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Four Million Bitcoins Lost Forever

Bitcoin, a decentralized digital asset introduced in 2008, eliminates the requirement for a third party to be involved in financial transactions by acting as money and a means of payment independent of any one individual, group, or entity. Interested people can purchase Bitcoins on a multitude of platforms and blockchain miners are compensated for their efforts in verifying transactions.

image showing a single Bitcoin surrounded by black stones
Image source: Unsplash

Since its introduction in the global market, bitcoin has become one of the most popular cryptocurrencies worldwide. Numerous additional cryptocurrencies have been developed as a result of their popularity.

Bitcoin trading

Bitcoin trading can be used to make predictions about the price changes of the cryptocurrency. To take advantage of the volatility of Bitcoins, traders employ derivatives for speculating on both growing and falling values. Traditionally, this included purchasing bitcoin through exchanges in the hopes that the price would increase over time.

Four million Bitcoins lost

Just like a physical form of wealth like cash or gold bars can get destroyed or lost, Bitcoin, a digital form of wealth, can also be lost. In the case of Bitcoins, this happens when they vanish altogether from the internet. It is expected that by 2040, all 21 million bitcoins on the internet will have been mined, but the real number of bitcoins available for trading or spending will be much lower.

Chainalysis, a company that analyzes bitcoin trading, conducted a study in 2017 according to which around 2.78 million to 3.79 million bitcoins have already been permanently lost. These figures suggest that 17% to 23% of the total amount of bitcoins, which are currently valued at roughly $8,500 each, are lost.

The findings from Chainalysis are important because they are based on a thorough empirical investigation of the blockchain. The blockchain is where all transactions involving bitcoin trading are recorded.

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The Bitcoins that were mined around 2 to 7 years ago but were not spent or moved for a long time are identified as “lost” coins. These “lost” coins have not been in circulation for quite some time, either because the holder cannot access them or the holder has passed away without transferring them to someone else. In any case, these coins can no longer be retrieved for bitcoin trading.

One example of such “lost” coins is the bitcoins held by their creator, Satoshi Nakamoto. Since the creation of this digital currency, it is estimated that Nakamoto has around 1 million bitcoins in their account. But this currency has never been used or transferred, prompting Chainalysis to assume that these coins are lost forever.

Many consider that Nakamoto will not return to Bitcoin trading, which paves the way for a shortage of 1 million bitcoins and increases the value of existing bitcoins. In the own words of the creator of Bitcoins, all lost coins can be considered a donation to the existing coins.

When does Bitcoin become “lost”?

Just like in the case of normal currency, a bitcoin is deemed lost or gone when you cannot spend it anymore. Private keys are used to control bitcoin in the same way that physical keys are used to control cash in a vault or safe. Bitcoin transactions require signatures that are produced using private keys.

If there is no private key, the signature cannot be generated. Any money associated with that particular key becomes inaccessible and is deemed lost. Thus, protecting private keys is the easiest way to prevent losing bitcoin.

How are Bitcoins lost?

All transactions in bitcoin trading are irreversible and final. There is rarely a way to reverse a mistaken or bad transaction. But any mistakes that happen during bitcoin trading or the loss of bitcoin are rarely due to issues with blockchain technology or bitcoin. This happens due to human error. Some of the most common causes of such loss include:

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Use error

Bitcoin is a special asset since it is easy to self-manage without the help of a reliable third party. Self-custody, on the other hand, leaves the burden of security in the hands of the user. If the user misplaces the private keys, the bitcoin is irretrievably lost. Private keys kept on storage devices like hard drives run the risk of being unintentionally deleted or even overwritten by fresh files.

Mistaken transactions

Transactions completed in bitcoin trading are irreversible. This means that if a bitcoin is sent to the wrong address, it will most likely be difficult to recover it. The owner of the wrong address must issue a refund in order to reclaim any bitcoin that was sent there. Fortunately, this kind of error is quite uncommon because numerous wallets verify an address’s validity before enabling a person to transfer bitcoin.

Improper estate planning

When bitcoin owners die without disclosing their private keys or making sure they can be obtained by the intended recipient, their bitcoin may be lost.

Lost Satoshi coins

A huge chunk of coins lost in Bitcoin trading is attributed to the account of the creator, Satoshi Nakamoto. But if Nakamoto were to return to Bitcoin trading one day, the 1 million bitcoins they hold would be pumped back into the market, significantly increasing the bitcoin supply.

Will the lost coins affect Bitcoin trading?

Missing coins, particularly those approaching a 25 percent threshold, will undoubtedly play a significant role in influencing the market because Bitcoin runs on the assurance of a finite supply. If the market does not represent the coins mined, supply and demand would be quite distorted. But the pressing question is: could these missing coins actually indicate that Bitcoin is even scarcer than people think?

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Chainalysis’ Senior Economist Kim Grauer is of the opinion that missing coins are not taken into account in direct market capitalization calculations. These market cap calculations may be incorporated into market economic models that influence consumer spending, given how extremely speculative this industry is.

Furthermore, he also theorizes that, as evidenced by exchange behavior, the market can adapt to the real available values of demand and supply. Furthermore, it is standard practice in financial policy to decrease or boost fiat reserves to affect exchange rates. This makes the answer to this complex question both “yes” and “no.”


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James Carr (Australia)

James is a new research writer for Tokenhell. His articles include broker and exchange reviews, guides and news from all over the crypto-verse. Stay tuned for his recent articles.

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