Estimating the rate of coin loss.

[diogenes]

I have been wondering what the annual rate of bitcoin loss would be assuming that bitcoin was the world's currency. 

I'm guessing that the largest contributing factor to the number of coins lost each year will be the loss due to people dying and leaving them behind their computers never to be used again. 

So I've internet searched and discovered that in the European Union the crude date rate is 10 per 1000 (ie: 1% of the population die each year), the USA is 8.2 per 1000 (0.82%),  China is 7.1 per 1000 (0.71%), Japan is 9.0 per 1000 (0.90%), India is 8.2 per 1000 (0.82%) and Russia is 16 per 1000 (1.6%)- my calculations give about 8.4 per 1000 (0.84%) as the date rate of the combined population of the world's largest economies.

However, the problem is likely to be a factor bigger than losing 0.84% of all personal cash holdings each year, because the people who die are more likely to have larger cash balances then those who don't die. This is because those past middle-age have an ever increasing chance of dying while at the same time these people hold more cash than those younger. Older people hold more cash because to a mature person with other assets a $500 cash holding is a relatively smaller amount and also less useful to them then someone who is 18 years old on an apprentice wage or someone who is 28 years old with 2 kids and paying off a mortgage. i.e. young people don't hoard cash or hold large amounts of working cash as older people do.

Now you may say that people dying is not a problem, they just have to keep someone informed about where there coins are.  However, I can't envision many people leaving instructions in a will or with a trusted person about their password and where they've stored their every-day-use bitcoins because the amount of cash involved is small compared to the total wealth of their assets and thus not worth mentioning.  Not only that, leaving instructions has the extra hassle of keeping them up-to-date each time you change your password or move the coins to store them on some other device.  (Similarly in the current state of affairs most people don't leave instructions in their wills about where they keep their physical wallets/purses). Where large stashes of cash are involved it is easily believed that the owner doesn't want anyone else to know since it reduces the risk of theft if no-one knows.  Furthermore, for the case of extremely large stashes it is likely to be the result of illegal activity and they would be very reluctant to tell anyone (this scenario is even worse because people who engage in such activities -eg. drug trafficking- have an increased chance of dying).

Of course, in addition to all the coins lost each year due to people dying there will be a very small percentage lost due to negligence and mishap.  eg. people forget passwords, accidentally delete wallet files, suffer hardware failures, etc. and not have a backup of the coins they have lost.

All up I would guess that at least a few percent (it would not surprise me much at if it was even as high as 5%) of the current year's coins will be lost each year.


I'm curious to know what members of this forum forecast the loss to be?


(PS: You could of course view this as a gift from the dying to the living-- the value of the coins that aren't lost should rise in value by at least this much).

[MoonShadow]

Older people who tend to die with money are more likely to have a plan for that money.  Add that to the fact that old people who don't have a will when they die, are also likely to die broke anyway.

I don't think that this is a problem worth worrying about.  At least not before 2133.

[diogenes]

in reply to creighto:   You have missed the point I'm trying to make by not appreciating the difference between cash as currency and cash as investment (eg: the difference between money in your wallet and money in the bank).

People *do* leave instructions in wills when cash is in the form of investment but they *don't* when it is in the form as currency.
eg: people they leave details of there bank accounts because the amounts kept there as large (my own will does this) but they don't say where their purses/money is kept because the amounts kept are smaller and it is assumed that the executors will find it when they sort through the deceased's belongings.

Assuming bicoin was the world's currency and all 21 million coins were mined, then most people will hold bitcoin as a currency not as an investment*.   Banks would still exist and they would offer a higher rate of return than that caused by the fact that bitcoin are lost and that it is a deflationary model of currency--  so people will still hold the majority of  their cash in the bank.  Due to fractional reserve banking cash as currency only make ups a small portion of the world's cash-- the rest is cash as investment.

*(Although at this stage of the game most bitcoin purchases are as an investment due to the current rapid rise in its value-- however, if it ever became the world's currency and all 21 millions coins mined then it would rarely be held as an investment).


PS: I don't think coin loss this is a problem, infact I like the idea of people lossing coins makes  me richer.  I'm just interested in speculating what the rate of loss will be.

[ChupacabraHunter]

I read on a previous post that lost coins could be treasure chest to be found/mined at a later stage when encryption levels must rise due to increase in cpu power.  To thwart this, people must update their wallet to a higher encryption level.

Would this not hold true in this case?  Those who die or loose coins will leave their lost wallets to be hacked/found/mined at a later date when it becomes feasible.

[MoonShadow]

I read on a previous post that lost coins could be treasure chest to be found/mined at a later stage when encryption levels must rise due to increase in cpu power.  To thwart this, people must update their wallet to a higher encryption level.

Would this not hold true in this case?  Those who die or loose coins will leave their lost wallets to be hacked/found/mined at a later date when it becomes feasible.

If, in the future, the particular crypto systems that Bitcoin presently uses are defeated (or even appear at risk) then the Bitcoin network can transition to a more secure version of each of those systems.  The old transactions that are left unclaimed then basicly become salvage to the first person that actually breaks those accounts open.  History tells us that there are no crypto systems that a deterministic computer can do effectively survive indefinitely. with the arguable exception of the vernon cypher. which doesn't have an application in Bitcoin at all.