Bitcoin is the first and most popular cryptocurrency in the world. Since its creation in 2009, bitcoin has seen tremendous growth in value and adoption. However, one downside of bitcoin is that if the private keys controlling bitcoin balances are lost, those bitcoins are likely lost forever.
So how many bitcoins have been lost forever? Estimates vary, but most experts agree that around 20% of all bitcoins in existence are unrecoverable due to lost or forgotten private keys. That represents millions of bitcoins worth billions of dollars that can never be retrieved.
Why are some bitcoins lost forever?
There are several reasons why bitcoins can become inaccessible:
- Lost private keys – Bitcoin balances are controlled by a private key, which is a long string of letters and numbers. If this key is lost, misplaced or forgotten, the bitcoins associated with it are lost forever.
- Hard drive failures – If the private keys are stored on a hard drive that crashes and cannot be recovered, the bitcoins are irretrievable.
- Death of holders – If a bitcoin holder dies without sharing recovery information, the bitcoins are gone.
- Sending to wrong address – If bitcoins are accidentally sent to an incorrect or non-existent address, they are unlikely to ever be recovered.
- Hardware wallet failures – Malfunctioning or corrupted hardware wallets can result in bitcoin losses.
As bitcoin ownership continues to spread to more mainstream users who are less experienced with encryption and digital security practices, the risk of accidental losses is likely increasing.
Estimating the number of lost bitcoins
Bitcoin analysts use several methods to estimate the number of bitcoins likely lost forever:
- Transaction data – Analyzing the activity levels of bitcoin wallets can identify balances that appear to be stranded.
- Age of last activity – Old wallets that have shown no recent activity may indicate lost keys.
- Transaction fees – Fees have spiked during periods of high demand, indicating some users were willing to pay excessive fees instead of accessing existing wallet balances.
- Publicized losses – Some bitcoin losses, like those from the MtGox exchange hack, are publicly known.
- Surveys – Surveying bitcoin users provides self-reported data on personal bitcoin losses.
By combining data from these sources, researchers can make educated guesses about the total number of bitcoins likely lost each year and cumulatively over bitcoin’s lifetime.
Notable cases of lost bitcoins
Here are some of the most prominent examples of bitcoins being lost:
- MtGox exchange hack – 850,000 bitcoins were stolen in 2014 when the MtGox exchange was hacked. While 200,000 were eventually recovered, the remaining 650,000 valued at over $6 billion today are still missing.
- Bitcoin’s creator – Bitcoin’s pseudonymous creator Satoshi Nakamoto has never spent or moved any of the million bitcoins mined in the early days. Most believe this fortune is lost forever.
- Landfill hard drive – IT worker James Howells accidentally discarded a hard drive containing 7,500 bitcoins while cleaning his home in 2013. Efforts to excavate the landfill have been unsuccessful.
- Deceased owner – QuadrigaCX founder Gerald Cotten died in 2018, locking up the password to cold wallets holding $250 million in customer funds. Attempts to recover the funds have failed.
| Lost Bitcoin Event | Estimated Amount Lost | Approximate USD Value |
|---|---|---|
| MtGox Exchange Hack | 650,000 BTC | $6 billion |
| Satoshi Nakamoto’s Stash | 1 million BTC | $10 billion |
| James Howells Landfill Hard Drive | 7,500 BTC | $75 million |
| Gerald Cotten Death | 250,000 BTC | $2.5 billion |
These examples represent just a small portion of the millions of bitcoins likely lost forever over the years.
Estimates of total lost bitcoins
Here are some estimates on the total number of bitcoins lost from prominent research sources:
- Chainalysis – Chainalysis estimates that between 2.78 to 3.79 million bitcoins have been lost, equal to between 13% to 23% of the circulating supply.
- Unchained Capital – Unchained Capital’s bitcoin data science team estimates that around 4 million bitcoins are unrecoverable, equal to around 20% of the current supply.
- CZ Binance – Changpeng Zhao, founder of Binance, predicts the number of lost bitcoins is around 2 million, or 10% of current supply.
- Tim Draper – Venture capitalist Tim Draper believes the amount of lost bitcoins may be as high as 30% of all mined coins, around 4.5 million bitcoins.
While the exact number remains unknown, most estimates put the amount of lost bitcoins in the millions, valued in the tens or hundreds of billions of dollars.
Impact of lost bitcoins
The large amount of bitcoins likely lost forever has both positive and negative effects on the bitcoin ecosystem:
Positive effects
- Reduced supply enhances scarcity – Lost coins increase scarcity and support bitcoin’s deflationary nature.
- Higher value per coin – Increased scarcity positively impacts bitcoin’s valuation and lack of inflation.
- More secure network – Lost coins reduce the risk of large-scale bitcoin sales or dumping.
Negative effects
- Increased volatility – Thinly traded markets with reduced liquidity see greater volatility.
- Concentrated wealth – Holdings become more concentrated among active investors and speculators.
- Permanently lost wealth – Individuals and investors permanently lose access to cryptocurrency holdings.
While the deflationary impact of lost coins provides a long-term positive, the resulting volatility and wealth concentration creates challenges in utilizing bitcoin as a medium of exchange.
Preventing bitcoin loss
Lost and stranded bitcoins are likely to be an ongoing issue for the foreseeable future. However, investors can take steps to prevent loss and ensure bitcoin holdings are secure:
- Carefully store private keys – Maintain multiple copies of private keys on both paper and USB drives, properly encrypted and geographically distributed.
- Use a reputable hardware wallet – Store bitcoin on an offline hardware wallet for long-term holdings.
- Backup recovery phrases – Ensure recovery seed phrases are saved for account restoration if keys are lost.
- Share inheritance instructions – Create a plan for bitcoin account access in case of death or incapacitation.
- Avoid sending to wrong address – Double and triple check addresses when transferring funds.
While no storage system is perfect, following security best practices substantially reduces the risk of losing bitcoin and other cryptocurrency assets.
Conclusion
Lost and stranded bitcoins continue to accumulate, with cryptocurrency experts estimating millions of bitcoins are likely unrecoverable forever. This represents billions in lost wealth for individual investors as well as reduced liquidity and increased volatility in the marketplace.
However, lost coins also contribute to bitcoin’s built-in deflationary monetary policy by increasing scarcity. The exact amount lost will remain unknown, but lost coins will likely constitute a significant proportion of the maximum 21 million bitcoin limit.
Investors must take proper security precautions to protect against accidental loss. As bitcoin gains more mainstream adoption, it’s likely that more casual users will improperly secure private keys, contributing to future losses.
