How can Bitcoin be lost?

Bitcoin is a decentralized and secure digital currency, but a significant number of coins have been lost. Lost Bitcoins are generally inaccessible due to forgotten seed phrases, misplaced hardware devices, or other unforeseen circumstances.

Approximately 7.8 million Bitcoins are estimated to be lost. This article will discuss how these Bitcoins are lost and whether they can be recovered.

What are Lost Bitcoins?

Lost Bitcoins refer to Bitcoins that their owners can no longer access or locate. Bitcoins are stored in various types of wallets, including software, hardware, custodial (exchange-held), or self-custody. Regardless of the storage method, there's always a risk of loss.

When Bitcoins are truly lost, they cannot be recovered. In some cases, they might only be temporarily misplaced, such as being sent to the wrong wallet. However, if they become permanently inaccessible, they are considered lost.

A significant number of Bitcoins were lost during the rapid growth of the crypto market in 2021. Early investors who bought Bitcoin when it was very cheap later found themselves unable to locate their coins after prices surged years later. This demonstrates that a substantial amount of Bitcoin has been lost over time.

How are Bitcoins Lost?

There are several reasons why Bitcoins are lost. Here are some examples:

Inaccessible Wallets

Some early Bitcoin users stored their Bitcoins in wallets that are now inaccessible due to forgotten passwords, hardware failures, or other reasons. Not understanding the importance of a seed phrase (the words used to recover a wallet) is also a significant risk. If a seed phrase is lost, the wallet and its crypto coins become inaccessible. It's recommended to store seed phrases in a secure place, such as a safe, or use a fireproof metal plate to prevent loss.

Carelessness

Over the years, people have accidentally deleted wallets or thrown away old hard drives containing Bitcoins.

Burning

Some individuals intentionally "burn" Bitcoins by sending them to an address for which no one knows the private key, effectively removing those coins from circulation.

Forgotten Passwords and Hardware Failure

Many people lose access to their Bitcoins because they forget their passwords or their hardware fails.

Real-World Examples of Lost Bitcoin

Here are real-world examples of people who lost Bitcoin:

1. Rhonda Kampert

Rhonda was an early Bitcoin adopter. She bought 6 Bitcoins in 2013 when the price was around $80 per coin. She spent some of the digital currency and then forgot about the rest. In 2017, when Bitcoin's price surged to nearly $20,000, she tried to log in to sell her holdings but found that some login information was missing.

2. James Howells

James mined approximately 7,500 Bitcoins using his gaming computer in 2009. Unfortunately, he accidentally discarded the hard drive where the Bitcoins were stored. The current value of those lost coins would be tens of millions of dollars.

3. Stefan Thomas

A software developer discovered his old Bitcoin wallet, containing over 7,000 Bitcoins, was worth more than $320 million in 2021. Stefan had acquired these Bitcoins in 2011 when Bitcoin was priced under $20 per coin. While a significant investment at the time, it was nowhere near the value it would achieve ten years later.

How Much Bitcoin Has Been Lost?

According to data from IntoTheBlock, a blockchain data provider, a significant amount of Bitcoin has been lost from the total of over 19 million mined Bitcoins. Approximately 29% of Bitcoins have been inactive for the past 5 years.

This impact suggests that a large number of Bitcoins may be permanently lost over time. A tweet from Glassnode reflects this idea, stating that 7,781,224.168 Bitcoins might be held (hodl) or permanently lost.

Timothy Peterson, investment manager at Cane Island, estimates that approximately 6 million Bitcoins have been lost, which is a significant proportion of the total Bitcoin supply capped at 21 million coins. If Peterson's assessment is correct, nearly 30% of all Bitcoins are irrecoverable.

IntoTheBlock's data aligns with this, indicating that 29% of Bitcoins have been inactive for the past 5 years. However, it's important to note that not all inactive Bitcoins are necessarily lost; some individuals may intentionally hold their Bitcoins for extended periods. Nevertheless, considering various estimates of lost Bitcoins, it's plausible that a substantial number of inactive coins are indeed permanently lost.

Research by Cane Island, cited by Timothy Peterson, suggests that Bitcoins are continually being lost, with approximately 4% of the circulating Bitcoin supply lost annually.

Can Lost Bitcoins Be Recovered?

While most lost Bitcoins cannot be recovered, some methods might offer a chance of retrieval.

Even though Bitcoin has a highly secure storage system, it can also pose challenges for genuine owners. There are high-tech companies specializing in helping owners recover lost private keys. They charge a fee and may be able to retrieve some of the lost coins.

Returning to Rhonda's case, she purchased 6 Bitcoins in 2013 for approximately $80 per coin. In 2017, when Bitcoin's price surged to nearly $20,000, she tried to log in to sell her holdings but found that some login information was missing. After several unsuccessful attempts over the years, she sought help from crypto treasure hunters Chris and Charlie Brooks. They managed to recover her wallet, which contained 3.5 Bitcoins, worth $175,000 at the time.

It's estimated that approximately 20% of lost coins might be recoverable, but this process doesn't guarantee success. Factors such as encrypted private keys and damaged hard drives offer avenues for recovery but do not assure success.

Security Considerations

Beware of crypto scams that claim to recover lost Bitcoins.

Avoid companies that ask for upfront fees.
Verify their physical address and contact channels.
Do not share sensitive information such as your bank account details.

Conclusion

The more Bitcoins that are lost, the scarcer they become. There will be less Bitcoin in circulation due to its limited supply. As users who are primarily in control of our Bitcoins, we should understand how to properly maintain them to prevent loss.

Reference

https://coingape.com/blog/approximately-7-8m-bitcoins-have-been-lost-can-they-be-recovered/