number, you should really divided by the maximum number of Bitcoin.

If 99% of bitcoin is marked as lost, we can simply multiply 100 to the balance in the bitcoin client.