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Comment by bhousel | Hacker News Reader

Serious question: If bitcoins can be destroyed so easily (either by accident or deliberately), how can anyone know the actual number of coins in circulation?

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The total number of coins held by every BTC address are always known because it's part of the public block chain that every participant in the network holds a copy of. The guy's 8999 BTC are visible in this chain, he just doesn't have the private key to the address, so they are unusable. Counting the total # of BTC that has been awarded is simply a sum across the block chain.

Right, but they've essentially been taken out of circulation. So without the knowledge of how many coins are usable, how can one accurately value the currency?

Maybe this is the wrong mental model, but I picture it like a hard disk slowly filling up with bad sectors. Except in this case, the disk controller can't tell you how much free space the disk has.

It's more like hiding a treasure chest somewhere in the ocean (of cryptographic tokens) and then losing the map (private key) when your ship (filesystem) sinks. (Arrrr!) This is something that happens with physical objects of monetary value as well, including cash itself.

So without the knowledge of how much cash I'm hoarding in my closet, how can you accurately value USD? I don't know how much of the answer is “you can't, exactly, but there's enough other trading that it doesn't matter” (which could apply to Bitcoin as well) versus “the value is fixed by external factors such as the US government”.

You don't. And unlike actual goods, when they are lost, they are lost forever.

But the market places a higher value on a single btc once they are "out of circulation" because money is scarcer, right? So the only person losing money is you.

How can the market adjust in a vacuum of information?

Information is contained in transactions. That's how supply and demand determine prices in the real world.

Yup. That's a feature of currency systems that are pegged to a commodity. The difference is that instead of coconuts or gold, the scarce commodity is a bunch of random numbers.

The are many problems with such systems, which is why the entire planet moved away from them starting about 100 years ago. Just like the initial users of BitCoin who are sitting on millions of the things are limiting the bitcoin supply in order to slowly sell them for real coin.

Ah, and given there is a known limit on the future amount of Bitcoins in existence, the system may very well end up with no bitcoins at all if all are lost... right?

Highly unlikely. It's more likely that the value of bitcoins goes up slightly with each minute loss of bitcoins, and people start using them in smaller fractions.

This is false. The block chain is a public record of every bitcoin in circulation.

As I understand it, you can only prove how many exist, inclusive of 'lost' BC.

You can't (any more than you can know the actual amount of cash in circulation)

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