Tuesday, January 2, 2018

Lost #bitcoin means greater scarcity and may increase value

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People who are unfamiliar with bitcoin don't often understand the value of the cryptocurrency. Some of it has to do with "old world" thinking of money, and a lot of it has to do with people's lack of understanding of the technology.

One thing many people don't quite understand is that there is a finite amount of bitcoins currently in circulation, and there is an actual limit of bitcoins that will ever be in circulation. This limit is 21 million bitcoins.

From Wikipedia:
The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees. As of 9 July 2016, the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. To claim the reward, a special transaction called a coinbase is included with the processed payments. All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely. 
In other words, bitcoin's inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that there would only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.
If you think of it like gold, there is a limited supply in the world. This limited supply,which a long with intrinsic value, makes the metal worth more. The same goes for bitcoin, since there are billions of people in the world, and only 21 million bitcoins for everyone, the scarcity is one of the things that makes it more valuable.

This is one of the things that makes bitcoin different than fiat currency like the US Dollar. The Federal Reserve can print as much dollars as they want, any time they want because there is nothing backing it. This eliminates scarcity, and actually causes inflation.

What makes it even more scarce is the fact that a lot of bitcoins have actually been lost over the years! Bitcoin is a lot like cash, if you lose it or misplace it, you can't get it back.

From RT:
Missing out on bitcoin’s wild rally may not be the worst thing in the world. You could be sitting on a fortune unable to access it. Data shows up to 23 percent of bitcoins currently in circulation may be lost forever. 
It is impossible to say exactly how many bitcoins are being hoarded and how many will never be recovered. According to estimates from blockchain analysis company Chainalysis, between 2.78 million and 3.79 million bitcoins worth up to $50 billion at current prices are already gone for good. 
The findings were based on a detailed empirical analysis of the blockchain where all bitcoin transactions are recorded. Chainalysis used age and transaction metrics to work out which bitcoin hasn’t been moved in a very long time. 
The firm also estimated that some two percent of all bitcoins traded throughout 2017 were lost. That accounts for a billion dollars’ worth of the digital currency.
So when you take the already built-in cap of 21 million and remove the roughly 3 million bitcoins that are already missing, the new limit is closer to 18 million coins that will ever be available and in circulation. This doesn't include any that will be lost in the future.

These lost bitcoins will continue to decrease the available supply, will increase scarcity, and could eventually make bitcoins more valuable.

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