Any Bitcoin that’s stranded in an inaccessible wallet is considered lost forever. This can happen due to a number of reasons including lost private keys, forgotten passwords, and destroyed physical wallets.
Whatever the actual reasons may be, the fact of the matter is that these lost Bitcoins are removed from circulation.
Since there are a limited number of Bitcoins that will ever be mined — 21 million to be exact — these lost Bitcoins increase the market value of the remaining coins. This is why there is so much interest in determining the exact amount of lost Bitcoins, and also why we’re writing this article.
Join us in our in-depth analysis of Bitcoin loss — how it happens, what’s the current figure, and why it matters for the wider crypto economy.
Understanding Bitcoin Loss
Types of Bitcoin loss
From what we’ve seen, there are four primary types of Bitcoin loss. These include:
User error is when Bitcoin is lost due to a mistake made by the owner. This is the most common type of Bitcoin loss by most estimates, which makes sense. Even the most vigilant owners are still human and a single unexpected slip-up can render a wallet filled with Bitcoins inaccessible.
Technical errors stem from issues in the wallet or any other Bitcoin storage medium. For example, let’s say you’ve made a custom cold wallet with a USB flash drive. Now, if that flash drive gets corrupted beyond repair, you’ll lose your Bitcoins because of a technical error.
Fraud is in a similar boat to hacking where methods like phishing and social engineering are used to steal Bitcoins. While most of these stolen Bitcoins are circulated back into the market, some are buried in cold wallets to avoid detection by authorities.
How Bitcoins become lost
Among the four types we discussed above, these are some of the most common scenarios that lead to Bitcoin loss:
Lost private keys
Having access to the private key of a wallet is proof that you own that wallet — allowing you to manage your Bitcoin assets on the blockchain. However, even if you are careful and diligent about how you store this key, the possibility of losing it is never zero.
For instance, let’s say you have your Bitcoin private key stored in a hardware wallet. In this situation, losing that physical wallet would also mean losing access to your BTC assets.
Many early owners bought or mined a lot of Bitcoins, but over time forgot about the address or password of their Bitcoin wallets. Similarly, many wallets were also abandoned because their owners unfortunately passed away, without telling anyone how to access their Bitcoin assets.
Destroyed hard drives
Hard drives do not last forever as even the sturdiest of drives have a limited lifespan. After that, many of them break down and lose the data stored in them. So, if you have your Bitcoin key or wallet address on a hard drive, there is a chance that you might lose access to those Bitcoins.
The impact of Bitcoin loss
In short, Bitcoin loss reduces the circulation of Bitcoin in the market and increases the market value of the remaining Bitcoins. It’s obviously infuriating for the owner of the lost Bitcoin but can be financially beneficial for other Bitcoin holders.
The Search for Lost Bitcoins
At the time of writing, one Bitcoin has a fiat value of a little over 29,570 USD. So, anyone with about 3.4 Bitcoins can sell them for over 100,000 USD, which is life-changing money for most people. This is why we're seeing more and more people trying to recover their lost Bitcoins.
After all, recovering a crypto wallet with a handful of Bitcoins would be the modern equivalent of finding a treasure chest. It’s something that can instantly make you wealthier.
With that said, is it even possible to recover lost Bitcoin?
The role of blockchain analysis
Well, if you find an old crypto wallet address there is a good chance that you don’t remember anything about its contents. So, the first step would be to see if it holds Bitcoin or not with blockchain analysis.
For this, we recommend you to visit online analysis tools like blockchain.com. Next, enter your wallet address and these websites will list all the contents and transaction history of that wallet. If you do have enough Bitcoins in that wallet to make it worth recovering, we’d suggest contacting a Bitcoin recovery service.
Bitcoin recovery services
Think of Bitcoin recovery services as data recovery experts that specialize in finding crypto wallet addresses, keys, and addresses. Some popular options include:
These services offer solutions like seed phrase recovery, corrupted hard drive data recovery, forgotten password recovery, and more.
Of course, these services aren’t free and you will have to pay for their recovery efforts. That said, many of them operate on different payment methods. Some take an upfront fixed fee that is returned if they are unsuccessful while others demand a percentage cut of the recovered Bitcoins. So, make sure to choose the one that fits your budget and needs.
Success stories of Bitcoin recovery
A popular Bitcoin recovery story is from 2022 about Rhonda Kampert. She was an early adopter of crypto and bought six Bitcoin in 2013, back when it was worth 80 USD. Unfortunately, by the time she became aware of Bitcoin’s high price in 2017, she had forgotten the login details for her Bitcoin wallet.
Later in spring 2021 — when Bitcoin’s value reached over 50,000 USD — Rhonda resumed her recovery efforts. This is where crypto treasure hunters, Chris and Charlie Brooks, offered to help Rhonda access her wallet in exchange for 20% of her Bitcoin assets. She agreed and the two crypto treasure hunters managed to restore Rohand’s Bitcoin wallet credentials.
Estimating the Number of Lost Bitcoins
By now, you should have a good idea of how Bitcoin loss can happen and the possibility of recovery. So, let’s find out exactly how many Bitcoins have been lost so far.
The challenge of estimating lost Bitcoins
Immediately after starting this quest, we ran into a major issue. There is no way for anyone to accurately measure the amount of Bitcoins that are lost forever.
Even if they can analyze almost every existing Bitcoin wallet, what metrics can they use to label a wallet as abandoned?
Let’s consider the case of Satoshi Nakamoto, the anonymous creator of Bitcoin who likely used a pseudonym. During the early days of Bitcoin, he mined almost a million Bitcoins. However, those mined Bitcoins have stayed in the same wallet for more than a decade now.
So, are Satoshi Nakamoto’s Bitcoin assets lost forever? Or is he just holding them to sell at the right time? There is no way for anyone to know. The same can be said about a lot of the other abandoned wallets.
Despite the difficulty of estimating how many Bitcoins are lost forever, some have still tried to get as close to the truth as possible. Two of the most prominent names in this regard are:
In mid-2020, Chainalysis published a report about the status of Bitcoin holdings at that time. According to this report, almost 3.5 million Bitcoins are lost forever. This comes out to about 18.1% of the total available supply at the time of writing.
According to Glassnode — an on-chain intelligence provider — nearly 3.9 million Bitcoins lie dormant. Its data also estimates that about 2.5 million of these long-term dormant coins are possibly lost forever.
Criticisms of existing estimates
Both of these publications made their estimates based on Bitcoins that have not moved in a long time. Cahinalysis included coins that have stayed in the same wallet for over five years, while Glassnode only considered coins dormant for more than 10 years.
To be fair, this is not a “wrong” method in any way. However, it still cannot differentiate between long-term holdings and abandoned wallets.
Proposed method for estimating lost Bitcoins
From what we’ve seen, there is no practical way of estimating lost Bitcoins accurately.
In an ideal world, we’ll know exactly which wallets are abandoned and which of them are just a part of long-term investment plans. Unfortunately, such technology does not exist yet and might never will.
All things considered, Bitcoin — and crypto by extension — are still not as mainstream and widely adopted as they could be.
So, it might get a lot easier to separate long-term holdings from abandoned wallets in another 10 years. As Bitcoin’s popularity grows, more and more investors would cash out their investments or start using Bitcoin as an actual currency — distinguishing truly abandoned wallets.
Implications of Lost Bitcoins
So far, we’ve talked in length about lost Bitcoins, but why does any of this matter in the first place?
Here’s how lost Bitcoins affect the market as a whole:
The potential of reduced supply
The basic economic principle of supply and demand fits this situation perfectly. There is already a limited supply of Bitcoin that will ever exist, yet the interest in owning Bitcoin keeps growing year after year.
Lost Bitcoins, on the other hand, remove Bitcoin assets from circulation — reducing the total supply even further. This reduction in supply increases the value of the remaining coins on the market as the demand is still the same or even growing.
However, this reduced supply can also have the opposite effect on Bitcoin’s value in the long run. Here’s why.
Impact on Bitcoin adoption
At the time of writing, Bitcoin is the most expensive crypto asset on the planet. However, its fiat value is still low enough to attract new investors and traders. If the supply of Bitcoin keeps going down due to lost Bitcoin wallets, its price will keep increasing as well.
But, there might come a turning point where the price of Bitcoin is too high and unaffordable for new investors. This will crush any momentum Bitcoin has and halt the adoption of this crypto asset in its tracks.
Going back to the supply and demand principle, if the demand dries up, Bitcoin can come crashing down. It’ll lose all the progress it’s made till then and who knows what happens after that.
Of course, most of this is speculation on our part, but a future like this is not outside the realm of possibility.
To summarize, there is no practical way of accurately determining the amount of Bitcoin lost in inaccessible wallets. However, there is a high possibility that a substantial portion of Bitcoin’s total supply is lost forever, based on the data-driven estimates we’ve seen.
This might be good for investors in the short term as it increases the value of the Bitcoin that is circulating on the market. But we cannot rule out the possibility of these constantly increasing prices halting adoption in the long run.
In any case, make sure that your Bitcoin assets are stored in a secure but also accessible place. Spreading your portfolio across multiple hardware wallets (like Ledger Nano X and Trezor Model T) can also minimize the damage if you do lose access to one of them.