Is Bitcoin Days Destroyed a measure of hoarding? Also, is it possible to derive velocity of money (i.e. bitcoin) from Bitcoin Days Destroyed?
Are Bitcoin Days Destroyed a measure of hoarding?
Sometimes. But just because bitcoins changed addresses doesn't mean they changed hands.
Is it also possible to derive velocity of bitcoin (money) from bitcoin days destroyed?
Not directly. Although velocity of money and BDD are related, they are not entirely the same. velocity of money is based on a legal definition, whereas BDD is based on a technical definition. Also, BDD weighs the movement of old, rarely used coins as more important than frequently traded ones.
BDD is based on transactions in the bitcoin network, whereas velocity of money is based on money changing ownership. A transaction doesn't mean that money changed hands. Examples:
- Change. I send you 10 BTC, 5 BTC comes back to my address as change. The bitcoin network sees 15 BTC move, but only 10 BTC really changed ownership.
- Laundering. The best example. Lots of bitcoins move around, but at the end, you still have the same amount.
- I move my bitcoins from Mt Gox to blockchain.info. Again, there was a transaction, but no money changed hands.
Because of this, a velocity of money estimate based on total transaction volume will be wildly inaccurate.
Also, even if no bitcoin transaction has happened, money can still change hands. Lots of e-wallets support the ability to instantly transfer money between accounts.
Because total transaction volume is such a bad measure of how quickly bitcoins change ownership, BDD was created. It's different from velocity of money in that you can't game it by sending money back and forth because it is much more significant to spend 100 BTC that last moved a week ago than it is to spend 1 BTC a thousand times.
Bitcoin Days Destroyed can tell us the percent of total coins are trading over any period of time, to the granularity (resolution) of a day. So for example, we can ask what percent of total coins have traded within the past day, or a specific day, week, month, year, or any period in the past.
So it can give us an indication of lower-bound percent of hoarding and duration of hoarding, but it will always understate the actual hoarding and duration, because due the anonymity there is no way to know if a Bitcoin transaction was a transfer to self.
Velocity of Money
Velocity of money is calculated w.r.t. to a measure of total goods and services transacted (e.g. GDP), and due to anonymity there is no way to know in a P2P currency which transactions were for goods and services. Thus Days Destroyed is an upper-bound on the velocity of money, and will always overstate the actual economic activity.