30. On "Natural Deflation"

30

On “NaturalDeflation”

THE TOPIC OF LOSING COINS has been covered a few times. They are referred to as “natural deflation.” Here are two discussions relating to this issue. Note that national currencies today are born out of debt. When a loan is taken for a car or a house, the same number of dollars is created, and, once the loan is repaid, the currency disappears. A deflationary environment in our current system means that the value of assets (houses, cars, etc.) will decline, but, since loans have been taken out to purchase them, a cascade of bankruptcies will follow as people own more than they can purchase.

On the other hand, when a currency is intrinsically fixed in amount, loans are extremely rare. Before the creation of the Federal Reserve in the USA in 1913, the majority of purchases were done in cash, even for houses. The implication of a currency fixed in value, or even one that gains in value, are important. People would not have to speculate in mutual funds for their retirement; instead one could simply save the money to make a purchase. This is typically called “hoarding” by the financial media, but so are retirement funds. Essentially, saving means you are delaying consumption of material, resources, and time so that others, including companies investing in new plants, can improve productivity now. Later you enjoy your retirement because of this delayed consumption. The concept of money is more abstract than most people think.

Re: A few suggestions

Satoshi Nakamoto December 13, 2009 04:51:25 PM

The Madhatter wrote:

One quick question about “natural deflation” (as I call it). I have noticed that it is possible to spend to old addresses that no longer work. In essence the coins can not be claimed. Wouldn’t there be a natural deflation effect because of this?I mean if the coins max out at 21,000,000 wouldn’t the number of coins slowly work backwards due to payment errors?

There would be a command line switch at runtime to tell it torun without UI. All it needs to do is not create the main window. A simplistic way would be to disable “pframeMain->Show” and “ptaskbaricon->Show” in ui.cpp. The network threads don’t care that the UI isn’t there. The only other UI is a message box in CheckDiskSpace if it runs out of disk space.

Then a separate command line utility to communicate with it to do things. Not sure what it should be named.

“natural deflation”... I like that name for it. Yes, there will be natural deflation due to payment mistakes and lost data. Coin creation will eventually get slow enough that it is exceeded by natural deflation and we’ll have net deflation.

The second conversation:

Re: Dying bitcoins

Satoshi Nakamoto June 21, 2010 05:48:26 PM

Hello,

if somebody’s loosing his wallet (e.g. due to disk crash) he’s not able to get back his coins, is he?So every time a person looses coins, they’re lost forever? So the bitcoin network will slowly shrink over time? (Because there will always be people who loose wallets!)

TIA

virtualcoin

Lost coins only make everyone else’s coins worth slightly more. Think of it as a donation to everyone.

Quote from: laszlo on June 21, 2010, 01:54:29 PM

I wonder though, is there a point where the difficulty of generating a new coinbase is so high that it would make more sense to try to recover keys for lost coins or steal other people’s coins instead? The difficulty of that is really high so for now it makes a lot more sense to generate but I just wonder what the real figures are.. would that ever become more productive? Maybe Satoshi can address this..

Computers have to get about 2^200 times faster before that starts to be a problem. Someone with lots of compute power could makemore money by generating than by trying to steal.