Silk Road forums
Discussion => Security => Topic started by: Nightcrawler on October 19, 2012, 01:59 am
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LAW & DISORDER / CIVILIZATION & DISCONTENTS
78 percent of Bitcoin currency stashed under digital mattress, study finds
Significantly fewer digital coins are in circulation than previously presumed.
by Dan Goodin - Oct 17 2012, 8:00am EDT
http://arstechnica.com/tech-policy/2012/10/78-percent-of-bitcoin-currency-stashed-under-digital-mattress-study-finds/
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Enlarge / A long chain of Bitcoin transactions, showing each address putting aside a small number of digital coins, helps illustrate a finding that 78 percent of them remain dormant in "savings accounts."
Dorit Ron, Adi Shamir
More than three-quarters of the digital coins in the Bitcoin digital currency scheme aren't circulating because they remain dormant in user accounts that have never participated in outgoing transactions, a recently published study has found.
The figure translates to more than 7.019 million BTCs, the term used to denote a single coin under the digital currency, which uses strong cryptography and peer-to-peer networking to enable anonymous payments among parties who don't necessarily know or trust each other. Based on exchange rates listed on Mt.Gox—the most widely used Bitcoin exchange—the coins have a value of more than $82.87 million. On May 13, the date the researchers analyzed their data, there were slightly more than 9 million BTCs in existence.
Mathematician Dorit Ron and Adi Shamir (the "S" in the widely used RSA cryptography scheme) arrived at that finding by downloading the entire Bitcoin history and following the trail of some 180,000 transactions. They found there were about 3.12 million accounts, which are known as "addresses" in Bitcoin parlance. They belonged to about 1.5 different owners, on average, since there's no limit on how many addresses a single individual may possess. More than 609,000 of those addresses had received a significant portion of the outstanding BTCs without once making a payment, the researchers reported.
"However, if we sum up the amounts accumulated at the 609,270 addresses which only receive and never send BTCs, we see that their owners have actually put aside in some kind of 'saving accounts' 7,019,100 BTCs, which are almost 78 percent of all existing BTCs," the researchers wrote. Almost 60 percent of those coins were "old," meaning they were received more than three months prior to the May 13 cut-off date for the project.
"This means that there are much fewer BTCs in circulation than previously presumed," the researchers continued. "Yet, the total number of Bitcoins participating in all the transactions since the establishment of the system (except for the actual minting operations) is 423,287,950 BTCs. This implies that each coin which is in circulation had to be moved a much larger than expected number of times."
The report, titled Quantitative Analysis of the Full Bitcoin Transaction Graph [1], isn't the first time researchers have analyzed the full available history of Bitcoin transactions. A paper presented earlier this year by Fergal Reid and Martin Harrigan, demonstrated how it's possible to identify some Bitcoin users despite some of the scheme's anonymity features. [2] Research presented at last year's Chaos Computer Club conference also showed how to defeat Bitcoin anonymity. Ron and Shamir's research, by contrast, analyzes transaction history to answer questions about how typical account holders use the Bitcoin system and how they acquire and spend the digital coin.
In addition to discovering that the vast majority of BTCs don't circulate, the new paper also found that almost all large Bitcoin transactions stem from a single payment made almost two years ago. They made that finding despite apparent attempts by the account holders involved to obfuscate their actions. The researchers started by mining the history for data that identified when two or more addresses belonged to the same owner. They then isolated transactions involving 50,000 BTCs or more and analyzed when the amounts were accumulated and spent.
"We discovered that almost all these large transactions were the descendants of a single large transaction involving 90,000 Bitcoins which took place on November 8th 2010, and that the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts, or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account.
The discovery that so little of the currency is actually in circulation could have implications for the future of the Bitcoin system. It's unclear what might happen if large amounts of those reserves were to begin trading suddenly. It's a recommended Bitcoin security precaution to keep keep most coins in an offline, "cold storage" wallet, and this results in large pools of reserves that rarely move. Still, it wouldn't be surprising to see such an influx cause a decline in the value of each coin, similar to a 90-percent decline experienced last year. [3]
Article updated to correct average number of address owners in the third paragraph, and to add detail about reserves in the last paragraph.
[1] http://eprint.iacr.org/2012/584.pdf
[2] http://anonymity-in-bitcoin.blogspot.com/
[3] http://arstechnica.com/tech-policy/2011/10/bitcoin-implodes-down-more-than-90-percent-from-june-peak/
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I didn't read the whole article but I always wondered what happens to BitCoins when you accidentally send them to the wrong wallet? Do they stay there until someone rotates their address to that one or what? If so you'd wonder if it's possible to keep rotating addresses and "vacuuming" up the spare BitCoins and automatically sending them to a current address you have when the program finds one.
Or is this not how BitCoins work? I might be getting wallets and addresses mixed up.
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I didn't read the whole article but I always wondered what happens to BitCoins when you accidentally send them to the wrong wallet? Do they stay there until someone rotates their address to that one or what? If so you'd wonder if it's possible to keep rotating addresses and "vacuuming" up the spare BitCoins and automatically sending them to a current address you have when the program finds one.
Or is this not how BitCoins work? I might be getting wallets and addresses mixed up.
thats sorta how bitcoins work but theres too many addresses for you to hoover up someones coins
else someone would make software that just claims all the addresses
so coins to wrong addresses meens their gone for good
if all the 78% come back into circulation that meens each bitcoins will be about 25% of their value right?
best not be holdin em when it happens
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98% of that 78% is stashed under DPR's digital mattress. :)
Kidding, of course, but he probably has lots of it.
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I think it is silly to speculate what might happen if the stashed coins were to be exchanged for currencies. Why would that happen? BTC is a decent hedge against inflation of paper currencies. I'd honestly rather have BTC sitting around in secure backed up digital wallets, than USD, (if the process of getting it didn't paint such a big target on ones forehead). But once you got it, keeping it costs nothing.
What percentage of gold sits in vaults never to be participate in a transaction? probably more than BTC, but nobody says wow watch out if all that gold gets put on the market in one go.
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i would much rather prefer to have my savings in multiple btc addresses than in a us bank in usd. Just, i can't be for certain btc won't get hacked one day, or crash. though, in actual value btc are worth more than usd -just based on fact that it's not imaginary. the usd may as well be printed on helium balloons.
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Most paper money is stashed under metaphorical mattresses, too. There are good reasons to be worried about paper money, but that's not one of them. Bitcoin is deflationary, which encourages savings. Same thing would happen even on a fiat money supply that was tightly controlled in quantity. People will hold it until the goods-to-BTC rate gets higher (how high depends on the individual person) and then start shaving off their balance to buy shit, that's all. And that will happen when more goods can be bought with bitcoin.
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Intersting read especially seeing that the anonymous part of using bitcoins is no longer that anonymous. I will have to read the paper that was written to see what it says.
First thing that came to my mind is, "What if the government bought up most of that 78% so that they can unleash it at once and drive the market down to make it where people sell and they buy the rest up once they do."
Second thing, " Having nearly 80% of bitcoins not circulating I would assume it would be easy to spot DPR and find out his accounts since he receives and spends a lot of bitcoins. You have to assume he cashes a lot of these out to pay to keep this site up and for his own personal use such as housing and security."
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First thing that came to my mind is, "What if the government bought up most of that 78% so that they can unleash it at once and drive the market down to make it where people sell and they buy the rest up once they do."
The Bitcoin economy already survived just such a pump-and-dump attempt.
As the government bought them, their value would increase. Even if they tried to buy them all at the same time it would cause an enormous spike in the value. The government would have to spend many, many times the current value of the Bitcoin economy just to buy the BTC on the market - and as the article suggests, that's less than 22 percent of all existing bitcoin!
And then so what if they were willing to do that, and the market crashed again. Good for people like me, who don't have a lot of $ to spend on ฿. I'd love to get my hands on some $2 bitcoins, then watch my investment gain in value as the economy returns to its previous equilibrium, just like it did the last time.
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I am not saying that is what is happening it is just what I first thought of. The economy didn't survive that big of a dump nothing even close to 80% unless you are talking about something that happened way long ago, but I assume you are talking about the pirate guy.
If all the coins were dumped 78% of the total 100% market it would plummet them in value in a few hours and then immediatley buy them back at 50% a piece and now the government would have control of probably 90% of the market, because everyone else would sell as soon as they saw their coins start dropping.
They spend billions fighting drugs already and hate bitcoins because they don't want anyone using any other currency besides their own, so not only would it mess up the illegal online drug markets/hacking, but it would ruin an alternate currency that goes against theirs.
Two birds with one stone.