What is the effect of lost bitcoins?

[Blinken]

What is the effect of lost bitcoins?

For example, lets say a guy has a bunch of bitcoins in a wallet on his harddrive and the harddrive crashes and is lost, or say there is a fire and the computer is destroyed. From my understanding the bitcoins in the wallet (assuming there is no backup) are therefore lost forever.

The network has no way of knowing that the bitcoins are lost, however. The guy could claim they were lost, but there is no way to know, so the assumption of the network is that the bitcoins still exist so the target keeps going lower. In other words, loss of bitcoins does not cause the target to increase.

Therefore, we could envision a situation where there is a steadily shrinking number of bitcoins. The total number is "capped" at 21 million, but this does not account for lost bitcoins. For example, lets say that all 21 million have been issued, but during that time 5 million coins were lost one way or another. Then, the actual number in circulation is 16 million.

We can actually foresee a situation in which the majority of bitcoins are lost or hoarded in long forgotten wallets on harddrives in safe deposit boxes etc. So one day maybe there will be no bitcoins at all as the total number slowly shrinks.

It seems the design does not recognize this problem.

[KenJackson]

Excellent!

I've been thinking about the very same question.  I suspect the answer is analogous to gold.  If I irretrievably loose some gold (drop it deep in the ocean?), I have lost that value, but the value of all remaining gold goes up a tiny bit.

I think the same would be true of bitcoin.  If a bunch of bitcoins are lost, the looser looses that value, but the remaining bitcoins would be more scarce, therefore worth more.

[SimplePanda]

The answer seems pretty straightforward:

Supply and demand steps in and the value of the remaining BTC goes up accordingly.

As the BTC pool reduces the value of a single BTC goes up and you get more purchasing power for that single BTC. What was 1BTC yesterday is 0.99 tomorrow and 0.90 next year, etc.

You could potentially keep this going down to the point that a world supply of 100,000 BTC would place a value of 0.004761904762 BTC on something that previously cost 1 BTC, etc.

Of course, if we are down to 100,000BTC from 21M I suppose the community would devise a new currency standard - at which point your remaining BTC would buy that new currency at market rate.

[lpcustom]

The estimated date for the last bitcoin mined is somewhere in 2150 something. So we have a while to wait. Also 1 btc is not the highest precision of the currency. They can actually be measured in 0.0000001 btc. So if for instance there were only 1,000,000 btc left in existence, they can actually be measured from 0.00000001 btc to 1,000,000 btc. So in the event that 0.00000001 btc is equal to $1 USD, 1 BTC would be worth $100,000,000 (I could be off a zero). At any rate, there's a lot more precision there than 1. There are 8 decimal places of precision that should be accounted for as well.

[Shattienator]

Basically, we have at least 200K newly minted BTC per month (actually - more, up tp 50%, check difficulty increases history for more precise numbers). So "loss" of several thousand of BTC per month is just nothing compared to supply strength. ATM there are no reasons to worry about "lost" bitcoins at all.

[silverchair]

The estimated date for the last bitcoin mined is somewhere in 2150 something. So we have a while to wait. Also 1 btc is not the highest precision of the currency. They can actually be measured in 0.0000001 btc. So if for instance there were only 1,000,000 btc left in existence, they can actually be measured from 0.00000001 btc to 1,000,000 btc. So in the event that 0.00000001 btc is equal to $1 USD, 1 BTC would be worth $100,000,000 (I could be off a zero). At any rate, there's a lot more precision there than 1. There are 8 decimal places of precision that should be accounted for as well.

Cool, 

so for example:

say we have 1,000,000 btc today and value is 0.00001 btc = $1

so if 100,000 is lost, we only have 900,000 but the value will be 0.000001 btc = $1

Maybe this would be true...I hope so...

 

[randomuser]

I lost 10bc in my room somewhere 

Even checked down the back of the sofa! Probably hanging out with my car keys I lost in 2006

[joepie91]

The estimated date for the last bitcoin mined is somewhere in 2150 something. So we have a while to wait. Also 1 btc is not the highest precision of the currency. They can actually be measured in 0.0000001 btc. So if for instance there were only 1,000,000 btc left in existence, they can actually be measured from 0.00000001 btc to 1,000,000 btc. So in the event that 0.00000001 btc is equal to $1 USD, 1 BTC would be worth $100,000,000 (I could be off a zero). At any rate, there's a lot more precision there than 1. There are 8 decimal places of precision that should be accounted for as well.

Cool, 

so for example:

say we have 1,000,000 btc today and value is 0.00001 btc = $1

so if 100,000 is lost, we only have 900,000 but the value will be 0.000001 btc = $1

Maybe this would be true...I hope so...

 

If enough people want it to be true, it will be true.

That's how supply and demand / the free market works.

[joepie91]

Something yet to be brought up:

If coins were lost, only the owner would know. If he told others, there would be no way to verify it.

This means that you can never know how many are lost, so you can never truly change the value of the rest of the coins as if they didn't exist.

The point is there isn't someone who has to 'value the coins'. It happens invisibly.

If a lot of coins are lost, as a direct result, less coins will be supplied on the market, and if the demand stays the same that means the price will go up. It indirectly influences supply/demand, even if just on the long term.

If there were a central organization that had to keep track and value the coins that were in circulation based on given dollar figures and the amount of non-lost coins, you would be correct. But that's not the case.

It is correct that lost coins will not directly influence the (perceived) value of the rest of the coins - that is just an easy way to explain the concept. Lost coins will however influence supply/demand in the long term.

[fulepp]

i am lost somewhere at the very begging.

How system know those BTC units were "destroyed"?

[Maxim Gladkov]

i am lost somewhere at the very begging.

How system know those BTC units were "destroyed"?

What do you mean?

[Forte]

i am lost somewhere at the very begging.

How system know those BTC units were "destroyed"?

The coins are not destroyed.  They are still associated with the wallet.dat, but because the wallet.dat has been lost, nobody can claim ownership to the bitcoins.

Think of it like losing the key to a safe.  All the money is still in the safe, but because the key has been lost, nobody can use the money inside.

[rnicoll]

i am lost somewhere at the very begging.

How system know those BTC units were "destroyed"?

There's no direct knowledge of the loss. Instead, the increased difficulty in acquiring Bitcoins (because there are fewer to go around, so on some infinitessemal level people are less likely to spend) increases the value of the individual coins.

How much it increases by is rather vague, as this of course depends on how people react. It's also worth pointing out that as as currency transaction, the value of the opposite side (typically USD) is imporant. For example, inflation affecting the USD should increase the value of USD per Bitcoin.

[JONW2012]

Basically agree with what everyone is saying, it doesn't matter to the market if some coins are lost.  But, I'd like to point out that we probably don't have to worry about a "majority" or bitcoins being lost.  People are going to be careful with things that are valuable, and take extra precautions.  Of course accidents will happen and some wallets will get destroyed, etc, but not to the extent that it will ever be noticeable in the grand scheme of btc currency.

If I had a wallet with hundreds (or more) BTC on it, no back up, and the hard drive crashed, you bet I would be paying one of those overprice hard-driver recovery services to extract the wallet.dat for me.  "No, I don't need the irreplaceable family photos, just get me my bitcoins!"   

[JoelKatz]

How system know those BTC units were "destroyed"?

They won't circulate. For purposes of the functioning of the system, it makes no difference if bitcoins are lost or hoarded. In either case, they aren't part of the circulating supply.

[silverchair]

The estimated date for the last bitcoin mined is somewhere in 2150 something. So we have a while to wait. Also 1 btc is not the highest precision of the currency. They can actually be measured in 0.0000001 btc. So if for instance there were only 1,000,000 btc left in existence, they can actually be measured from 0.00000001 btc to 1,000,000 btc. So in the event that 0.00000001 btc is equal to $1 USD, 1 BTC would be worth $100,000,000 (I could be off a zero). At any rate, there's a lot more precision there than 1. There are 8 decimal places of precision that should be accounted for as well.

Cool, 

so for example:

say we have 1,000,000 btc today and value is 0.00001 btc = $1

so if 100,000 is lost, we only have 900,000 but the value will be 0.000001 btc = $1

Maybe this would be true...I hope so...

 

If enough people want it to be true, it will be true.

That's how supply and demand / the free market works.

Agree, the basics on Economics101, the supply and demand.