[cryptography] Bitcoin observation

Jon Callas jon at callas.org
Tue Jul 5 03:22:26 EDT 2011

On Jul 5, 2011, at 12:07 AM, coderman wrote:

> On Mon, Jul 4, 2011 at 11:44 PM, Jon Callas <jon at callas.org> wrote:
>> ...
>> Did you know that if a Bitcoin is destroyed, then the value of all the other Bitcoins goes up slightly? That's incredible. It's amazing and leads to some emergent properties.
> this is not completely correct. it is only true if you destroy a
> bitcoin in circulation. (for whatever interpretation of "in
> circulation" is reasonable.)
> for example, there's one guy sitting on a cache of 371,000 bitcoins
> generated when the network was small and computation was minuscule.
> these were never in circulation, and for sake of argument, consider
> the physical media containing the keys for the coins is lost (not
> destroyed).
> how does this affect the value of other coins?

Yeah, whatever.

>> If you have a bunch of Bitcoins and you want to increase your worth, you can do this by one of three ways:
>> (1) Create more Bitcoins.
>> (2) Buy up more Bitcoins, with the end state of that strategy being that you've cornered the market.
>> (3) Destroy other people's Bitcoins. The end state of that is also that you've cornered the market.
> 0. steal other people's bitcoins. this is currently the most
> productive means for obtaining more bitcoin value, as proven over the
> last few months. <cue rant on building secure software systems here>
> 1. is only available while there are coins to be generated. at some
> point all coins will be mined and:
> 4. collecting transaction fees for participating in the network is the
> last option in this list.

Good points. But nonetheless, it's a really, really cool property of the system that you can gain by destroying bitcoins. I mean heck -- let's create another sub-constant, H_s which is the constant that shows when it better to destroy one than steal one. Obviously, if you have zero bitcoins, then stealing them has some value. But heck -- what if you're sitting on a cache of 371,000 coins. My intuition is that it's going to be better to destroy than steal. If you're found with a stolen bitcoin, you have some 'splaining to do. But if you silently destroy one -- then you see a market float.

> regarding the remainder of your argument, the ability to divide
> bitcoins into arbitrarily smaller and smaller units implies that such
> an attacker will be chasing an asymptote; never able to reach
> definitive control while leaving a large network trading amongst
> themselves in millionths of a coin…

I think it only changes the value of H. It doesn't invalidate the argument. You can subdivide them in to 10^8 pieces, right?

If you think of "naive H" and "complete H", we know that Complete H is at most 10^8 times the naive value.

> the impacts of a large H are still interesting, even if never leading
> to one player takes all...

Very interesting. I stand by my hypothesis. I think it inevitably leads to centralization through coin assassination.


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