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But the bitcoins are still in existence. It is impossible to distinguish between a bitcoin that can be spent and one that cannot. Unless you could actively tell

But the bitcoins are still in existence. It is impossible to distinguish between a bitcoin that can be spent and one that cannot. Unless you could actively tell the bitcoin servers "I am destroying these coins", nobody can determine which bitcoins are inaccessible. So won't they continue to maintain the value they would if they were still accessible?

maxerickson 13y ago
The price ostensibly depends on the coins that are available for purchase. People will do some guessing about the price trajectory, but they will mostly consider the current price. Other notions of value exist, but people overwhelming use price.
hollerith 13y ago
Good question :) There are basically two uses of bitcoin: a medium of exchange and a store of value. My "invariant" above can be rephrased to say that the total value of all bitcoin is approximately equal to the total amount of value people ("investors") want to store in it. (Entities, e.g., Silk Road, that use BTC as a medium of exchange can immediately convert the BTC they receive from their customers into dollars if they do not want to hold BTC.) So, if an investor has $10,000 he wants to store in bitcoin, it is almost completely immaterial to that investor whether he can buy 100 BTC or 10 BTC with that $10,000; all he really cares about is how well his $10,000 investment will hold its value, which is sort of independent of the current price, since for example the fact that 1 BTC costs about $100 today is pretty good evidence that they will cost about $100 a month from now -- and if 1 BTC cost $1000 today, that would be pretty good evidence that they will cost about $1000 a month from now. The point is that withholding BTC from sale increases the price of BTC whether or not the reason for the withholding is so that one can sell them a month from now or because one has destroyed them (i.e., destroyed the relevant private key). That is an example of the "Fundamental law of microeconomics," which says that in an efficient market, the price is determined by supply and demand -- "supply" meaning the number of BTC for sale today, not the total number of BTC in existence. Thought experiment: how would the price of BTC be determined if no one knew how many BTC are in existence? Would people just give up on trying to buy or sell BTC because that figure is unknown? P.S. Comments like these where I answer a technical question tend to stay at score 1. Since I am making an effort to increase my average comment score (currently 2.0) I plan to stop answering technical questions in comment threads unless this comment gets upvoted at least to 2 or 3.

maxerickson 13y ago

The price ostensibly depends on the coins that are available for purchase. People will do some guessing about the price trajectory, but they will mostly consider the current price. Other notions of value exist, but people overwhelming use price.

hollerith 13y ago

Good question :) There are basically two uses of bitcoin: a medium of exchange and a store of value. My "invariant" above can be rephrased to say that the total value of all bitcoin is approximately equal to the total amount of value people ("investors") want to store in it. (Entities, e.g., Silk Road, that use BTC as a medium of exchange can immediately convert the BTC they receive from their customers into dollars if they do not want to hold BTC.) So, if an investor has $10,000 he wants to store in bitcoin, it is almost completely immaterial to that investor whether he can buy 100 BTC or 10 BTC with that $10,000; all he really cares about is how well his $10,000 investment will hold its value, which is sort of independent of the current price, since for example the fact that 1 BTC costs about $100 today is pretty good evidence that they will cost about $100 a month from now -- and if 1 BTC cost $1000 today, that would be pretty good evidence that they will cost about $1000 a month from now. The point is that withholding BTC from sale increases the price of BTC whether or not the reason for the withholding is so that one can sell them a month from now or because one has destroyed them (i.e., destroyed the relevant private key). That is an example of the "Fundamental law of microeconomics," which says that in an efficient market, the price is determined by supply and demand -- "supply" meaning the number of BTC for sale today, not the total number of BTC in existence. Thought experiment: how would the price of BTC be determined if no one knew how many BTC are in existence? Would people just give up on trying to buy or sell BTC because that figure is unknown? P.S. Comments like these where I answer a technical question tend to stay at score 1. Since I am making an effort to increase my average comment score (currently 2.0) I plan to stop answering technical questions in comment threads unless this comment gets upvoted at least to 2 or 3.