Do any Virtual Currencies use coins that have an expiration date?

Bitcoin has no way of knowing if a given Bitcoin is "expired" or has a Base58 address that no one has a key for

One way of ensuring that coins are never lost is to expire coins and add them back to the coinbase at some future date. People with active keys would simply move all the coins to a new address within a 5 to 10 year period.

Has anyone explored the pros or cons of this, how it impacts velocity of money?

A few benefits off the top of my head include

Forced upgrade of all coins to better newer technology (SCrypt, Sha512, etc)
Better analysis and less speculation of the network (coins in circulation is constant)
More incentives to mine after the 21 million BTC mark is reached

Note: I'm not proposing a change to Bitcoin, but want to see if any Alt-coins have researched this area.

goodguys_activate

Posted 2013-10-15T16:54:11.827

Reputation: 11 898

I'm not sure it's a good fit for SE since it prompts debate rather than answers. But I'll say that the vast majority of the Bitcoin community is against the idea of expiring coins. – Meni Rosenfeld – 2013-10-15T21:37:54.417

@MeniRosenfeld except for those Bitcoin users that run Freicoin and many other social crypto-coins. Some of them are even taking power in places like Barcelona, driven by social movements that want to connect social local coins in an electronic way to make exchange between them possible. – rdymac – 2013-10-15T23:04:08.297

@rdymac: Demurrage is very different from the kind of expiration asked about here. Anyway, I said "vast majority", not "all". – Meni Rosenfeld – 2013-10-16T05:29:58.580

Not an alt-coin per se, but I believe Open Transactions supports issued assets that can expire. – dchapes – 2013-10-17T15:00:56.383

Answers

It hasn't been tried yet

At this point to the best of my knowledge there is no crypto currency that uses either expiration of transaction outputs or expiration of addresses. Therefore there are no experimental results available to observe expiration's effect on velocity.

It wouldn't affect velocity

However, one might argue that any sensible period of time (at least five years) would not have a significant effect on the velocity of the money: Savings would just be moved and the transaction fee would not pertain to a significant amount of loss. There'd be a jackpot every once in a while in the mining rewards, creating peak hash rates, and sudden liquidity spikes if the miners sell their rewards directly. Compared to the velocity generated by the majority of the user population that should be negligible though.

A smaller period of time would turn into a saving fee per address, as you'd be forced to pay at least one transaction per address every period of time. This would disadvantage smaller bitcoin holders compared to people that have larger funds in fewer addresses.

Freicoin implements demurrage

The closest that I could come up with is Freicoin, which implements a demurrage of about 5% per annum. It is implemented in such a way that every time a block is mined a tiny fraction of your savings will be added to the mining reward, so that you will lose about 5% per year.

Demurrage slowly drains lost funds

While the demurrage is mainly implemented in order to discourage hording, stabilize the mining reward, and increase the velocity of money, it will also very slowly drain lost funds back into the mining reward. Assuming the target block interval were maintained, in 20 years about 64% of lost funds would be returned into the market. After 50 years more than 92% of lost funds would be recycled.

Murch

Posted 2013-10-15T16:54:11.827

Reputation: 41 609

Now the funny thing would be to mix both demurrage and proof-of-stack in a crypto-currency. Either they cancel out or one's bigger than the other. Should proof-of-stack's reward be bigger in the long run, lost funds would grow exponentially over time, giving an incentive to attempt hacking the keys holding them... – Joe Pineda – 2013-10-17T16:50:03.460

Hacking specific addresses is not feasible. See for example Is it possible to brute force bitcoin address creation in order to steal money

– Murch – 2013-10-18T00:48:24.407

Feasible it is, though impractical. Imagine a wallet with 100K BTC whose owner lost access to it due to negligence - in that case you can be pretty sure the private key was generated in an insecure way. Given a price BTC >= US $1K it would be worth attempting a dictionary attack for the quick buck - should it succeed it'd more than pay for the electricity and equipment expenses. The higher the price climbs, the more worthy it'd become. – Joe Pineda – 2013-10-18T15:26:19.697

I doubt the connection between lost coins and deterministic wallets. If anything, deterministic wallets are less often lost, because it is enough to remember a passphrase in order to restore the wallet. I agree though, that dictionary attacks could be profitable. – Murch – 2013-10-19T12:15:14.173

Freicoin has demurrage, as mentioned in other answer, it discouraged hoarding.

"Demurrage forces freicoins to circulate at deliberately high rates."

http://freico.in

rdymac

Posted 2013-10-15T16:54:11.827

Reputation: 1 357

The question asked about expiring unmoved coins. You could extend the life of a coin by moving it. That's very different from demurrage. – Meni Rosenfeld – 2013-10-16T05:30:58.693

Ok, I see now this was at least partly a comment to RentFree. Anyway, if you feel this shouldn't be an answer on its own you can delete it. – Meni Rosenfeld – 2013-10-16T05:32:02.483

I think this part of the question makes my answer relevant "...add them back to the coinbase at some future date", so I'll let it here. – rdymac – 2013-10-16T10:35:33.123

The demurrage fee of Freigeld systems does force you to "move it or lose it" in a way: by "move" it's meant "invest it". In the short-lived "Socialist Republic of Bavaria" (whose Minister of Economy was no-other than Silvio Gesell himself) the bank interest rates dropped down really quickly: even though banks lose wealth (not money) to inflation should they just hoard money in the vaults, demurrage compounds the effect by making them lose money as well. Velocity of money is indeed increased as another side-effect. – Joe Pineda – 2013-10-17T16:45:55.643

Right now freicoin is the closest thing you will find. But as stated it is a slow degradation of coins not fast and certainty does not go back to the sender of the coins. I do wonder how wildly the diff of a expiring coin chain would be. I could imagine people writing scripts waiting to hop chains. Hopping has crippled networks before. But anyway, that's beyond the point. If you want to verify that there is somebody home, have them sign a message: https://bitcointalk.org/index.php?topic=70911.0

– Joe White – 2013-10-18T12:52:32.570

I remember some altcoin that discouraged hoarding by having the coins gradually lose value over time. That way when you get them you'll spend them as soon as possible. But I forget which one it was.

RentFree

Posted 2013-10-15T16:54:11.827

Reputation: 2 391

Maybe I should have made it as a comment here instead as an answer: Freicoin has demurrage, as mentioned in other answer, it discouraged hoarding.

"Demurrage forces freicoins to circulate at deliberately high rates."

http://freico.in

– rdymac – 2013-10-15T23:02:53.790

Right... "demurrage"... I knew it was some French term – RentFree – 2013-10-15T23:14:24.980

If seems that if this was part of the bitcoin protocol, wallet developers would just build in automatic sending the coins to another address you also own. So that wouldn't do anything to money velocity.

And then what would be left is a massive hassle for those who'd store their coins offline.

To actually increase money velocity you would need to change the economic incentives (like FreiCoin).

Brian Fabian Crain

Posted 2013-10-15T16:54:11.827

Reputation: 267

Since Bitcoin is a decentralized currency, it would probably be difficult to expire and reissue coins. So the first question would be, which authority would ever try to implement such a system? It would probably be possible for the Bitcoin Foundation to set up in the source code of the system, but honestly the costs would outweigh the benefits.

Further, such a system would probably be vulnerable to scams and would be too complicated to pragmatically implement.

As other people have noted, a lot of people store their coins offline, so that would make things even more difficult. Especially in regards to setting up an automated system.

BTC_Hamster

Posted 2013-10-15T16:54:11.827

Reputation: 963