Vast Bulk of BitCoins Are Hoarded, Not Used

another random user writes with this news from Ars Technica:"More than three-quarters of the digital coins in the Bitcoin digital currency scheme aren't circulating because they remain dormant in user accounts that have never participated in outgoing transactions, a recently published study has found. The figure translates to more than 7.019 million BTCs, the term used to denote a single coin under the digital currency, which uses strong cryptography and peer-to-peer networking to enable anonymous payments among parties who don't necessarily know or trust each other. Based on exchange rates listed on Mt.Gox — the most widely used Bitcoin exchange — the coins have a value of more than $82.87 million. On May 13, the date the researchers analyzed their data, there were slightly more than 9 million BTCs in existence."

Comments

Gridlocked with No Way to Prime the Pump

[eldavojohn]

So what you're saying is that there is a limited resource which we cannot make more of that people are hording? And the more people horde it, the higher the deflation? And people watch their value rise in USD as this happens? And you're surprised?

What motive is there to spend your BTC? Isn't this how deflationary spirals occur? Wasn't this an effect of The Great Depression and lead to FDR implementing a pump-priming strategy?

Could someone explain how they would escape that spiral? I'm not an economist so I don't know if there are other routes of which I'm unaware.

Re:Gridlocked with No Way to Prime the Pump

[Spad]

Ultimately, once the maximum bitcoins have been generated, you're pretty much guaranteed a deflationary spiral with no real way to restart the economy as you can't introduce any more money into the system.

Sure, you might think that once you reach that point people will start selling their hoarded BTC to cash in, but that doesn't really help because most people involved aren't going to be dumb enough to buy something that can only really go down in value.

Re:Gridlocked with No Way to Prime the Pump

[jeffmeden]

I think an equally good question would be, is it the goal of a currency (or the currency controllers) to avoid deflationary spirals? The BTC deflation is magnified because it's comparative worth is ONLY pinned to USD or some other major currency, and perhaps a few types of illicit drugs. The problems it faces are not really in line with even a small real-world economy.

Re:Gridlocked with No Way to Prime the Pump

[Voogru]

So why do you have a computer when you can always wait another six months, and buy a better and cheaper one?

The computer industry is a deflationary spiral.

Re:Gridlocked with No Way to Prime the Pump

[Anonymous Coward]

So why do you have a computer when you can always wait another six months, and buy a better and cheaper one?

The computer industry is a deflationary spiral.

Because today, right now, right this very moment, a computer has a functional, practical use. You can do things with it. You can make things with it. Hell, I'm communicating to you right now with one! And this particular one is well past six months old; it's around four years old! This is far, far more than you can do with BitCoins right now, and, as the deflationary spiral continues, in six months.

There's this difference between a functional tool and a rapidly-deflating unit of pseudocurrency. I admire your trolling efforts to confuse the two to throw the weak-minded of us off of the point, but, well, you're just wrong.

Re:Gridlocked with No Way to Prime the Pump

[arth1]

It is no different to a normal currency.

I think you just fell into his trap. That's obviously what the post was fishing for.

And no, it isn't. Nothing backs the bitcoin, nor regulates circulation, nor is it legal tender.
It's as much a normal currency as old baseball cards are. That they hold a perceived value, are a finite stock, and that some people are willing to trade them (even for real currencies) does not make them a currency. At least with the old baseball cards you get a picture to look at.

Re:Gridlocked with No Way to Prime the Pump

[betterunixthanunix]

I think an equally good question would be, is it the goal of a currency (or the currency controllers) to avoid deflationary spirals?

That is certainly a goal of currency, but I think it is indirect in the sense that avoiding deflationary spirals is necessary to satisfy other, more immediate goals of currency. The purpose of currency is to facilitate trade of some kind -- it is not useful if it cannot be spent, and the most useful currency would be one that can only be used for this purpose (there are other views, of course). Thus hoarding (and deflationary spirals) make money less useful, or in the worst case, totally worthless.

I have argued in the past that Bitcoin is actually not useful as currency, and that it will ultimately fail for economic reasons before it fails for technical reasons.

Re:Gridlocked with No Way to Prime the Pump

[SuperMooCow]

I can't buy an iMac, a Kindle Paperwhite, a Nintendo Wii U, groceries, pay monthly bills or rent with bitcoins. They're a fictional currency.

I bet my gold in World of Warcraft has a higher value than bitcoins.

Re:Gridlocked with No Way to Prime the Pump

[Joehonkie]

It will never be anything like the computer example. Even on its last legs, the computer can be mined for usable metal. I don't think I can break a bitcoin down into 1s and 0s and reuse them.

Re:Gridlocked with No Way to Prime the Pump

[udachny]

What you are observing is an inflation hedge. How do you actually propose for the BitCoin users to use them?

The best way to use savings is to grow it (that's if your day to day expenses are covered). With governments of the world printing all fiat currencies, with gold going higher for a decade and with more and more inflation in sight, the investors are fighting for inflation hedge providing assets.

What do you think the savers should do, buy government bonds? :)

With real rate of inflation being in double digits (11 to 15% easy, but even by CPI it's 8% after it's annualized and compounded) the investors need to have a way to ensure nominal return of 14 to 21% to stay afloat and make around 6% real interest.

If you are not making 6% interest, don't bother with investment, just keep your money in an inflation hedge. 6% interest is necessary to cover at least some of your investment risks. But that's real rate of return, the nominal rate of return has to be above 14% at least to ensure that today by CPI figures, and I believe it has to be over 20% by real numbers. That's a hard thing to do, to get a 20% annualized return in nominal terms today.

Deflationary spiral is a made up problem, it's only a problem from the point of view of largest debtors and mal-invested money. So the real problem is for the government not for people.

People see inflation as the problem, not deflation, and they are right. USA had slight deflation in 19th century up until the beginning of 20th century, when in 1913 the Fed was established and really up until 1917, when the Fed turned into a debt monetizing instrument for the government.

Great Depression was caused by the Federal reserve in the first place, when the Fed monetized bad UK debt, this lead to the recession caused by the Fed inflating the stock market bubble in agriculture mostly. Hoover and FDR turned the recession into the Great Depression with all the bail out and stimulus policies and more money printing to be spent by governments and by the well connected largest institutions - the banks. Great Depression only ended as the WWII ended and the gov't cut spending by 64% and taxes by 32%.

--

To answer your question: what should be done is government must be forced to stop with its inflationary policies, the government must be forced to quit setting up fake interest rates, controlling the monetary supply, actually it must be forced to quit telling the people what money is.

Of-course that's part of the problem, the other part is the size of government and thus all the regulations and taxes and everything that goes with it - destruction of individual rights and private property rights.

Re:Gridlocked with No Way to Prime the Pump

[geekoid]

Tax the money being held. You can not have a healthy economy id money doesn't keep flowing.
When people who are basically buying everything they they need keep hording money about that, it hurts the economy.
Now when you are talking about a tiny percentage of the money, it doesn't matter much, but when a significant amount is held buy relativily. few, you have economic issues. The kind of economic issues that destroys class structures and lead to internal strife

This is why I am a fan of remove all not for profit deductions, remove most business deduction for companies worth over 10 million, and a 100% tax on money over a billion dollars; with the only deduction being RnD.
The the choice becomes:
Spend money over a billion on RnD, Higher more people to bring the money below a billion, or loose it in taxes.
Social motivators for corporations to pay better, higher more, and develop new technologies.

Re:Gridlocked with No Way to Prime the Pump

[jythie]

Actually, this effect is one of the reasons we got off the gold standard.

Re:Gridlocked with No Way to Prime the Pump

[Laxori666]

This is poor economic reasoning at best.

The amount of money in circulation has nothing to do with how much wealth there is in the economy. Printing a trillion dollars right now won't magically generate a trillion dollars in wealth (e.g. physical goods) - rather it will make everybody who currently holds USD collectively one trillion dollars poorer, as you'll have the same amount of goods being chased by a larger amount of 'money'.

The trick is that the wealth of an economy is not best measured by spending, but rather, by what is actually produced. Spending is epiphenomenal. You can notice that rich families tend to spend more dollars per year, so there is certainly a correlation between how much a family spends and how wealthy they are, but if a poor family starts borrowing money and sending as much as a rich family, they don't magically become a rich family. However, if you only look at spending, then that poor family will seem just as rich as the family that is actually wealthy.

When the government prints money, spending certainly increases. This is because it's impossible for prices to adjust instantaneously. For example, if there were $1 million in the economy and the government printed another $1 million, with all else being equal, all the prices should double. It takes a while for that to happen, though, so the first people to receive the printed money get a huge discount, as they're essentially paying half of what things are now worth. The people who are way down the line in terms of receiving that inflated money (e.g. after many many transactions have been made) receive less of a benefit as the prices have already begun to adjust. And the people who are attempting to do the rational thing - save money - are completely boned, because now all the money they have accumulated is suddenly worth half of what it is.

Printing money is immensely beneficial to the government, as they can essentially tax people without them knowing it. Far easier to increase the money supply by 10% - where prices might take months or years to adjust - instead of levying a 10% tax on everybody. It also benefits the people who are closest to the government the most, as they receive those printed funds first and get everything at a discount. Yet they have brainwashed people into thinking inflation is good, deflation is horrible, so yes, please continue to steal our money at an acceptable rate.

Why is it such a bad thing for prices to go down? Prices go down every year in computer goods - hard drives, video cards, RAM, processors, etc., are all cheaper and higher quality. What would be the problem if this were to happen across the board? It would reward saving tremendously - you could literally leave your money in the mattress and you would be gaining more value with it each year. Compare this to today's economy where if you were to do that it would slowly be taken away from you by the massive amount of money printing going on.

The argument, of course, is that if you would accumulate wealth by leaving your money in a mattress, everyone will do that, no one will spend, and the economy will tank. This is specious at best and intentionally deceptive at worst.

First of all, there's the moral argument - why is it okay for the government to steal your money without your knowledge or consent to promote the economy elsewhere? At least a tax is up front and explicit.

Secondly, people like to have shiny things. There will always be demand - how could there not be? What's preventing you from buying a jetski and an apartment with a swimming pool in it and expensive clothing and whatnot? Just a lack of the economic resources to do so. You can argue, given limited resources, everyone will decide to just wait a little more so they have more wealth before finally spending it. And, indeed, some people will do so. But not everybody is a miser who will hoard their wealth without spending a penny of it. That is an extreme, but the reasoning stands: that activity defeats the purpose of money, which is to allow you

Re:Gridlocked with No Way to Prime the Pump

[Anonymous Coward]

Can't do much with the digital bits of which most modern state currencies are made, either.

So, let's sum up:

With a six-month-old computer, you have a tool that you can use to get work done.

With six-month-old BitCoins, you have a smug, smarmy sense of superiority and a generic the-world-hates-me attitude that you can only use to further extend your smug, smarmy sense of superiority and generic the-world-hates-me attitude. And get drugs. Sometimes. If the market's right. Maybe.

Best part is, you need the computer to do what little you can do with BitCoins anyway. Perhaps a different analogy is in order?

Re:Gridlocked with No Way to Prime the Pump

[MikeBabcock]

In case you missed it, regular US currency has most of the same issues. It is not backed by anything, its value fluctuates dynamically with perception and it is traded and gains and loses value at others' whims.

If you have $100 you put in the bank ten years ago, its worth a lot less now in exchange for goods, services or other currencies than it was then.

Re:Gridlocked with No Way to Prime the Pump

[DarkOx]

We got off the gold standard because we were fighting a war we could not pay for and were going to default on redemptions otherwise. We were creating more money supply than there was gold to back it up and the rest of the world knew it. That is why we got off the gold standard and no other reason.

Deflation is a symptom not a cause. Its velocity not quantity of money supply that matters, where stimulating an economy is concerned. Deflation driven by delivering and hording are symptomatic of population that does not expect the prospects of wealth production to be bright in the future.

This idea that people don't spend because they will get more for it next week is a farcical, in my opinion. People don't *need* dollars or gold, they need bread to eat, cars to drive, tar for their roofs, boots for their feet, gas for their stoves etc. People stop spending not when they think money is going to gain in value, they stop spending when they question their future prospects for obtaining enough replacement money to accommodate their future needs.

I don't think people would stop spending even in the face appreciable and obvious deflation. Not even on luxuries. Look you don't want a new TV 6 months from now, you want to start enjoying today. If you were sure your job was secure and any pay cuts you might face would be no greater than the general deflationary trend you'd have no special incentive to save.

The mainstream economists are wrong about deflation being a threat. Treating is at best like using a nasal decongestant to fight a cold. It does nothing to attack the underling issues, although it might make some groups more comfortable.

Inflation does not prime the pump either. It forces people into bad decisions. They don't want to buy because they feel their security is threatened. They probably should save, but inflation will destroy their savings if they don't swap cash for assets. So you make them guess at which assets they will need rather than acquire them when they have actual needs. We have been at this experiment for about 50 years now. Do you really think our nation is on a more solid fiscal footing?

Also consider this angle, before the gold standard was dropped we had boom and bust cycles. They were more frequent but shorter dips were shallower, peaks were lower. Before the central bank we had even more rapid cycles. What happens to you now with these longer cycles if the most productive years of your own life span happen to coincide with one of the dips? You are screwed that's what. Shorter cycles are better. Trying to keep the boom times going past ripeness with monetary games means a bigger dip later, and that is really unfair to folks a little younger than you.

Re:Gridlocked with No Way to Prime the Pump

[Anonymous Coward]

The best way to use savings is to grow it

Preferably by investing them in something that actually produces value.
When you just buy a commodity and sit on it expecting it to cash out on rising value, that's not investing, that's speculation.
When the commodity has no inherent worth or use, and the only way the price increases is by persuading more people to buy, that's not even speculation - it's just a pyramid scheme.

Re:Gridlocked with No Way to Prime the Pump

[Stirling Newberry]

I like to think of it as a small economic experiment in why the perversion of gold buggery is doomed. It fails to take into account the relationship between store of value and medium of exchange. People who have currency want it to be a perfect store of value, but if it is, that is if past discounting is negative, the economy freezes over and there is nothing to exchange for, at which point the currency loses all value. The essential problem with bitcoin is it is made by people who wanted in on sieniorage but are not offering access to a market.

Re:Gridlocked with No Way to Prime the Pump

[Anonymous Coward]

What would be the problem if this were to happen across the board? It would reward saving tremendously - you could literally leave your money in the mattress and you would be gaining more value with it each year.

You've answered your own question. If inflation amounts to a tax, then deflation is a subsidy for people who stuff their money in mattresses where it does no one any good. You're paying people with fat mattresses sit and watch their money instead of using it to produce more and create new wealth.

Re:Gridlocked with No Way to Prime the Pump

[jeffmeden]

I think an equally good question would be, is it the goal of a currency (or the currency controllers) to avoid deflationary spirals?

That is certainly a goal of currency, but I think it is indirect in the sense that avoiding deflationary spirals is necessary to satisfy other, more immediate goals of currency. The purpose of currency is to facilitate trade of some kind -- it is not useful if it cannot be spent, and the most useful currency would be one that can only be used for this purpose (there are other views, of course). Thus hoarding (and deflationary spirals) make money less useful, or in the worst case, totally worthless.

I have argued in the past that Bitcoin is actually not useful as currency, and that it will ultimately fail for economic reasons before it fails for technical reasons.

Going with that presumption, most currencies are at odds because they want to be a store of value (i.e. you can hang on to "just dollars" and your savings is relatively safe) but at the same time they want to facilitate trade. Spending leads to inflation (typically) and saving leads to deflation (typically). Bitcoin, because it is such a small niche (compared to most currencies) is only worse off because a small tip in one direction or another will be amplified dramatically. The creator of Bitcoin posited that deflation wouldnt be a problem over the long term because it was just as easy to trade .00001 BTC as it was to trade 10000 BTC. However, the short term implications are much more destructive.

Re:Gridlocked with No Way to Prime the Pump

[Cyberax]

You might check your history. Gold standard in the US was repealed in 1933 and the war started quite a bit later and by that time economy has almost recovered from the Great Depression.

Consequently, Hitler came to power after two grueling years of _deflation_ in Germany. And no, this is a historical fact relevant to the issue at hand, I'm not Godwining the thread.

Re:Gridlocked with No Way to Prime the Pump

[Cyberax]

Gold is not used as a currency anymore, so no.

But a deflationary spiral with exactly the described scenario was exactly the thing that had led Hitler to power in Germany. I'm not joking: http://howhitlercametopower.com/how-hitler-came-to-power-excerpts/germanys-use-of-deflation-for-political-ends/

Re:Gridlocked with No Way to Prime the Pump

[Myopic]

"Theoretically bitcoins could avoid the deflationary spiral if there was some central organization making sure there would be an adequate supply"

Right. That is exactly what BitCoin was designed to avoid. In my opinion it is a big weakness.

"I've had the same 50 dollar note in my wallet for 4 months, I am, in effect, hoarding that cash."

Sort of. The way I think of it, it's not the same 50 dollar note. It was a 50 dollar note when you got it, but now it's worth a penny or so less -- or it would be if you held it long enough. Since the note is losing real value over time, you have an incentive to spend the note and try to earn some more money at the new higher inflated rate. If you spent an hour to earn that 50, maybe your hour now earns you 51.

Inflation is both good and bad. Too high is very bad, negative is very bad, but even zero is bad. We need inflation in order to stop money holders from hoarding. During my lifetime, American policy has held inflation at low-but-positive values, and I think that is very good policy. Today I think we could stand to have a little higher inflation.

Re:Gridlocked with No Way to Prime the Pump

[udachny]

Well, if nobody participates than actually there is no value in whatever it is you are holding. It's not mine, it is your comment that is nonsensical. What is your point, you think that for example somebody buying gold OR aluminum (Goldman) is doing something stupid, you think they are NOT protecting themselves against inflation?

Well, I sure would rather hold aluminum or any metal than fiat currency. AFAIC metals hold value better than inflating fiat.

Re:Gridlocked with No Way to Prime the Pump

[Vintermann]

If you thought we would all be wealthier and more productive in the future, you would invest your money in productive ventures, because then your claims to wealth (money) will grow along with the economy. But if you expect us to be poorer and less productive in the future, and still for some reason trust that your claims to wealth will be recognized, it makes sense to hoard rather than invest.

This is what bitcoin hoarders believe. It's also what gold bugs believe (it's no coincidence that gold bugs are usually doomers of some sort). Their belief that there will be less real wealth in their future may or may not be correct, but the belief that their claims will be recognized is pretty foolish.

Re:Gridlocked with No Way to Prime the Pump

[Vintermann]

We got off the gold standard because we were fighting a war we could not pay for and were going to default on redemptions otherwise.

Another way to formulate this would be to say that you got off the gold standard because you could no longer could afford to support hoarders' (of gold and gold-standard cash) expectations of rent just for sitting on their claims to wealth.

Re:Gridlocked with No Way to Prime the Pump

[Citral]

You seem to equate inflation with government printing money. By doing that, you miss out on a large source of inflation in economies, namely, banks loaning out more money than they possess (at a rate capped by the central bank) and thus creating money.

These loans do not benefit "those closest to the government" but go straight into the economy. Some of these loans will increase wealth (e.g., successful startups), while others will not, causing inflation.

There is nothing wrong with a stable, low inflation level. Your savings will not be obliterated if the interest paid by the bank on your savings is higher than the inflation level.

Re:Gridlocked with No Way to Prime the Pump

[jpmorgan]

The US currency is backed by something. If you think somebody owes you something in the US, they can throw a pile of little green pieces of paper and call it even. Disagree? Take it up with the US government, and see who wins.

US currency is backed by US government power.

Hoarding, or...

[alphatel]

Or there's that many people/computers that grabbed some fraction of bitcoins, and either lost their wallets or never bothered to log in again.

Re:Hoarding, or...

[Anonymous Coward]

I suspect coin collectors snapped up all the bitcoins with the low serial numbers, and are holding them hoping they become collectible. If the bitcoin folks were smart, they'd release a series of bitcoins for each State.

More like gold by the day

[hawks5999]

Maybe we need an ETF for BitCoin

Re:More like gold by the day

[sarysa]

Gold, not so much. Bitcoins had a distribution method that was vastly different to the discovery of gold. The distribution favoing early adopters and being limited to a select few IN AN EDUCATED WORLD (coupled with natural human greed tendencies) is why the masses will never accept it. (But we'll have bubble cycles while people try to figure out whether or not bitcoins have value)

If you're interested in a long dry read, I wrote an article about Bitcoins while studying a different virtual economy. The perspectives in this thread couldn't have come at a better time. I'll probably integrate them into my article. ;)

Speculators

[Dan East]

I wonder how many of these were generated early on and are being hoarded by the early adopters. The rate at which bitcoins can be created out of thin air is artificially controlled to keep production at a steady pace. What I'm curious about is how many bitcoins were created initially before they gained widespread publicity, and are those being hoarded?

Re:Speculators

[Animats]

I wonder how many of these were generated early on and are being hoarded by the early adopters.

Probably most of them. In the early days of Bitcoin, the amount of computation needed to generate a Bitcoin was orders of magnitude less than it is now, and the number of Bitcoins that could be generated per unit time was higher. More than half of the Bitcoins in existence were generated prior to the end of 2009. The system has a huge early-adopter bias built into it.

Bitcoin generation is competitive; the compute load required to generate a Bitcoin is automatically adjusted about once a month based on the number of Bitcoins generated in the last time period. The originator of Bitcoin is still anonymous, and being the first adopter, generating coins with no competition, probably holds many of those cheap-to-generate Bitcoins.

But they can't cash out without crashing the market. The total daily transaction volume in Bitcoins is roughly that of a big supermarket or two. Most of that volume is between traders; actual goods and services sales are tiny.

That's the real problem with Bitcoin. As a currency, it went nowhere. It was supposed to compete with PayPal. Instead, it's mostly a speculative vehicle. By now, one would think that there would be games, music stores, and app stores using Bitcoins, just as a convenience for small transactions. Didn't happen.

(Anyone remember CyberCoin? DigiCash? Beenz? Didn't think so.)

Money Laundering?

[eldavojohn]

"We discovered that almost all these large transactions were the descendants of a single large transaction involving 90,000 Bitcoins which took place on November 8th 2010, and that the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts, or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account."

Not to imply that anything wrong was happening but isn't that the definition of money laundering?

Perhaps an individual experimenting with how effectively he can automatically clean BTC with temporary internet accounts being made for transactions leading back to a brand new account? But wouldn't the whole chain of ownership be shown on that final balance? What else could be the purpose of the mentioned exercise?

The researchers started by mining the history for data that identified when two or more addresses belonged to the same owner.

How is this done? I thought that BTC just needed an address and that was it. You could use throwaway accounts if you wanted to, right? From the wikipedia page on it:

Because transactions are broadcast to the entire network, they are inherently public. Unlike regular banking, which preserves customer privacy by keeping transaction records private, loose transactional privacy is accomplished in Bitcoin by using many unique addresses for every wallet, while at the same time publishing all transactions. As an example, if Alice sends 123.45 BTC to Bob, the network creates a public record that allows anyone to see that 123.45 has been sent from one address to another. However, unless Alice or Bob make their ownership of these addresses known, it is difficult for anyone else to connect the transaction with them. However, if someone connects an address to a user at any point they could follow back a series of transactions as each participant likely knows who paid them and may disclose that information on request or under duress.

Movement from a known to unknown account in an attempt to "launder" it maybe?

Implied valuation

[sjbe]

Shocking that people wouldn't be doing transactions with a currency that few people know about or understand and that even fewer people are willing to accept as payment.

Based on exchange rates listed on Mt.Gox — the most widely used Bitcoin exchange — the coins have a value of more than $82.87 million.

That is referred to as an inferred value. Same thing happens with companies. Say you buy 5% of a company for $1 million. By doing so you think the entire company is worth $20 million (5% of $20 million is $1 million). That doesn't mean it is actually worth that much, it just means someone paid an amount that implies the value of the company. On a thinly traded commodity inferred values can be wildly misleading because the person doing the transaction might have overpaid compared with the going market rate. If most of the bitcoins are sitting on the sidelines, that $80 million valuation is almost certainly far higher than is realistic.

Some are also destroyed/lost

[rcs1000]

Worth remembering that some Bitcoins (perhaps many) will have been 'lost'. I had the Bitcoin wallet software on my mobile phone, with perhaps 20BTC in it (this was when the exchange rate was c. $4); my four year old daughter fell into the swimming pool, and I didn't think to remove the phone from my pocket. If anyone knows a way to remove the wallet.dat file from a broken Galaxy Note, I would be interested to hear.

Also, there will be some people who have lost the passwords for their wallets.dat, and are therefore unable to access their funds. Of course, in 20 years time they'll be able to decrypt them, but for now they're out of luck.

Re:Some are also destroyed/lost

[JesseMcDonald]

Besides data loss cases like yours (backups!), it's likely that quite a few were lost in the early days simply because they weren't worth very much. People installed the client, ran the miner for a while, and then lost interest. For a long time, 1000 BTC was worth perhaps ten dollars; IIRC, at one point someone spent that much on a pizza. It would buy about $12,000 now, but at the time it would probably not have been considered worth preserving unless one was both far-sighted and optimistic about Bitcoin's prospects.

It's also worth remembering that the Bitcoin protocol requires that the entire balance of an account be spent whenever the account is used in a transaction. The change could be returned to the original address, but generally it's sent to a new account. (This is an extra security measure, since it's more difficult to perform cryptoanalysis on a mere hash of the public key than on the key itself. The full public key is revealed only when the balance is spent.)

In other words, it's not at all surprising that most accounts with balances have never been used as the input for a transaction. That's the normal state. What's more surprising is that the number isn't higher.

Re:Some are also destroyed/lost

[slashmydots]

There's one guy on the forums that specializes in data recovery from phones with flash memory. You should definitely look him up. His name is crazyates and his site is http://www.flashfixers.com/

Re:Some are also destroyed/lost

[stonefoz]

As for your phone. If any part of the proccessor/usb still works you can copy out the flash. It works well for software bricks and could help if at least some of the hardware still works.
If you have to recover the flash by its self, jigs to do so are costly.
http://www.glassechidna.com.au/products/heimdall/

my preciouuuusssssss

[Thud457]

The dwarves delved too greedily and too deep.
You know what they awoke in the darkness of Khazad-dum.

Re:Bitcoin exchange?

[Wesley Felter]

Yes, trading is going on. http://bitcoincharts.com/markets/mtgoxUSD.html

Collect them all!

[interval1066]

I think people love the commerative bc's, the special editions, etc...

monopoly money

[wbr1]

I have a warehouse full of Monopoly money,valued at $500 USD. I don't spend it either. No one will take it.

Re:I never understood bitcoin

[IndustrialComplex]

If you were not in my same location, I couldn't give you cash.

Cash transmission via mail takes days.

Paper transmission via mail takes days plus the amount of time you sit on the check to ensure it clears.

Western Union requires you to go to them and charges a fee

Credit cards charge a fee (if they provide the service).

Bitcoins can be transferred to you with nothing more than an internet connection and an address.

It is very different from a normal currency

[sirwired]

With a "normal" currency (i.e. a much-maligned "fiat" currency, like the dollar), in the face of such massive deflationary pressure, the central bank injects additional currency into the market by lowering overnight lending rates, buying govt. bonds, and lowering bank reserve requirements. The ensuing inflation provides incentive for people to spend their money instead of banking it.

BitCoins, by design, have no such mechanism. This, combined with a stupidly-designed expansion curve, means that deflationary currency hoarding was 100% predictable.

Re:I never understood bitcoin

[TheSpoom]

This is why I never bought into BitCoin: It's a vastly overwrought solution to a small problem in a largely functional currency system. It's saying, because nobody has set up easy internet money transfers, let's dump the entire currency system and start a new one.

It's reinventing the wheel because a spoke is broken.

Mod Down, Copy-Pasted from another post

[Anonymous Coward]

Your sig complains of people modding you down due to global warming bias... or maybe it should be because you copy-paste other people's posts up to higher threads hoping to gain karma back through some trickery?

This post is clearly copied from one five minutes earlier here. And this isn't the first one in this thread that you've done that with, there are others further down.

This.

[sirwired]

This has been the biggest flaw in BitCoins since day 1, and one which it's backers stubbornly refuse to acknowledge. (Either that, or they believe that a deflationary spiral is a good thing.)

Not true.

[sirwired]

The vast bulk of dollars are NOT hoarded. They are mostly stored in banks, which in turn lend them to others. They should have covered this concept (Fractional Reserve Banking) back in middle school... you need a refresher.

These BitCoins aren't being stored in a lending bank, they are being stored under the metaphorical mattress.

Re:I never understood bitcoin

[jest3r]

Not really that easy.

As a consumer In order for me to actually acquire a Bitcoin and then spend it I have to do the following:

1. Go to my Bank and transfer CAD to my local BitCoin Exchange - $3.00 fee
2. Covert the CAD balance transferred to the BitCoin Exchange into BTC (3% fee)
3. Send the BTC to my Wallet
4. Transfer money from by Wallet to the seller (there is a small fee applied to that .001 BTC or something like that)
5. The Seller then also incurs a fee if they are using BitPay or some other third-party to handle the transaction which is typical of a legitimate purchase
6. Furthermore if I don't want to lose my wallet I need to use a Hosted Wallet which costs me even more!!
7. Then when I want to cash out my remaining balance (which is always a strange amount) I have to pay even more fees through the Exchange (this is why there seems to be a lot of hoarding).

This whole process takes days and is not really worth the time and effort for small items.

Finally using the Default Bitcoin client (which they still recommend on the Bitcoin website) takes almost a DAY or more to download the Block Chain. You can't even begin to do any of that until you have the Block Chain download. There are other clients that don't need to do this but for the average newbie the Bitcoin website recommends Bitcoin-QT which requires a full download.

At this point it is a currency for people who can't use Credit Card or Interac or PayPal really. But the fees are just about the same when you look at the big picture and time-to-spend is really high.

Because there is nothing to spend them on.

[Conchobair]

Because there is nothing to spend them on.

Re:Question for economics wonks

[alexander_686]

If you want charts, graphs, etc. see

A Monetary History of the United States by Milton Friedman and Anna J. Schwartz
This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff

Either one will cover your first 3 points.

But in short:
Moderate Inflation has been associated with economic growth: See past 50 years. Abundant historical examples.
Deflation increases the value of money – thus it transfers wealth from those who have money or are creditors – thus encouraging wealth people to invest in government bonds instead of real economic activity. See Great Depression or Japan over the past 15 years.
High inflation destroys savings and discourages poor people from investing (including education, homes, etc). See America during the 70s. See great britain having to break with the European monetary board.
These effects are all quantifiable. i.e. there are formulas out there. However, those formulas are highly tinged by psychological factors (people’s perceived need for money and stability), growth in productivity, availability of alternative currencies (bit coin, HELOCs on overinflated homes, tulips, etc.)

Gresham's_law

[trout007]

This comes from Gresham's law that bad money drives out good. People desire a money that holds it's purchasing power. If there is a money that loses purchasing power and one that holds it the good money will be hoarded and the bad money will be circulated.

http://en.wikipedia.org/wiki/Gresham's_law

Re:Speaking of computers and bitcoins...

[compro01]

1. No. The complexity is dynamic. It adjusts based on the total power of the network so that on average, 1 block is found every 10 minutes. If fewer people are mining, the difficulty will drop to maintain that rate.

2. The mechanism for that is that every 210k blocks, the reward for finding the block (currently 50BTC) is cut in half. This will happen for the first time (dropping from 50 to 25) sometime around the end of November.

3. That depends on what you're using for the calculations. Using a CPU stopped being profitable long ago, unless your power is free, but even then unless you have a company worth of computers, you're not going to get much out of it. A good GPU, like something recent from ATI, is slightly profitable, depending on your electrical rates. FPGA based mining equipment is far more power efficient and should remain profitable for quite some time, but isn't cheap.

4. Mining will always be needed, as that's what makes the whole system run. Without mining, transactions aren't recorded into the blockchain. The difference is that the method of paying the miners for their work shifts from creating coins from whole cloth to being paid by the people sending transactions around.

Re:Speaking of computers and bitcoins...

[h4rr4r]

Mining is yet another flaw of this currency. It turns real value, electricity and your time into something currently worthless. You could do a lottery to assign bitcoins, have the same outcome and save everyone a ton of real money and time.

Re:Question for economics wonks

[alexander_686]

Money is defined as a medium of exchange, a unit of account, and a store of value. It is the last bit that crushes your argument. As soon as you introduce time you introduce the concept of borrower / creditor.

For a strict example, should you quit your job and go back to school? You are, in effect, borrowing money from your future self on the assumption you will be able to earn back the lost wages and then some. How can you tell that if you don’t know what your future wages will be worth? No need for fancy social constructs.

Which leads me to your housing example. Let’s say I want to buy a house with cash. With no borrowing that means no lending, which means no savings accounts. I have to stuff my money either under my mattress (and hope it retains it value) or use alternative money (stock market, tulips, etc). COLAs are not the answer either. Countries where COLAs are common tend to have higher inflation rates since COLAs tend to be a positive feedback loop. And countries with high inflation tend to have low investment rates.

Which brings me to Gresham's law and BitCoins. My opinion is that BitCoins is a fad that will collapse. However, the hoarding is one of the few pieces of evidence that I have seen I BitCoins favor. It implies people are holding on to the good money.

Better check your history

[sgtrock]

Just a sampling from U.S. history found by Googling "Panic of " plus the obvious reference to the start of the Great Depression since you referenced it first:

* The Great Depression kicked off well before the gold standard was dropped in 1933.

* According to Wikipedia, the Panic of 1893 lasted about 5 years. Unemployment was 4 times higher than it was in 1892.

* Panic of 1873 lasted more than 6 years.

* Panic of 1837, 5 years.

Every example saw massive unemployment. All lasted far longer than any recession we've seen since. All were accompanied by massive suffering due to completely inadequate coping mechanisms for dealing with this kind of economic trauma.

The Federal Reserve (not really a central bank as that term is understood in other countries) was created in 1913 specifically as a way to prevent the periodic shocks to the economy that bank panics created.

Now, are we in financial trouble today? Absolutely. But we're in trouble precisely BECAUSE banking deregulation was passed 20+ years ago and the culprits who took full advantage of it were not only not punished, they were rewarded! IOW, we're in trouble because we failed to continue solid governance of a critical industry, NOT because the central bank exists and was doing its job!

Re:Speaking of computers and bitcoins...

[compro01]

You could do a lottery to assign bitcoins, have the same outcome and save everyone a ton of real money and time.

No, because mining is what makes the system run. Mining is nothing more or less than recording and verifying transactions. The block subsidy simply encourages people to do the necessary number crunching and doubles as the method of initially distributing the coins.

Re:Speaking of computers and bitcoins...

[ka9dgx]

At this point you are too late in the game. You will be spending more on the electric bill that you get out of bitcoins.

The Dollar is sinking in value

Bitcoins are rising in value

Why would you not leave something sinking to avoid zero future value? Any haircut will eventually be washed out over time.

Re:Speaking of computers and bitcoins...

[WaywardGeek]

It's not the complexity that's increased exponentially, but the total amount of compute power applied world-wide to mine bitcoins. I mined about 20 coins about a year ago with a new graphics card, and then converted the machine to a new gaming PC for my son. Even then, it only made sense if:

1) You wanted a gaming machine with a powerful graphics card anyway.
2) You counted your effort to build the machine and do the mining as entertainment.

You can do it in Windows or Linux. It's not a way to make money, IMO, unless you've got access to free electricity, and hopefully cheap labor. The great halving will occur in December, at which point a lot of miners will pack up and go home.

The currency is deflationary, or at least it will be once new bitcoins can no longer be mined. If you lose your wallet, the bitcoins are gone forever. Over time, there will be fewer in circulation, yet more people in theory will be using them. That's OK, because a bitcoin can be broken into fractions of 1 in 100 million. So, if deflation causes the currency to increase in value, it wont be a problem until each bitcoin is worth about 1 cent times 100 million, or $1M each. There will eventually be 21 million bitcoins, at which point it's maximum total value before there's not enough fractions of coins to make penny sized transactions would be $2.1 quadrillion, which is more than 100X the US GDP. If the coins were distributed equally among 10 billion people, each would own 2,100 micro-bitcoins, each of which can be broken into 100 pieces, called a "satoshis" after the author of the system.

I figured I'm mine a few for fun and hope one day they'll be worth a lot. On a planet with 7 billion people, I'm guaranteed to have far more than average at 22 BTC. The average person will have probably around 0.002 BTC.

Re:Speaking of computers and bitcoins...

[compro01]

What necessary number crunching?
It gets nothing real done. It just gives you some fake money.

No, it is not just "you get some money".

The number crunching is to log transactions in the block chain in a tamper-proof manner. Someone who wanted to forge or alter a transaction in the past would need to redo all the number crunching from that point forward to the current block, which would be highly impractical.

Re:Question for economics wonks

[complete loony]

The biggest force in the economy, is the acceleration in the total level of debt. When it's accelerating, we're having a boom. When it's decelerating, we're in a slump.

Collectively spending more than we earn on credit causes a boom. Living within our means and paying off our debts causes a slump. At least when the level of debt is as high as it is these days. When you add the change in debt to GDP for the US, you can easily see the effect of the big slump in 2008.

It's not hoarding that causes deflation, or vice versa. Sure the velocity of money goes down, but that's because people are spending less than they earn and are trying to pay off their debts. They aren't just holding onto the cash.

Re:Speaking of computers and bitcoins...

[neonsignal]

You don't invest in money, whether it is fiat currency or bitcoin currency. You invest in things that are known to have long term desirable value. You may speculate on currency fluctuations (and futures, and so on), you might even do well out of it, but that can only work while there is liquidity in the system, while transactions are being made.

For bitcoin to have long term desirable value, it has to have a purpose. It's purpose is to make transactions, at the moment specifically catering to a desire for anonymity. However, in order for there to be transactions, there has to be both a buyer and a seller, and this can only happen if the currency is stable. In unstable currencies, all transactions cease (because either buyers or sellers stop trading, depending on the direction of the instability).

At the moment the bitcoin currency is relatively stable (allowing for the small size of the economy), as mining replaces the bitcoins that have been squirrelled away into 'investment' accounts. As mining becomes exponentially more difficult, the deflation will also increase exponentially. Initially, that will simply increase the value of a bitcoin. At some point though, either people will start to bail out when they see the end in sight (which happens when there aren't enough sellers in the system), or the satoshi will no longer be small enough...

There's no point in having a million dollars worth of bitcoins if you can't spend them on something you actually need or want.

Don't get me wrong, I like the idea of a peer based financial system, and I watch the bitcoin experiment with interest. It has technical merit, but I am not convinced of its long term stability. And stability is the key factor in a sustainable trade system.