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Burning and why it matters that it is stopped

By Craig Wright | 27 Oct 2018 | Bitcoin & Blockchain Tech

First, we need to note that Bitcoin is an economic system and in economics, incentives and intent matter.

The loss of an address is not the same as intentionally destroying keys. For a start, the existing hash space is a 160-bit field. Every decade, we have an ability to compute around 6.7 bits of information, and we have around 70 bits of information free in RipeMD160 now. So, that is a total of 100 years before total collapse of this hash function (reality is always less). The truth is that we could expect to see collisions (without a mathematical flaw) in just 40 to 60 years.

As such, a lost key is not forever lost. If the wallets used better technology, then this would not be an issue in the first place.

Lost coins are also the same as a lost note. Think of old sovereigns and other bullion-based coins from the past. A lost Bitcoin private key is like this. It is the Spanish gold and silver sunk for a long time to the ocean floor, but one day to be recovered.

 

This loss does not alter the use of bitcoin as money. If bitcoin was a global currency, then lost bitcoins only mean a loss for the individual as they earn more and a gain in the future for the proverbial bitcoin treasure hunter.

When (and we can take the past of bullion coinage, but this applies to notes now) you lose a coin, it is out of circulation for a time. It is not for all time, but you lose and others gain as you need to do more to maintain what you had.

A “lost” bitcoin is not the same as a “burned” bitcoin. The intention of the owner was not to destroy the bitcoin, but to use it, to save or spend, and to be a part of the overall economy.

Broken Window Fallacy

Conversely, we have an age-old idea of destruction to create. This was summed up by Frederick Bastiat in his age-old but ever true Parable of the Broken Window.

In Wormhole, the idea is that you “back” a token by destroying bitcoin. What is not considered is that you BACK a security using a redeemable item. That is, if you have a gold-backed note, you have the gold in a safe to be redeemed on demand. You cannot create a gold note by taking gold and throwing it into an active volcano to be consumed, or by using energy to automically convert that gold to lead.

If a bitcoin was truly burned (such as through the use of an OP_FALSE script that is forever gone), the future usefulness of bitcoin will diminish.

There are no decimal points in Bitcoin

When you see a transaction for a bitcoin displayed in a wallet, you see a visualisation of the number of Satoshi that form the transaction and have this displayed in a format that is more readily understood. That is, most commonly as a “bitcoin”. The truth is that you are transacting in a fixed-format integer value, and that this is 10⁸ or 100,000,000 satoshi to the nominally termed bitcoin.

There are not just limits on the number of what is commonly called bitcoin, there is a limit on the total number of tokens that will ever exist in the system. There is a good site that displays the Bitcoin transaction format well.

 

You will note, if you play with the transaction format and inputs/outputs in a bitcoin transaction (as you can using the Royal Fork site), that there are no decimals at all.

A part of the error comes from how something like a gettransaction call is displayed and structured.

 

We see amounts displayed with decimals, but this is just a means to simplify how users and developers see bitcoin, it is not how a transaction is constructed.

The Hex signed 2’s complement of 21 million bitcoins is 0x000775F05A074000.

You can see from this that there is room to add more “bitcoin.” Adding a couple zeros to the field allows us to now have, say, 0x0775F05A07400000 as an amount to be transacted. This comes to 5,376,000,000.000,000,00 — which is now 5 Billion Bitcoin. In allowing more tokens, we radically alter Bitcoin, it is not that we have “added a decimal point”, it is that we now have more bitcoins. That is a consensus rule and a major part of the system.

But, it is not even that we can do that change.

 

The IEEE 754 standard format consists of three fields

So, there is no room to add decimal points. Bitcoin is a coin, a token system, it is atomic. The ability to “add decimal points” is something you have with an account-based system. It is a shame so few “developers” in Bitcoin understand the system they are working with.

If Bitcoin was developed using a decision to ignore accounting standards, it would not be as valuable. Bitcoin is not anti-bank, it is not going to “replace the financial system”, it is cash. Money. And for this to be valuable, it needs to function inside the accounting systems and software that exist.

The first thing for developers to learn; you cannot add more bitcoin. Yes, you can code more numbers, just as you can alter the text in Hamlet. But, just as changing an author’s text makes it no longer the original, altering the number of individual tokens in Bitcoin means it is no longer Bitcoin.

Just adding text to a novel means that it is no longer the original novel. Take for example, “Pride and Prejudice and Zombies: Dreadfully Ever After”, this is not the novel by Jane Austin, and nor will it be considered a masterwork.

 

Yes, you can alter the code in Bitcoin, but, this gives you ETH, BTC, or some other shitcoin poor copy of Bitcoin.

The statement, you “can just change code”, is irrelevant. If you alter the text of the US Constitution, you have “just” altered the text, but it is not the same document any longer — a point many developers fail to see. If you just alter the protocol — it is no longer Bitcoin.

No adding extra tokens

So, we cannot add more tokens; to do so means we no longer have Bitcoin, the basic trust that makes it sound money is removed. As such, we can now explore the effects of not losing (for a number of decades) keys, but in the process of what intentionally burning bitcoins means.

In burning bitcoins, a system such as WHC (Wormhole) takes Bitcoin, and uses this to mislead users who think they are being backed to receive a token that is on a separate chain that is completely unrelated to Bitcoin. This is a SHAM or a common “bait and switch”. The purchaser of a WHC is misled into believing they receive a WHC that is “backed” by a BCH token. The truth is that WHC is a one-way function. It is not backed at all.

This is a common securities fraud. The law of SHAM transactions is not new, and there are laws to protect consumers who have been misled.

 

The act of intentionally making a one-way system is to drive people out of Bitcoin and to a PoS-(Proof of Stake)-based token. Let’s explore this in a toy model of the system.

Say we have 1,000 B1 tokens and 10,000 W1 Tokens. Where this is a toy model of bitcoin (B1) and a burn token (W1).

If we issue 10 W1 tokens to a B1, and we sell as follows…

  • 100 B1 tokens are sold to have 1,000 W1 tokens.
  • The balance of the system is now:
  • 900 B1 Tokens to 10,000 W1 tokens

If we now have the scenario where a W1 token user wants to “cash out” to B1 tokens, we now take the 100 B1 tokens and convert these to W1 tokens… But, remember, it is NOT backed, the B1 tokens are destroyed.

So, we have a choice, we can find a holder of B1 tokens and swap these for W1 tokens on the market, or the issuer can sell more W1 tokens through the destruction process.

Over time, we have fewer B1 tokens and less and less ability to hold and use B1 as the utility of W1 and its value increase. In time, as value of the W1 token increases, the B1 token becomes less and less liquid, and the system drives towards only W1 tokens, that is, B1 tokens end either completely destroyed, or they are worthless and cannot be exchanged.

It is the Ricardian value fallacy that was used by Marx at work. Something is not valued just as it is scarce. A diamond remains scarce in the desert, but, you may well trade the diamonds carat to litres at what some will consider a perverse trade, but what is purely fair in this scenario.

Bitcoin is not valuable just as it is scarce. That myth, the HOLD lie, it needs to end.

Bitcoin maintains value through a limited scarcity that is not diluted; that is not the same as saying it is valuable as it is scarce.

It it was true that value comes from scarcity alone, we could all destroy most of our bitcoins, leaving only one 100,000,000th of the initial, and expect that the value will increase, but, it will not. There is no increased demand. In removing the number of tokens, altering these from satoshi to bitcoin without decimals, you have not increased value, but diminished it. As a holder, if you have 1 BCH, you have one BCH after the transform, but now, instead of being able to use a 0.5 BCH exchange, you can only use a full BCH, and the ability to trade and exchange has diminished.

If Bitmain and minions manage to destroy, say, 10 million BCH, they have not increased the value of BCH, they have diminished the long-term ability to use BCH as anything other than a settlement system for Wormhole. Basically, we see BTC and Lightning all over.

With fewer BCH in the form of satoshi, we have fewer uses and more value in WHC where this token can act as a daily medium of transactions, and BCH is just the settlement system.

Unfortunately, in falsely defrauding users, in making the false and misleading claim that you are BACKING a transaction with BCH, they are committing a securities fraud. It will not be the first by Bitmain, but as the regulators start to look into this… it will not be a token I would like to use.

False and misleading statements are not only civil offences, they are criminal in nature.

Conclusion

Do not believe everything a developer paid by a promoter tells you.

Notes:

Sham

A sham is something it is not purporting to be: A spurious imitation, a fraud, or a hoax.

Tokens are issued as either a direct sale offer for a good or service that exists (such as a movie ticket) where we are not seeing an ICO form of sale, or a means of capital raising.

A digital token that is designed to be traded in an ICO may constitute a:

  • Share — This confers or represents an ownership interest in a company, trust, or partnership and is generally linked to the limited liability of the token holder in the corporation.
  • A debenture that evidences the indebtedness of the issuers.
  • A unit, such as a unit in a unit trust, or a right to acquire such an interest.

In any determination as to whether a security has been created, the courts will investigate more than the form of the transaction. The court will investigate the substance of the transaction. The language is not disregarded but is also not conclusive of the nature of a transaction.

Rounding, and why adding values (satoshi) is unwise:

For more than the pithy explanation above, see:

I noted how you cannot alter the number of satoshi precision, but you also have limits in any event. As a token and not an account-based system, Bitcoin CANNOT be calculated as a floating point, it much be an integer and set. It is quantum, there is a lower bound and there are no decimals. Other external systems can account fro fractions of a satoshi, but, Bitcoin itself is fixed to indivisible digital coins at the deepest level.

With a safety limit, this means we have only a doubling or, at the utmost, an 8x increase in possible tokens. This is not enough to add more decimal points.