How Much Bitcoin Is Lost Forever?

How Much Bitcoin Is Lost Forever? If you scan the headlines, you’ll see a lot of large numbers being tossed around for lost bitcoin. Depending on the price of bitcoin compared to the U.S. Dollar, media outlets report anywhere from billions to tens of billions of bitcoins forever lost.

But are they forever lost, and just how accurate are these numbers?

Bitcoin’s price over the past decade has been everywhere from under $10 to over $60,000, and some analysts believe it will reach $100,000 before long. The late John McAfee had his own idea of the coin reaching $1 million, as posted on his Twitter account in 2017.

We investigate how many bitcoins are lost forever, and how to protect your crypto assets.

20% Of Bitcoin Supply Lost Forever?

Bitcoin is a deflationary asset, with a total supply of 21 million bitcoins. Once those coins are mined, that’s all there will ever be, and over 18.89 million (90 percent) of the full supply has already been mined in the 12 years since its 2009 release. Half of the supply was mined by December 2012, three years after release.

While that may sound like the supply cap will be quickly hit, the mining reward continues halving. This is the reward given to miners processing the proof-of-work (PoW) algorithms to process transactions and validate blocks. The full bitcoin supply is expected to be mined in February 2140, based on the halving schedule and activity estimates.

Chainalysis reported in June 2020 that 60 percent of the bitcoins on the market are being held by people who are hodling long term. They never sold more than 25 percent of their supplies and are clearly “diamond hands” – a term referencing owners who don’t sell regardless of price volatility. Another 19 percent of the supply is used for trading, but 3.7 million BTC (20 percent) is estimated to be lost.

Here’s how the company determined this.

How Much Bitcoin Is Lost?

There’s only approximately 2 million BTC left to be mined, and the 3.7 million lost coins could grow as a percentage of the full available supply. Chainalysis decided that any bitcoin that hasn’t moved from its address in five years or longer is likely to be lost, as even long-term hodlers perform transactions, such as converting to other crypto to buy NFTs.

And that’s just bitcoin – an estimated 12,000 Ether were reported forever lost due to typos as of 2018. Between rug pull scams, hacks, and projects disappearing, it’s nearly impossible to nail down exactly how much of the total crypto supply is lost. We can assume the 20 percent number roughly extends across all tokens.

Typically, these losses occur when people lose their recovery keys, which is becoming less of a problem as the industry matures. Unlike your password for a web2 service like Google or Facebook, there’s no way to recover a lost crypto key. Unlike your debit card, you can’t call your crypto bank for a replacement key. This is why you’re asked to store seed phrases and take other security precautions, which we’ll discuss further in a moment.

First, we’ll need to explore the industry forming around finding lost crypto assets.

Can Lost Bitcoin Ever Be Recovered?

Unfortunately, the same cryptographic features that make bitcoin and other cryptos so attractive as a secure investment also makes it easy to lose. If you lose your private keys and seed phrase, your bitcoin supply is likely lost forever. The odds of it being recovered and matched to you, especially in the early years, is slim.

Without these keys, it’s impossible to recover these keys using modern technology. Perhaps the proliferation of quantum computing will change this, and a growing industry of crypto forensics is growing to help recover these lost funds.

People have tried everything from hypnotherapy to hiring hackers to recover their lost bitcoin caches. Savvy blockchain techs monitor the digital ledger for lost funds, and in the cases of crypto thefts, addresses are marked so that law enforcement can track the stolen funds.

Still, if you lose your crypto, you may be out of luck, especially if you’re holding them in a self-custodial wallet. Even hosting your own Ethereum 2.0 node has risks of loss. So, how do you protect yourself?

How Do You Store Crypto Assets?

There are several steps you need to take to protect your crypto investments. To do so, you’ll need to understand the basics of wallets. There are two types of wallets: hot and cold.

A hot wallet is connected to the network and can be used to easily buy, sell, and trade your crypto assets. A cold wallet is offline and can include hardware or paper wallets. Crypto is most often stolen from hot wallets but most often lost in cold wallets.

While experts overwhelmingly recommend against storing your crypto assets on an exchange, the rules have changed since that was sage advice. Modern crypto exchanges like Coinbase (NASDAQ:COIN) store the bulk of their assets on cold wallets, and the company carries crime insurance. So, the platform can repay customers.

In fact, a good chunk of the stolen funds from massive platform exploits have been returned to those affected (or at least they were fairly compensated). This creates a fair argument on either side of which is the most trustworthy – you or the collective intelligence of corporations?

Keeping your keys secure and safe is the…well…key to protecting your access to your crypto. Backup your assets with cold steel and have a paper wallet in a safe that’s not located on your computer or phone. Protect your crypto keys like they are your passwords but can never be reset.

Lost and Stolen Crypto: The Bottom Line

Crypto can be lost or stolen, and it’s fair to estimate that 20 percent of all crypto is in lost wallets. Although it looks like a bank account balance, your crypto assets act very much like cash. That makes them secure and easy to trace, but they’re also easy to lose.

Be sure to backup all your crypto information on paper so that it can’t be stolen online. Make copies of your backups too, because it’s very easy to lose your originals.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.