

Bitcoin days destroyed - explained - sathishmanohar
http://bitcoin.stackexchange.com/questions/845/what-are-bitcoin-days-destroyed

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trotsky
Absolute rubbish metric, if anything it measures the absolute opposite of
monetary velocity. The value is basically guaranteed to grow and grow even in
the face of flat or declining economic activity

Monetary velocity is the sum of all transactions in a period divided by money
supply Vt = nT / M

Imagine a model where the number of bitcoins is increased by one each period,
and one random bitcoin is transfered to another party as economic activity

    
    
                             day 1 day2                                   day 10
      Total Money Supply:      1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.0
      Actual Transactions:     1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
      Mean BTC days destroyed: 0.00 1.00 1.33 1.66 2.00 2.33 2.66 3.00 3.33 3.67
      Monetary Velocity:       1.00 0.50 0.33 0.25 0.20 0.17 0.14 0.13 0.11 0.10
    

As you can see monetary velocity goes in the exact opposite direction of
bitcoin days destroyed and doesn't follow any similar curve.

Whats worse is it doesn't have a consistent relationship with any of the real
measures as you change your assumptions. Imagine instead you model a situation
where every coin turns over every period. In this case Total money supply,
actual transactions and BTC days destroyed will all be the exact same thing,
instead of the earlier wide divergence. Monetary velocity will be exactly 1
each time because total transactions will equal total money supply.

BTC days destroyed also has a hard upper limit at total days created which
means it can't measure very quick activity accurately (all money turning over
once a day will be identical to it turning over 10x a day) and will over
weight economic growth after a period of low activity.

~~~
nealmcb
If you look at the graph pictured on the post, copied from the bitcoin wiki,
it does not always "grow and grow", because it is in fact graphing the
percentage of the total bitcoin days, not the absolute number. This is further
described on the stackexchange post, and you'll note that my answer there
explains that it has been flat over the last 3 months.

I agree that it is quite different from a velocity measure, simply because it
was not intended to be a raw velocity measure. Bitcoin has some unusual
features which require unusual metrics. This is just one that is being
explored, as an alternative to raw transaction volume, as the posts explain.

~~~
trotsky
here is the graph that I saw linked, that I used:
<http://banana.mine.nu/daysdest.html>

the scale appears to exceed 110,000,000 - I don't believe that it is a
percentage.

I understand the desire to remove the noise of transfers that are not actual
economic activity, but I think this is a poor way to go about it. With bitcoin
it is almost as if you had the ability to record every time a dollar bill went
into a pocket. Sure, some of that is economic activity but it can also just be
someone changing their pants. Even if economists had that data available
they'd likely still rely on the business and financial institution reports to
gauge economic activity. In this way raw BTC volume is a bit of a red herring,
at least until you can produce a good view of economic activity and see how it
relates to BTC volume or BTCdd.

As BTC continues to have an unstable price, a large percentage of the real
economic activity will include exchanges for other currencies or value stores.
Since exchange volume is quite centralized, you'd only need to have the
cooperation of a few exchanges (you'd want to filter out traders) to gain what
would probably be a rather accurate picture of real economic activity in
bitcoins.

------
thasmin
This metric seems to be just as flawed as total bitcoins transferred. Why
should a bitcoin that hasn't been spend in a while be worth more than one that
was spent yesterday? If someone sells something for bitcoins and then buys
something else the same day, that seems like a great indicator of bitcoin
activity but the second transaction is completely ignored by this metric.

~~~
feral
If you were to monitor velocity of money
<http://en.wikipedia.org/wiki/Velocity_of_money> naively, by calculating total
bitcoins transferred, then it would be trivial for any party to increase the
velocity arbitrarily high, by just sending their 10 bitcoins through a very
long cycle of addresses. And there have been examples in the block chain,
where parties unknown have moved large amounts of bitcoin through many
accounts, for no obvious reason. Bitcoin-days-destroyed at least seems to
avoid that problem.

I agree its still a flawed metric. Your example of the same bitcoins being
used in multiple transfers, in the one day, seems completely valid to me.

But I don't think there's a perfect way of measuring the velocity, unless
you've a _complete_ map of addresses-to-identities, which isn't available (and
even that is neglecting transactions done within exchanges, that aren't
backended onto the bitcoin system - which is probably a fair enough
limitation.)

The same is true, if you are trying to calcuate velocity of money in any
traditional economy, where cash transactions are permitted. The cash could be
used in several transactions between observations - theres no way of telling -
and theres nothing that can be done to solve that. So, such measures are
always going to be approximate.

On this topic, something that surprised me recently, was the assertion in Paul
Krugmans blog [http://krugman.blogs.nytimes.com/2011/09/07/golden-
cyberfett...](http://krugman.blogs.nytimes.com/2011/09/07/golden-
cyberfetters/) "The actual value of transactions in Bitcoins has fallen rather
than rising. In effect, real gross Bitcoin product has fallen sharply. "

I'd love to know how he came to that conclusion, or what sort of data he used,
and whether its accurate.

~~~
trevelyan
The data isn't from Krugman but was in the article he linked to.

~~~
feral
Ok - it looks like they reached that conclusion by multiplying the number of
Bitcoins transacted, by the dollar value of a Bitcoin.

Fair enough, but its a measure vulnerable to the problem that days-destroyed
is trying to solve - it'd be easy for people currently sitting on large
volumes of Bitcoin to 'solve the problem' that is highlighted by Krugman, by
just shuffling their coins around.

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DiabloD3
As a very early adopter (probably in the first 100) and author of DiabloMiner,
and forum admin... I have exactly no idea what this is supposed to prove.

The only metric that seems to be valid is "are new people using Bitcion?" The
answer is yes, thus Bitcoin is still here.

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acslater00
Can someone explain to me the Y-Axis here? I don't can't figure out the
denominator of that percentage. I assume the numerator is "days destroyed". Is
the denominator the total number coin "age days" at the start of a given day?

~~~
stuhood
The graph is from this wiki page, which explains the axes slightly better:
[https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed#Graph_of_P...](https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed#Graph_of_Percentage_of_Bitcoin_Days_Destroyed)
: the x-axis is time measured in blocks (created on average once every 10
minutes).

The percentage is (bitcoin_days_ever_destroyed / bitcoin_days_ever_created).
Today there will be ~7.2 million bitcoin days created, because that is how
many BTC are in circulation.

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georgieporgie
I am reminded of the weird financial metric that Groupon invented...

