This Is How Much Bitcoin Has Been Lost Forever

Key Takeaways:

• It is estimated that 2,550,615 bitcoins (or 13% of the total supply) have been lost.
• Human error is the primary reason why Bitcoins are lost, including the loss of private keys, incorrect transactions that cannot be reversed, lost recovery phrases, and no inheritance plans.
• The best methods to ensure Bitcoin is not lost are to back up, recover, and seed phrases, check wallet addresses, and use a personal storage wallet.

Bitcoin continues to be the most widely held cryptocurrency among investors. Its peer-to-peer decentralized payment network allows anyone to become the custodian of their own wealth. Unfortunately, self-custody also comes with downsides. According to data collected by on-chain intelligence provider Glassnode, in 2022, over 13% of the current circulating supply of bitcoins may have been lost forever.

How Much Bitcoin Has Been Lost?

Using data captured by on-chain intelligence provider, Glassnode, in November 2022, it is estimated that 2,550,615 bitcoins may be lost forever. This estimate accounts for all Bitcoins in one wallet address that has not moved in more than 10 years. Therefore, it is assumed to be more likely that the majority of the Bitcoins in this estimate have been permanently lost.

By comparing Glassnode’s estimate with the circulating supply of bitcoin in November 2022, which is 19,214,975, lost bitcoin could account for 13.2%. With a bitcoin price of $16,000, this equates to a dollar value of $40.8 billion worth of lost Bitcoin. Other data analytics providers, such as Chainalysis, have provided different estimates in the past. By using an inactivity time period of 5 years, in June 2020, Chainalysis reported that the number of lost Bitcoins likely sat between 2.78 and 3.79 million. A figure that accounted for nearly 20% of Bitcoin's circulating supply.

Related: How many Bitcoins are there left to mine?

Let's Talk About Satoshi's Lost Bitcoins

It is estimated that Satoshi Nakamoto, the pseudonymous creator of Bitcoin, mined approximately 1 million Bitcoins. After disappearing in 2011, the mined bitcoins have not moved in over 10 years and are considered permanently lost by many analytics companies when estimating the number of lost bitcoins. According to notes from discussions with Satoshi Nakamoto, it is believed that these coins may have been left as an acknowledgment of the private self-custody Bitcoin was built for.

As the identity of Satoshi Nakamoto remains a mystery, it is still unclear if these bitcoins will ever become accessible. But you can still inspect Satoshi's wallet address to see the number of Bitcoin held in the wallet.

Defining When Is Bitcoin Is Lost

Cryptocurrencies, including Bitcoin, are stored in cryptocurrency wallets. However, the language used to describe cryptocurrency storage is slightly misleading. Instead of storing Bitcoin, the wallets store the private keys to rightfully access the asset. It is the Bitcoin private keys that provide authorization to move crypto from the wallet. Therefore, Bitcoin is considered lost if access to a Bitcoin private key is lost. If a user can no longer access the private key for a particular wallet, and there is no backup, bitcoins become irretrievable.

Unfortunately, the number of inaccessible wallets and, therefore, missing private keys, is difficult to track. There is no definite way to determine if a private key has been lost or whether the owner is simply HODLing Bitcoin for the future.

To gain an appreciation of how many bitcoins may be lost, data analytics companies use the assumption that bitcoins are lost if the coins have remained stationary for a set number of years. While the number of years sitting dormant is subjective, making the estimate flawed, it is the only way of providing some insight into the number of bitcoins that may never enter circulation again.

These Are The Main Ways Bitcoins Become Lost

Human error is the primary reason why bitcoins are lost. Bitcoin was designed as a peer-to-peer payment network that places control back into the hands of individuals. However, this level of control comes with accountability. If there is a lack of understanding regarding private keys, seed phrases, crypto wallets, and how the three relate to the Bitcoin blockchain, bitcoins can easily be lost.

Here are the key reasons why bitcoins become lost:

• Lost private keys. Losing access to a private key is the fundamental reason why bitcoins are lost. Once the private key to a specific Bitcoin wallet is MIA, bitcoins are irreversibly lost. Private keys can be rewritten if stored as a file, trapped within an inaccessible crypto wallet, or authorization can be accidentally handed over to another individual. In this case, it can be very difficult to recover lost Bitcoin, but not impossible using a few strategies.
• Incorrect transactions. Every transaction completed within the Bitcoin blockchain is immutable and, therefore, cannot be reversed. Transactions are final once confirmed. While making fraudulent payments impossible, this poses a risk for BTC holders. If Bitcoin is sent to the wrong wallet address, there is no method to get those assets back. Finding the Bitcoin transaction ID may help with recovery if the owner of a wallet is kind enough to return funds, but they are not obliged to and can easily disappear. Or if the wallet address is dead, meaning there is no owner, Bitcoins will be permanently lost.
• Lost recovery phrases. To avoid the difficulties of private keys, most crypto wallets allow access via a memorable password. Alongside the password, wallets also provide a recovery phrase – often a list of either 12 or 24 words – which can be entered into a new wallet if the password for the wallet is ever forgotten. However, this means the recovery phrase is the final backup. If the phrase is lost, misplaced, or forgotten, a bitcoin wallet will not be recoverable.
• No inheritance plans. Due to the self-custodial nature of Bitcoin, bitcoin owners may or may not have a plan in place to pass a bitcoin wallet on to a family member. In the event that something happens to them if access details have not been passed on, all Bitcoins held within that wallet will be permanently lost.

How To Make Sure You Don’t Lose Your Bitcoin

Bitcoin is an incredible tool that lets anyone become their own bank. As long as the risk of losing bitcoins is mitigated, unlocking the advantages of the Bitcoin blockchain is straightforward. Education is key to ensuring lost bitcoins are a thing of the past.

• Backup recovery or seed phrase. All personal cryptocurrency wallets come with some form of a recovery phrase that is typically composed of 12-24 ordered words. These words can be entered into a new wallet if the old one is ever lost and, therefore, allow individuals to access the private keys necessary to send Bitcoin. Due to the importance of the recovery phrase, it should be securely kept in a reputable seed phrase steel storage device. Physically writing down the recovery phrase and storing it in multiple safe locations is the best practice. It is best not to carry the recovery phrase on your personal or electronic devices, and it must never be shared with anyone else.
• Triple-check wallet addresses. To avoid sending bitcoins to an incorrect wallet it is crucial to triple-check wallet addresses. Before sending Bitcoin, copy and paste the recipient address, and then triple-check the address to ensure that it has been copied correctly. Exchanges such as Binance will provide an error message and reject the withdrawal if an incorrect address is entered.
• Choose a personal cryptocurrency wallet. One of the easiest ways to purchase Bitcoin is through a cryptocurrency exchange or broker. Many of these platforms now allow investors to store digital assets on the platform. However, this means all private keys remain in the custody of the exchange. If the crypto exchange shuts down or files for bankruptcy, bitcoins could disappear with it. To mitigate this risk, bitcoins should be stored inside a personal cryptocurrency wallet where individuals are in control of private keys.

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