Updated Inflation Chart - Adjusted for Lost Coins

[Cubic Earth]

I was inspired by whitslack's nice Bitcoin inflation charts, found here https://bitcointalk.org/index.php?topic=130619.0.  I wanted make a similar chart, but one that included John Ratcliff's estimates on lost, or "Zombie" bitcoins.  The Zombie analysis can be found here http://letstalkbitcoin.com/blog/post/rise-of-the-zombie-bitcoins.  I used R to make the chart.  It was my first time using R and it took me all day!



If in fact 3 million coins are not controllable, and therefore effectively out of the current supply of bitcoins, the current inflation rate is closer to 15%, which is 50% higher than the 10% that would otherwise be expected.  The results are interesting and the graph speaks for itself.

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[dougg]

Surely "lost coins" are all speculation in themselves.

[Cubic Earth]

Surely "lost coins" are all speculation in themselves.

I agree.  But we do know with certainty that *some* have been lost, so the question becomes 'how many?'.  The Zombie Bitcoins article had a clever method for making an estimate, so that is why I used the 3 million figure.

[shockinglyugly]

The three million figure is speculation and uses the flawed logic that satashi will never spend his coins (if this were true, I would think he would have destroyed them by now).

Also the vast majority of the bitcoin that are "lost" are really not truly "lost" but rather claim to be "lost" as we do not have any real way to know for sure that the private keys really are inaccessible  but rather have to trust the person who claims to be the previous owner of the keys that they really lost them

[Cubic Earth]

You guys are missing the point of the graph.  I am not trying convince anyone that 3 million coins are lost.  I do, however, find it a plausible upper limit, and that is why I bothered to make the chart.  The truth is somewhere between the black line and the blue / red.  Of course no one knows the exact number of lost coins.  It would be cool if the chart was interactive, and you could easily enter your own assumptions for the amount of lost coins, and see how that effected the inflation rate.

Also - would any of you care to put forward your own estimates for how many coins have been lost?

[painlord2k]

I wrote a copy of my Google spreadsheet about inflation, apparently, as I supposed, the actual inflation is higher as you say (if we believe 3 M BTC are zombies).
For sake of simplicity I put a -3.000.000 (so the first one year and half is negative and any chart is pretty unuseful before the halving).
It appear, after the halving inflation, continue to be higher than the base model, but it is falling at near double speed.

Currently the default is 9.87%, including 3 M zombies it go up to 12.75%.

After the next halving it will be 5.1% per year instead of 4.5% per year, so, if these zombies have any effect, their effect will be negligible after the next halving.

But, in my opinion, the effect is even today, negligible.

The problem is the new mined coins are too many compared to the value entering the BTC environment (goods, fiat and services exchange for BTC to be hold medium/long term).
Zombie coins are a no problem because if they are lost, they do not really exist.
If they are not lost, they are already computed.

[Cubic Earth]

The problem is the new mined coins are too many compared to the value entering the BTC environment (goods, fiat and services exchange for BTC to be hold medium/long term).

I totally agree with this, and it is the dominant factor that is currently holding down the price.  But the relative expansion (the inflation rate), is still meaningful.  I don't know how to construct a model that gives appropriate weight to each variable.

[yayayo]

Thank you for this interesting graph!

However I'm quite sceptical about the zombie coin estimate. I think the estimate is much too high.

For the purposes of this article a ‘zombie bitcoin’ is defined as all bitcoins associated with a public key address which has had no send transactions for over 18 months.  Why 18 months?  Because today bitcoins are worth about $600 apiece, and back in December of 2013 they were worth over $1,000 apiece.  Anyone who owned bitcoins prior to 18 months ago would have acquired them at a maximum cost basis of probably about $30, and that is estimating very high.  Much more likely most had a cost basis of under $10, and the average overall is well under $1.  You would need to have incredible willpower to resist a 4,000% or even astronomically higher return on an investment.

The definition in the article seems rather arbitrary and the arguments do not convince me. I don't see a reason to assume that people will sell Bitcoin for fiat money when they realize Bitcoin is the future and that Bitcoin has shown its viability as a store of value by appreciating against inflationary fiat money. Assuming that Bitcoiners behave like investors in the stockmarket is not reasonable, because many Bitcoiners show an extremely strong ideological attachment to *their* currency.

Only coins where loss of the private keys is proven should be classified as zombie coins.

ya.ya.yo!

[Timetwister]

Very interesting calculations. Inflation being in practice higher than it seems may be one of the reasons why price keeps going down. It gets even worse if you consider that the number of "zombie" bitcoins keeps increasing, because of people losing them. In the long run that will cause deflation (the monetary mass will slowly decrease), but for the moment, it means that we have a quite high inflation rate.