Alon Shtaierman, M.Sc. Thesis Seminar
The rapid increase in the popularity of cryptocurrencies brought with it not only questions regarding the quality of the technology itself, but also the economic phenomena surrounding them. Bitcoin in particular has proven itself to be a very volatile commodity~[Baek and Elbeck, Applied Economics 2015], and a poor currency, according to the definition of money [Kocherlakota, Journal of Economic Theory]. This has given rise to numerous alternative cryptocurrency models, which set about to improve upon their roles as a currency. One inherent problem presented by fixed-capped cryptocurrencies, such as Bitcoin, is that of lost-coins. Lacking a private-key restoration scheme, it is impossible to transfer funds out of an electronic wallet upon losing its private key. Since fixed-capped cryptocurrencies impose a strict monetary policy, by which the ultimate amount of coins in circulation is preset at a constant value, the phenomenon of lost coins has a debilitating effect on the system, effectively reducing the number of actual coins in circulation over time. In this paper, we introduce the problem and possible solutions that allow lost coins to be recirculated into the system, in a way that doesn't violate its security.