Lost Bitcoin is an interesting crypto phenomenon.
While you might not think much about how many Bitcoins are lost, these misplaced coins impact the overall crypto economy.
How? We’ll get into that a bit later.
Of course, how lost coins affect the greater crypto ecosystem is just part of the story. Understanding how Bitcoin gets lost and what you can do as a holder is the key to keeping funds safe. That’s what we’ll cover today.
Read on to learn all about lost Bitcoin, how it happens, and what you can do about it.
The Bitcoin (BTC) public ledger is immutable. That means it will forever remain unchanged, unaltered, and memorable.
It also means that mistakes, like losing your BTC, can be quite costly when they happen.
Whether due to human error or technology malfunctions, those missteps in the ledger tell a tale of loss and pain. At least, that’s part of the story. There is a bit of debate over how many Bitcoins are lost and how many are locked up in HODLer (hold on for dear life-learn more about this term by clicking the link) wallets for long-term storage.
Regardless, these lost Bitcoins add an interesting element to the overall crypto ecosystem.
So, how many bitcoins are lost? As of February 2024, Cointelegraph estimates that around 17%, or 3.7M BTC, of the total Bitcoin supply is lost forever.
To give you some perspective on how these lost Bitcoin measure up to the rest of the supply, here is a quick breakdown:
While it’s hard to tell how many of these lost Bitcoins are actually gone forever or just in wallets for safekeeping, there are certainly impacts on the supply that will affect important aspects of valuation.
“Lost coins only make everyone else's coins worth slightly more. Think of it as a donation to everyone.” - Satoshi Nakamoto
Another unique feature of Bitcoin is the finite supply. Much like other assets like gold, once we mine the last BTC, the supply will stop increasing forever.
What is the total supply cap for Bitcoin? The maximum supply cap for Bitcoin is 21 million. This is hard-coded into the protocol, meaning that no matter what happens and no matter how hard the community tries, once we mine the last Bitcoin, the supply will stop growing.
What is the impact of lost Bitcoin on the Bitcoin valuation?
Lost BTC affects scarcity. Since the lost assets can’t be recovered, and there is a maximum limit to the supply, lost bitcoin essentially reduces the overall supply.
Here’s a different way to think about scarcity.
Imagine a treasure chest packed with 21 million pieces of gold. Now, picture some of those gold coins sitting on a ship far out at sea. As the weather turns sour, and the captain tries in vain to right the troubled vessel, it takes on water and sinks to the bottom of the ocean. For the sake of this story, consider this gold lost, never to be seen again.
As more gold coins meet the same fate, the overall supply of gold shrinks. This makes the remaining pieces more rare and more valuable.
In the case of BTC, this scarcity is amplified by the fact that there will only ever be 21 million coins in existence. Moreover, the rate of coins created through minting halves every four years during each respective halving.
When you combine a shrinking supply of newly minted coins with the impacts of lost coins, you can see why many predict that these mechanisms will likely increase the value of BTC over time. This is the essence of scarcity: when something is highly desired and in limited supply, its value tends to rise.
Okay, now you know how many Bitcoins are lost and the impact of lost Bitcoin on the Bitcoin valuation. But we’re still missing one crucial piece of the puzzle: how does Bitcoin get lost in the first place?
If you’re new to the BTC scene or just shaking in your shoes after reading those last few sections, don’t worry.
While there are plenty of ways to misplace your precious tokens, once you understand how most users lose BTC, you can develop smarter strategies to keep your holdings safe. So, let’s break it down one by one.
The easiest way to lose your BTC forever is to misplace your private key or seed phrase.
If you’re unfamiliar with private keys and the basics of BTC wallets, don’t worry; we’ve got you covered in another article on BTC wallets and custody.
Suppose you use a non-custodial, also known as self-custody, wallet. In that case, you’re in ultimate control of your crypto assets as well as responsible for the security of your private keys. If you lose your keys, you lose access to your wallet and, in turn, your BTC — it’s really that simple.
Wallets often come with a seed phrase. This is a mnemonic sequence that serves as a backup key to recover or recreate a cryptocurrency wallet and access its associated funds.
For most of the lost Bitcoin supply, private key and seed phrase issues are the main culprits.
There are many different types of Bitcoin wallets, each with unique benefits and drawbacks.
One popular option that enhances overall security is a hardware wallet. These wallets store BTC offline on a purpose-built device. Some popular options include:
Some hardware wallets are air-gapped, meaning they don’t have access to wireless communication for even better security.
Unfortunately, while they offer enhanced security relative to other storage options, hardware wallets are not completely safe. They can fail. Whether due to physical damage, improper care, or failed components, your BTC is essentially gone once they bite the dust.
Additionally, if you keep your keys or seed phrase on your computer drive, that can fail, too.
That’s why it’s so important to back up your seed phrase and private keys (we’ll get to that later).
Another way to say goodbye to your Bitcoin is through simple human error.
If you’ve ever sent BTC from one address to another, you know how scary those strings of wallet address numbers and letters can appear at first glance. Additionally, since they’re sent to an immutable public ledger, transactions are irreversible.
So, if you misplace a letter or number in the receiver's address, there goes that Bitcoin.
The only way to get it back is if the owner of that incorrect address refunds the mistaken transaction. Luckily, these transaction issues are becoming rarer as wallets offer features like automatic invalid address detection and often ask you to verify an address if you’ve never sent a transaction to it before.
Not to bring the mood down, but the death of the wallet owner is yet another way BTC goes to the great crypto wallet in the sky.
Remember, if no private key or seed phrase is available, there’s no way to access that particular wallet. If the deceased never revealed that they owned Bitcoin during their lifetime and their beneficiaries are unaware that recoverable BTC is available, those coins are as good as gone.
So, if you’re a holder, have a conversation with your estate planning lawyer when the time comes. At the very least, have a plan and inform those close to you of the steps to recover your funds if the worst happens.
If you’re not using a non-custodial wallet, where you have control over your private keys, you’re probably keeping your BTC and other crypto assets on an exchange. While this does offer some benefits in terms of convenience, don’t think that they are risk-free.
You accept third-party or counterparty risk when you keep your funds on an exchange.
It can be rare, but sometimes these exchanges fail. This can be due to a few reasons:
That’s why many people in the Bitcoin community live and die by the motto, “Not your keys, not your coin.” They opt for non-custodial options over the convenience of an exchange for those above reasons.
Are you scared yet? Well, don’t be.
There are certainly a lot of ways to lose your Bitcoin. But, with the right knowledge and safety measures in place, you shouldn't have much to worry about. Here are four simple strategies to keep your coins safe:
Using a few of these strategies together is an excellent way to keep your funds safe.
Unfortunately, if you don’t have access to a private key or seed phrase, the BTC on that wallet is virtually impossible to recover.
Some people say otherwise, but, in reality, they’re not doing much more than playing digital detective. Your first course of action is to feverishly search for any clues to either your seed phrase or your private keys. Who knows, maybe you saved a text file on your computer somewhere with the valuable details.
There are also recovery tools like Recuva or TestDisk that can sometimes save deleted files from a hard drive. But this only really works if you had those details saved on your computer at some point.
In most cases, those coins are gone forever.
Lost Bitcoin? Not around here.
If you’ve gotten this far, you are one step closer to a secure Bitcoin storage strategy. You also understand how many Bitcoins are lost and the impact of lost Bitcoins on the Bitcoin valuation.
More importantly, though, you know how to keep your funds safe.
Whether you opt for a hardware wallet, a two-layer strategy, or physical backups, there is no wrong answer. In fact, you might use a combination of these methods, further strengthening your wallet security.
If you’re on the hunt for a wallet that marries the best of self-custody control with convenience, the Bitcoin Depot app might be right for you.
Bitcoin Depot's wallet is non-custodial, so you own your keys and have complete control (and responsibility) of your Bitcoin. Moreover, the app gives you access to Bitcoin Depot’s BTM network, the largest in the world.
You’re never too far away from a seamless cash transaction.
The best part? Everything happens either in the app or at a physical BTM or BDCheckout™ location. Talk about convenience.
With over 8,000 BTC ATM locations in the U.S., Canada, and Puerto Rico, Bitcoin Depot is your go-to choice for easy purchases of Bitcoin with cash. If you’re ready to get started, Find your nearest Bitcoin Depot BTM location today.