Firstly, it’s important to note that the exact number is not yet known, but we do have some estimates. Around 6 million bitcoins are believed to be lost forever, and there are a few reasons for this.
Bitcoins can be lost in countless ways, but most are lost because some users may lose their seed phrases or private keys.
Bitcoin is a decentralized network, so users are solely responsible for keeping their seed phrase safe. If a user loses it, they will never be able to access their wallet and move their funds again.
The definition of a ‘lost bitcoin’ can be broad, but there are some general factors that are often the main cause.
Let’s understand more about them!
How Bitcoin works
It is essential to understand that bitcoins do not reside in your wallet; instead, all bitcoins remain on the blockchain. So, the only way to guarantee access to your Bitcoin funds and move them is with your private key.
If you don’t have access to your private key, then the bitcoins aren’t truly yours. This is where the famous phrase “not your keys, not your coins” originates from.
There are different types of wallets: custodial and non-custodial.
Custodial Wallets
Custodial wallets are applications from companies that don’t provide you with the seeds or private keys to recover your balance in other wallets. You depend on intermediaries who create the wallet, much like traditional banks.
Non-Custodial Wallets
Non-custodial wallets allow users to possess their seeds or private keys and have the sovereignty to move funds as they wish. This is an incredible advantage, but with great power comes great responsibility.
What are seeds and private keys?
Seeds are a set of 12 to 24 words that allow you to recover your Bitcoin balance in other wallets. This possibility results from Bitcoin’s BIP 39 update.
Now, private keys are generated from the seed; so, a private key is a code that signs transactions in your wallet and allows you to transfer BTC from one address to another.
Many people fail to securely store their seeds or private keys and end up losing access to their wallet balance. This is the primary cause of bitcoin loss among users.
However, loss isn’t always due to negligence or forgetfulness. Sometimes, users may visit websites harboring viruses that steal private keys, or their mobile device with the wallet might be stolen without having a proper backup.
How can Bitcoin be lost?
A “lost bitcoin” can be described in various ways, but there are some common scenarios that lead to a “lost bitcoin,” such as:
Forgotten Wallets:
Some early adopters who mined or purchased bitcoins when they were of negligible value later forgot their wallet access. Additionally, with the evolution of many wallet types and addresses, these users may not have updated their wallets to addresses compatible with current standards.
Lost Keys:
As mentioned earlier, bitcoins are stored on the blockchain, and wallets merely secure the private key. If the private key is lost, the associated bitcoins become inaccessible.
Non-Recoverable Wallets:
There are instances where physical wallets are damaged or destroyed.
For example, if bitcoins are stored on a computer, the hard drive containing the wallet information can be damaged, leading to irreversible loss. This is especially common with paper wallets that get destroyed.
Dormant Wallets:
Wallets that haven’t been accessed or used for a long period may technically not be lost, just dormant.
However, if these wallets are never accessed again, the bitcoins they contain are essentially unusable.
Sent to Incorrect Addresses:
Bitcoins sent to incorrect or non-existent addresses are often deemed lost since there’s no way to retrieve them. It’s believed that when bitcoins are sent to a non-existent or unusable address, they are effectively “burned.”
It’s important to note that burning bitcoins is an intentional process, whereas losing bitcoins is typically accidental.
How many Bitcoins are lost?
It’s estimated that over 6 million bitcoins are lost forever. Of the more than 19.3 million bitcoins mined to date, only about 13.3 million are currently available. This means that 31% of the total existing Bitcoin supply is lost forever.
Timothy Peterson, a manager at Cane Island Alternative Advisors, an investment advisory firm, revealed this information on his Twitter (X) account.
There’s also an expectation that an additional 1 million coins will be lost by the time the remaining 1.7 million bitcoins are mined. In other words, the current 13.3 million supply might be the only coins accessible until all 21 million bitcoins are mined.
Furthermore, it’s possible that we may never regain access to these lost bitcoins.
However, there are ways to track lost bitcoins. Some online services, known as “Crypto Hunters,” can assist in tracking your lost wallet.
To use these services, you’ll need to provide your blockchain ID and a guess of your wallet passphrase. Therefore, it’s crucial to ensure that you’re using a legitimate website or a trusted professional.
Impact of lost Bitcoins on market value
By design, Bitcoin is inherently limited, with only 21 million units ever to be created. This cap makes Bitcoin a scarce asset, which can drive its value up as more people adopt it.
However, this scarcity is intensified as more coins are lost forever. Currently, as we mentioned, fewer than 21 million bitcoins are available worldwide.
According to the law of supply and demand, as more people adopt Bitcoin, its price is likely to rise. So, in a sense, lost coins can be beneficial for Bitcoin’s value.
Additionally, with a Bitcoin ETF waiting for approval, Michael Saylor, CEO of MicroStrategy, believes that the demand for Bitcoin could surge up to 10x in the next halving.
If this projection holds true, then the dream of one Bitcoin being worth 1 million dollars could rapidly approach reality.
Conclusion
As we’ve seen, there are numerous ways to lose access to your bitcoins and your wallet. That’s why maintaining vigilant security over your keys and exercising caution with every Bitcoin transaction is crucial.
However, there’s no need for despair, as there are methods available for recovering access to your wallet and funds. Also, it’s possible that the future may bring even more mechanisms for retrieving lost bitcoins.
The silver lining is that the increasing scarcity of bitcoins, due to lost coins, contributes to a rise in price.
Just like Satoshi Nakamoto said, “Lost coins only make everyone else’s coins worth slightly more. Think of it as a donation to everyone.”
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One of the leading Bitcoin educators in Brazil and the founder of Area Bitcoin, one of the largest Bitcoin schools in the world. She has participated in Bitcoin and Lightning developer seminars by Chaincode (NY) and is a regular speaker at Bitcoin conferences around the world, including Adopting Bitcoin, Satsconf, Bitcoin Atlantis, Surfin Bitcoin, and more.
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