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Comment by dangrossman | Hacker News Reader

Spending real resources (electricity/CO2) to produce money, then destroying the money, reducing the eventual money supply of this currency permanently, doesn't seem like the best way to handle any worries of journalistic integrity. They could've donated it just as easily.

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It's an interesting exercise. Any party with an interest in manipulating bitcoin can do the exact same thing. No governing authority means no governing authority.

Destroying currency is not wasteful in the sense that destroying an equivalent amount of food is wasteful because the total value of all the BTC is almost completely independent of the number of BTC in existence: if there were half as many BTC in existence, each one would cost twice as much. Consequently, your destroying some BTC enriches everyone else holding BTC to almost exactly the same degree that it impoverishes you.

I anticipate objections to the above on the grounds that "deflationary currencies are bad". The most chartitable interpretation of, "deflationary currencies are bad," is "the downward stickiness of the price of labor": during a recession, unemployment tends to go up in part because most employees are irrationally averse to taking a pay cut when times get rough, and enlightened monetary policy can sometimes negate or ameliorate that particular irrational reaction by employees by inflating the currency, which has the effect of fooling the employees into thinking that their "real" compensation has not decreased. But that is a minor effect compared to the basic "invariant" described above -- especially since almost no employees are being paid in BTC.

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?

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.

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.

Exactly! The only obvious thing to do is something constructive... not a blatant waste. In addition they are increasing the difficulty for others. He might as well flush money down the toilet and let sick orphans watch.

> He might as well flush money down the toilet and let sick orphans watch.

I hope you're engaging in Poe's Law here. Wasting an amount of electricity comparable to leaving a single incandescent light bulb turned on is like flushing money down the toilet while sick orphans watch? Okaaaay then.

The resources were minimal, but the final product has a non-trivial value. You are saying that being proud of throwing away hundreds of dollars is not an affront to all those who could use that money? I am not using Poe's law here.

Yes, because money isn't value, and throwing money away hurts nobody.

Bitcoin is either a commodity or a currency, depending on who you talk to. If it's a currency, it has the ability to purchase goods and services. If it's a commodity, then creating it and throwing it away represents a waste of resources... plain and simple.

Your opinion that 'throwing money away hurts nobody' must mean that you disagree with the statement that 'all that is necessary for evil to prevail is for good men to do nothing.' That is essentially what is happening if we take currency/commodity and throw it away. They could have donated it to any charity and escaped the ethical issues. Instead they passed on that ability, there IS value in the money. This isn't some purist Economics debate, this is real life application. Same principle behind the whole idea of 'every dollar spent on war machines is a dollar not spent to clothe and feed the masses.'

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