“Do you think there is a problem with bitcoin
being used as a currency or store-of-value… [when] it can be easily destroyed
by losing the private keys?” “Would it be a good idea to make a rule that bitcoin
which hasn’t moved in fifty or a hundred years… will be re-distributed to miners again?” This is a two-part question.
Let’s look at the first part. Do I think it is a problem for bitcoin to be used either
as a medium-of-exchange currency or store-of-value… if bitcoin keys can be lost? No, I don’t think it is a problem. The loss of
keys and bitcoin from circulation will simply… reduce the inflation rate, [while new] currency
is [still] being created through mining. At some point, the inflation rate will go down to zero.
Any keys lost will cause a deflationary effect. Bitcoin is a cryptocurrency that is already deflationary,
so it will become a bit more deflationary through loss, which will increase the value of the
[remaining bitcoin] held by everyone else. When someone loses their keys…
Let’s say I lose the keys to a hundred bitcoin. (Let’s hope not, because that is a lot of money.) What happens to the Bitcoin economy as a whole?
There is a hundred [fewer] bitcoins. Effectively, the activity of the entire economy is
now divided by a smaller amount of bitcoin. Therefore, that smaller amount of bitcoin
has more value, in pure economic terms. I have given a “gift” a one hundred bitcoin to
everyone. Its value has been redistributed, increasing the value of everybody’s
bitcoin by the same proportion. Essentially, every time someone loses, it is like they
are giving a gift to everyone who still has their keys. Also, there is an interesting effect. As the value of
bitcoin increases, [the risk of loss] is the incentive… for people to be more careful with their keys. What they hold will have more value.
But the bottom line is, it doesn’t matter. Think of bitcoin the currency as a unit of measurement.
If I measure your height in inches versus centimeters, I may get two different numbers,
but has your height changed? No. The unit of measurement changed.
The same thing applies to currency. If I take the size of the economy and divide it
by 21 million bitcoin, or one million bitcoin, I will get two different results, but has
the size of the economy changed? No. The value of each bitcoin changes because I’m
[pricing] more of the economy into [each bitcoin]. The value of bitcoin will increase,
but it is just a unit of measurement. The value isn’t in the bitcoin,
the value is in the economy. If you think of bitcoin the currency as a unit
of measurement for the value of the economy, it makes sense; when you change the unit of
measurement, it doesn’t change what you measure. We could lose almost all of the bitcoin, down to
one bitcoin left for the entire world economy. At that point, we would need to subdivide a satoshi
into smaller units in order to have enough granularity… for your measurement. Other than that, nothing changes. We can change the
protocol to introduce smaller units, like millisatoshis. In fact, we already see millisatoshis
implemented on the Lightning Network. So it isn’t a problem if we lose keys. The second part of your question is also interesting. Would it be good idea to make a rule that bitcoin which
hasn’t moved in fifty to a hundred years is redistributed? Well.. That might be a good rule, but I would
guess that no one would agree to that rule. As a bitcoin owner myself, I would
not agree to that rule for two reasons: setting an arbitrary deadline to redistribute funds
if I haven’t moved them, means I will need to… [consider] that as part of long-term
cold storage and inheritance planning. Fifty years is within the lifetime of a person.
One hundred years applies an economic impact… First of all, bitcoin which [was lost]
will be brought back into circulation. This may have a significant impact on the economy
in the future. That will have an inflationary effect. Not only that, but who do you redistribute it to?
If you redistribute to the miners, you are giving them… incentive to break the rules. [This would be] economic redistribution to a narrow
group of current participants in the economy. Why not give it to everyone?
Then political and economic questions come up. The simple answer is, we don’t need to do that. The cryptographic keys and algorithms
used in Bitcoin do not last forever [anyway]. At some point, the elliptic curve digital signature
algorithm (ECDSA) and SHA-256 will be obsolete. Maybe in ten or twenty years;
certainly less than fifty years. They will no longer be strong enough to protect
coins that haven’t been switched over to… a stronger cryptographic algorithm. All bitcoin will need to be recycled from time
to time into better cryptographic algorithms, due to the development of quantum computing and
mathematics [affecting] the discrete logarithm problem, or perhaps some other development
that we don’t know about yet. All cryptographic systems have a life cycle,
an expiry date. We don’t know what it is, but we know that they don’t last forever. Whether we like it or not, at some point,
if the cryptographic algorithms become weak, people will be able to break those
keys and retrieve those coins. Interestingly enough, that would be a better
policy than [redistributing them] to miners. It [creates] an economic incentive to break keys
and test the security of the Bitcoin system. The people who get the money will be those who put
effort into breaking keys with their quantum computers. Essentially, it creates a bounty for testing the system,
and rewards people who [exercise their skills]. So [a redistribution event] will already happen. Next question comes from Jen:
“Many people assume that some coins are lost forever.” “But nobody [really] knows. The keys could still exist.
If Satoshi holds more than 2% of the maximum supply, is there a danger from centralization of power
[through bitcoin ownership] in unknown hands?” The same danger that exists in any monetary or
economic system from concentration of power… in a few hands. That concentration of bitcoin, if Satoshi is still alive,
has the keys, and wants to use them, is quite extreme. It is more than you see in other economies.
Of course, politically, it is a very different scenario. In many economies, wealth has been acquired through
various forms of exploitation, dictatorship, war, etc. The wealth that Satoshi potentially accumulated
[was from] inventing and investing in early-stage, very risky technology that nobody believed in. That is a different political situation. But again, I can
understand why people might be concerned about that. We have no way of knowing. The market would
incorporate that information fairly quickly. If some of those coins started moving,
we would probably see a response by the market. There are all kinds of conspiracy theories and
discussions about who has those coins now, whether [the keys] still exist. I am not interested in exploring those theories.
We will let the market find out for itself. “Has there ever been a deflationary currency
experiment before? Do we need inflation?” “Why would you buy anything if you would increase
your purchasing power by holding? We need inflation.” “How do we create that within Bitcoin?” There have been deflationary economies, but most
of the ones being studied by economists are facing… deflation in the [midst] of the government’s
unlimited ability to print more money. That deflation is not caused by a restriction in supply,
but instead by a collapse in demand in the economy. Deflation is a symptom.
The question is, what is it a symptom of? If the only economies you’ve studied with deflationary
characteristics are in fiat, then deflation is always… the symptom of a collapse in demand
because the [currency] supply is infinite. If you have a deflating economy,
then [they will] print more money. We have seen this example
in Japan, even in the United States. When you have deflationary tendencies,
the government starts printing more money. The only way it would still be deflationary, while you are
printing unlimited amounts of money to increase supply, is because there was a collapse in demand. A collapse in demand is a bad thing,
but deflation is not the bad thing. In traditional economics, deflation is always seen as
a bad thing because it is the result of demand collapse, where supply is not limited in any way. Deflation in Bitcoin is a very different thing. It is caused
by a reduction in supply, not a collapse in demand. It is caused by very robust demand meeting
limited supply and technological advancements. That form of deflation is qualitatively very different
from deflation due to a collapse in demand. Without a collapse in demand, deflation isn’t a bad thing.
Allow me to demonstrate: I currently have a computer… that I purchased for about $1,500. It contains many orders of magnitude more processing
power than the supercomputers of the 1980s. Over that time, the cost of this technology
(laptops, phones, cameras, etc.) that we use… has collapsed in [price]. This deflationary collapse was not driven by
a drop in demand, but by a very robust demand. Technology is offering better and better products
where Moore’s Law applies, supply is restricted, but demand is very robust. That is a deflationary environment caused by
a healthy market, not a recession or depression. In that environment, why would I buy a laptop now
if I could wait three years [to buy a much better laptop]… for the same amount of money? Presumably, then I would never buy a laptop.
I would just keep the same one forever. This applies to every technology out there. Why would I buy a device now when I can
just wait two years for an even better one? But we see that, in technology, people
don’t [usually] postpone purchases like that. Instead, they [take] advantage
of the deflationary system: spend some money now, but also save for the future. The money they save for the future maintains value, while [the money they spend] on a laptop or mobile… becomes a better purchase in the future. Saving isn’t necessarily the same as hoarding. In my experience with bitcoin, I have become
a better saver, but I have not stopped spending. I still spend in bitcoin on a regular basis in order to
use it as a currency, because I work with it every day. I also earn it as a currency every day.
My “hoarding” instinct isn’t as acute. I am in the economy of cryptocurrencies,
I am not just buying it as an investment, burying it in cold storage. I am earning and spending it for my business
every single week, so my attitude is very different. I don’t find that I am restricted in my spending by
the idea that it will have greater value in the future. Deflationary economies are bad when currencies have
infinite supply and a catastrophic collapse in demand. That is not the case with cryptocurrencies like bitcoin,
which has a limited supply. It is a very different thing.