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176

The idea of "bitcoin days destroyed" came about because it was realised that total transaction volume per day might be an inappropriate measure of the level of economic activity in Bitcoin. After all, someone could be sending the same money back and forth between their own addresses repeatedly. If you sent the same 50 btc back and forth 20 times, it would ...


90

TL;DR: No. The argument is basically that hoarding will make Bitcoins so valuable that nobody will be willing to offer people enough to part with them. Does that pass the giggle test? Another way of stating the argument is this, "If gold is $2,000/oz today but people think it will be $5,000/oz next year, nobody will trade any gold today." Again, think about ...


63

Here's a mathematical explanation: Calculate the number of blocks per 4 year cycle: 6 blocks per hour * 24 hours per day * 365 days per year * 4 years per cycle = 210,240 ~= 210,000 Sum all the block reward sizes: 50 + 25 + 12.5 + 6.25 + 3.125 + ... = 100 Multiply the two: 210,000 * 100 = 21 million. Economically, because the currency is effectively ...


49

The bitcoin network rules define which difficulty each block has. This is done through a simple formula that only depends on the block chain itself. This means that if you give me a blockchain with blocks 1 through N, I can tell you with 100% accuracy what the difficulty of block N+1 will need to be, and I can reject any block which has the wrong difficulty. ...


44

Although individual bitcoins enter the Bitcoin economy as miners are rewarded for processing transactions, it's much more helpful to think of all 21 million bitcoins as having been created when Satoshi Nakamoto defined the Bitcoin protocol and launched the Bitcoin network in 2009. The reason for this is that the Bitcoin protocol specifically defines and ...


21

There will definitely be a tragedy of the commons problem if things stand as they are now. This was discussed at some length here and elsewhere. There are some proposed ways to address this and make transaction fees nonzero (block size limit, hardcoded fees, insurance entities, mining cartel, gentleman's agreements which are maintained for fear defection ...


21

I don't know if this was thought up ahead of time, but it sure makes sense in hindsight. The reason 21 million is the right number is because people don't know how to value currencies. For instance, right now a Euro is worth $1.30 USD and a Japanese yen is worth about a U.S. penny. Ask someone which currency they would rather hold right now and most will ...


20

I personally prefer to think of bitcoin days destroyed as a measurement of "hoarding", not as a measure of economic activity. Cumulative: http://pi.uk.com/bitcoin/charts/bitcoin-days-destroyed-cumulative?timespan=180days&showDataPoints=false&daysAverageString=1 Steep parts of the chart represent a high number of bitcoin days destroyed which as ...


20

Wikipedia (Gold): A total of 174,100 tonnes of gold have been mined in human history, according to GFMS as of 2012.[2] This is roughly equivalent to 5.6 billion troy ounces or, in terms of volume, about 9261 m3, or a cube 21.0 m on a side. Since Bitcoin is often compared to gold, total number of bitcoins matches total amount of gold mined in human ...


17

Mike Hearn just posted about how Network Assured Contracts handle this problem. I don't find an immediate flaw with this. This is how I understand the proposed solution: Anyone with an interest in a high hash rate (basically, anyone holding a large amount of coins), can initiate or cooperate on SIGHASH_ANYONECANPAY transactions. Those are an ...


16

No, you can't prevent fractional reserve banking technically. For example, IOUs can circulate just like Bitcoins and there's no technical means to stop it. Essentially, anything worth X Bitcoins (once risk and the like are factored in) can act just like X Bitcoins, even if it's not X Bitcoins. And since it's not Bitcoins, nothing Bitcoins can do can stop it. ...


14

Bitcoin is really a little strange because it doesn't know if it is a currency or a commodity. And this is why this question has many answers and is a popular item of discussion. If Bitcoin were just a commodity, the thing to do is to hoard it. There are lots of commodities that are almost totally hoarded. For example: emeralds or works of art. Now if ...


14

That is basically it. They have value because they are scarce, fungible (one Bitcoin is as good as another), easily transferred, and easily verified. The only other component they need to have value is a general agreement that they will be used as a medium of exchange or a prevailing belief that they will be in the future. It is the variation in these two ...


14

Some countries have a strict first-to-file rule. In these countries, if some malicious entity tried to trademark the term 'Bitcoin' it could cause problems for others trying to use it to talk about the currency. Tibanne is trying to protect the community from this kind of nonsense. Source.


14

A non-malicious reason to deliberately destroy notable amounts of Bitcoins would be for a hypothetical alternative blockchain that recognizes Bitcoins sent to a special address as newly generated coins. One could for example try to establish a new "Altcoin" which is incompatible to Bitcoin, but every private key that signs a Bitcoin transaction to a special ...


14

The exchange rate at any one point in time is determined by supply and demand at the markets. The value of all bitcoins at the current market price is $80 million because the current market price is the point where the demand for bitcoins at a certain price meets the supply. You are describing introducing an artificial demand that would indeed cause ...


12

It's worth noting that bitcoins would have no value if it weren't for speculation. When Satoshi first released the client, those who put their electricity and computing resources towards mining bitcoins were speculating that the value would rise from zero, and that the coins would be accepted as payment by someone else. Those who first accepted bitcoin ...


12

Some possible reasons I read: Merchant adoption through payment processors While merchant adoption is growing, it is currently mostly through payment processors, hardly any merchants keep a significant portion of their bitcoin earnings. With the broader selection of things to spend bitcoins on, more people are shopping with bitcoins, yet, not necessarily ...


11

The value comes from their scarcity. To use something as a medium of exchange, it only has to have a certain set of properties. Bitcoins have these properties, so they can be used as a medium of exchange. They are fungible. That is, 10 bitcoins is 10 bitcoins. This makes Bitcoins more useful as a medium of exchange than, say, apples, which vary widely in ...


11

Each individual client checks the validity of each block it receives. If it receives an invalid block, it ignores that block as if it didn't exist. If you mine a block and other clients ignore it, you don't get your 50 Bitcoins. You only get to keep your 50 Bitcoins if the block you mined becomes a link in the accepted public chain. One of the first things ...


11

Satoshi created a system that: Allowed users to trust transactions without having to trust any single entity. Opened it up so that anyone could participate and exchange computation power for Bitcoins. Is designing with a fixed size (21 million Bitcoins), he created an incentive for users to get involved early while Bitcoins are relatively cheap to generate; ...


10

This is a very difficult prediction to make, but there is one factor often left out of mining cost estimations: cost of hardware. When amortized over their expected lifespans, the costs of various pieces of equipment can become a meaningfully large factor in Bitcoin mining costs. In the days to come, it seems likely that FPGA or ASIC miners will become more ...


10

Sorry Alex, but you're wrong on the question being asked. It's trivial to put bitcoins "beyond use" so that they can never be spent again. All you would have to do is send the bitcoins to a made up address, which no one would have a key to. This has already been done, since coins have been sent to addresses which are almost certainly unowned (like the ...


10

It doesn't matter very much because the economy can trivially create substitutes for currency. Anything that has the same capabilities as currency (fungible, easily exchanged, limited supply) can also serve as currency. A good example would be a Mt. Gox code. Mt. Gox may or may not have 100% reserves, but it doesn't matter. A Mt. Gox code for 100 Bitcoins ...


10

With my only knowledge of the concept of "antifragile" being the slideshow I just read, my initial assessment is yes, Bitcoin is antifragile. Antifragile benefits from randomness and gains from disorder. Randomness in Bitcoin appears in the random generation of keys and in the whims of its users' spending habits. No one person controls the system, and a ...


10

the protocol allows a miner when he creates a block to send himself 25 BTC which do not have a proper source (input). that's how those 25 BTC are created, they're bitcoins that come from nowhere.


9

The owner of the Bitcoinica site has released some data from his site which may reflect the wider bitcoin economy. He gives a value for the Gini coefficient of: Gini Coefficient = 0.87709 The Bitcoin Report site also releases a regular report on the number of bitcoins in the top 100 wallets. Although one person can own multiple wallets or a wallet of a ...


9

The limited money supply isn't actually an inherent problem for payment of interest. As long as the people being paid the interest are spending it back into the economy (presumably the banks, creditors, and investors have expenses, right?), then there will be an opportunity for the person who owes the interest to earn or buy it back and use it to pay down ...


9

Theoretically, in a perfect world, speculation would reduce volatility. However, that assumes that all actors are rational and have equal access to useful information. There really is no useful information about the future value of a Bitcoin. The future demand could be near zero (if Bitcoins become obsolete or are never widely adopted) or massive (if ...


9

Certain escrow techniques rely on one party being able to "destroy" these bitcoins, without being able to steal them. For example I could put 10 bitcoins in escrow, giving a second person the ability to destroy them. Now if that second party lends me, say, 5 bitcoins, I can't simply run away from my debts without incurring a loss larger then the debt itself, ...


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