Ask CryptoVantage: How Much Bitcoin Has Been Lost Forever?

Satoshi's Stash

After mining more than 20,000 blocks early on when Bitcoin had just launched, Satoshi Nakamoto managed to earn over 1 million cumulative Bitcoin rewards. However,  since that period, he did not transact or mine whatsoever.

As noted by Nakamoto in his original Bitcoin whitepaper, these coins are supposed to be left unspendable – a tribute to the fact that this is a digital bearer asset with no private keys and thus can’t be lost.

However, it has been speculated endlessly on what would happen to the so-called “original” Bitcoins when Satoshi eventually moves them. Either way, this reduces the available supply of Bitcoins by around 5.9%.

Lost Private Keys

Another factor contributing to the overall amount of MIA Bitcoin is lost private keys.

All Bitcoin users have a private key associated with their bitcoin wallet. The private key acts as a  password of sorts, where anyone who has access to their private key is able to spend the bitcoin associated with that address. However, over the years many users have lost access to their private keys by forgetting passwords or misplacing hardware wallets.

According to Chainalysis, about 25% of bitcoins are believed to be lost forever in this manner. An estimated 70% of those bitcoins come from early investors and miners. Based on Chainalysis data.

If the user loses this key, they lose access to their wallet permanently. If Bitcoins are stored in an online hosted wallet or exchange, then the loss of that service provider means there is no way for the owner of those coins to have access.

Similarly, if someone’s hard drive crashes and the private keys are lost with it, then that Bitcoin amount effectively disappears from circulation. In other cases, Bitcoin owners might pass away without revealing the password to their wallets thus leading to permanent loss of the Bitcoins in those wallets.

A few examples include a Reddit user in December 2017 who reported losing over 1,000 BTC because he accidentally discarded a hard drive. In another instance of misplacing coins due to poor security practices, a Japanese man threw out a hard drive in 2015 worth a fortune in Bitcoin. These are just two of the countless examples of hard drives and hardware wallets that have gone missing (and consequently resulting in lost Bitcoins).

In 2021 the New York Times famously profiled some of the people that have lost fortunes in Bitcoin and highlighted the challenges of keeping crypto secure.

Why Bother With Crypto At All?

If crypto is so fiendishly difficult to keep safe than why bother holding it at all?

It’s a fair question but there a couple of things you need to keep in mind. First off, if you take the time to educate yourself and use proper security processes than you’re unlikely to run into issues. A proper hardware wallet with a recovery seed can mitigate 99% of the problems with security. There is a bit of a learning curve but it’s at least somewhat intuitive once you get the hang of it.

Second of all, Bitcoin is arguably the best performing asset of the decade. It’s scarcity is a big part of what makes it so valuable. Therefore the long history of users misplacing BTC have only made the remaining coins MORE valuable. It’s callous to say but other people’s loss could be your gain.

The Need for Reliable Custody

Even though Satoshi’s original vision was for Bitcoin to be a decentralized cash system with no gatekeepers, there has been an increasing amount of centralization largely around mining and exchanges.

As such, the need exists for security and insurance against the loss of huge amounts of Bitcoin due to poor custody. Despite the increasing amount of Bitcoins lost forever, there is still more Bitcoin to be mined.

Get yourself a crypto wallet to avoid becoming another statistic!