How Much Bitcoin Has Been 'Lost' Forever?

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Includes: BTC-USD, COIN, GBTC
by: Martin YK Li

Summary

Bitcoin has a controlled supply, meaning that the amount of coins that can be mined are finite.

The amount of Bitcoin actually in circulation is far lower than the amount of Bitcoin in existence, due to accidental loss or willful destruction.

Of the 16 and a half million Bitcoin that have been mined so far, it is estimated that up to 25% have been lost for good.

Bitcoin has a controlled supply, meaning that amount of coins that can be created are finite. The Bitcoin protocol is designed in such a way that new Bitcoins are created at a decreasing and predictable rate. The number of new Bitcoins created each year is automatically halved over time until Bitcoin issuance halts completely with a total of 21 million Bitcoins in existence.

Projected Bitcoins Short Term

Date Reached BTC/block Year (estimate) BTC in Circulation BTC Increase from Prev. Entry BTC % of Limit
2009-01-03 50.00 2009 0 ~ 0%
2010-04-22 50.00 2010 2,625,000 Infinite 12.500%
2011-01-28 50.00 2011 5,250,000 100.00% 25.000%
2011-12-14 50.00 2012 7,875,000 50.00% 37.500%
2012-11-28 25.00 2013 10,500,000 33.33% 50.000%
2013-10-09 25.00 2014 11,812,500 12.50% 56.250%
2014-08-11 25.00 2015 13,125,000 11.11% 62.500%
2015-07-29 25.00 2016 14,437,500 10.00% 68.750%
2016-07-09 12.50 2016 15,750,000 9.09% 75.000%
12.50 2018 16,406,250 4.17% 78.125%
12.50 2019 17,062,500 4.00% 81.250%
12.50 2020 17,718,750 3.85% 84.375%
6.25 2021 18,375,000 3.70% 87.500%
6.25 2022 18,703,125 1.79% 89.063%
6.25 2023 19,031,250 1.75% 90.625%
6.25 2024 19,359,375 1.72% 92.188%

(Table Data Source: en.bitcoin.it)

As of June 20, 2017, Bitcoin has reached a total circulation amount of 16.4 million coins, which is about 78% of the total amount of Bitcoin that there ever will be in existence.

(Image Source: Blockchain.info)

The theoretical total number of Bitcoin, 21 million, should not be confused with the total spendable supply. The total spendable supply is always lower than the theoretical total supply, and is subject to accidental loss as well as willful destruction. As a side note, while the number of Bitcoin in existence will never exceed 21 million, the money supply of Bitcoin can exceed 21 million due to fractional-reserve banking.

So how much Bitcoin exactly has been lost? It's a pretty tough question considering there is no definitive metric for finding the answer. A good estimate is around 25% percent of all Bitcoin (4 million Bitcoins), according to an impressive, albeit slightly dated, analysis by John W. Ratcliff. His article, written June 18, 2014, arrives at the conclusion that 30% of all coins had been lost, equating to 25% of all coins when adjusted for the current amount of coins in circulation. The reason that Ratcliff's value can be adjusted for the current date is because the bulk of the lost Bitcoins originate from very early on in the history of Bitcoin, and as Bitcoin's value goes up, people lose their coins at a slower rate. This value of 25% includes the coins that Satoshi Nakamoto may or may not hold, a topic which I believe should be saved for another article. Either way though, considering Satoshi's possible courses of action, it is extremely likely that those coins will remain dead permanently.

Bitcoin can be lost due to irrecoverable passwords or private keys, forgotten wallets, hardware failure, or the death of the Bitcoin owner. And sometimes, people just plain mess up. There's no shortage of newbies from all eras flubbing their coins, for example by accidentally sending Bitcoin to a valid but unowned address, in which the Bitcoin would be transferred and then be as good as lost. Even veterans have made massive mistakes. Bitomat lost the private keys to 17,000 of their customers' coins. In general, it's extremely improbable and effectively impossible to recover lost coins. Lost Bitcoins still remain in the blockchain just like any other Bitcoin, but lost coins remain dormant forever because there is no way for anybody to find the private keys that would allow them to be spent again.

The vast majority of losses however, are from Bitcoin's earliest days, back when mining rewards were still 50 Bitcoins a block and Bitcoin was trading at less than a cent. Certainly, with Bitcoin worth so little, a lot of people frankly didn't care if they lost their keys to the Bitcoin that they mined or purchased, and some just plain forgot about them; Let me remind you of the poor sap who threw away his hard drive of 7500 Bitcoins. Or for example, those who began mining on their computer, didn't like what it was doing to it and deleted everything, a scenario more common than you'd expect. As Bitcoins are far more valuable now than in the early days, people tend to secure their private keys with more care.

Another avenue through which Bitcoin can be lost is through "burning". This can be done by setting up a wallet with no known private key. The wallet can still be seen online, complete with every transaction, but the funds will likely never be retrieved. There are some addresses out there where no known private key exists.

For example:

Bitoin Eater

Any coins sent to the above address will be lost forever. Same with this unspendable address:

Counterparty

That one was used for the Counterparty's proof-of-burn. People sent bitcoins to that address to prove that they were "burned" (i.e. destroyed) so that they could be rewarded with the equivalent amount of Counterparty (XCP) coins.

The fact that Bitcoin can be lost or destroyed may have been a problem if Bitcoins were not able to be made infinitely divisible, but since they can be, it is a non-issue. If necessary, Bitcoin can be forked to use more than 8 decimal places. If that's not sufficient, proof-of-burn could be used to seed an entirely new cryptocurrency. In fact, lost Bitcoins should theoretically cause an increase in the value of the currency, according to the laws of supply and demand.

Despite this, the notion that the loss or destruction of coins is helpful to Bitcoin doesn't make a lot of sense either. To the contrary, it may have contributed to a slower adoption to the mainstream. With Bitcoin it's possible to forfeit all of one's currency if precautions are not taken and one loses his or her private key. This is as opposed to say, fiat money in a bank, where identity can be used to verify the ownership of the money, and where the money is further insured by the government.

Disclosure: I am/we are long BTC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.