Where Do Bitcoins Go When They’re Lost?
Although it could conceivably happen with any cryptocurrency, the conundrum of lost Bitcoins is the most common because of its market dominance and stratospheric rise in prices. Having been around since 2009, there has been a lot of time for people to lose track of where they put their Bitcoin or how to access their private key, and the result is a sizable portion of the existing money supply being assumed lost.
A Lot of Crazy Stories
Every few months there is a major news story about some dramatic way someone lost their Bitcoin or tried to recover it. The issue is that in the beginning, no one knew how much Bitcoin was going to be worth. At the prices they bought it at (early on), they had no incentive to put much thought into how they were going to store it.
This is how you end up with stories like the IT worker who wasn’t paying attention and threw out the wrong hard drive. Now he is trying to excavate the local landfill to find his approximately $117 worth of Bitcoin.
People have also gone through the trouble of hiring experts to crack their hardware storage device, or getting themselves hypnotized in order to remember their passphrase. With every wild story we hear, there are likely 100 more cases where someone either hasn’t realized they lost their Bitcoin yet, or haven’t announced it to the world as lost.
Identifying Lost Bitcoins
It is actually quite difficult to determine how many Bitcoins have been lost, since people are unlikely to report their errors to the world. Bitcoin can be lost in numerous ways: by sending to nonexistent addresses, losing the hard drives, forgetting passwords, or even something as morbid as someone dying without passing on the access to their private key.
Chainalysis specializes in analyzing the Bitcoin blockchain to track down criminals or tax evaders, but they also have performed a detailed analysis of the money supply. By looking at all the coins that have been held for a long period of time, and then examining how they reacted during forks in the blockchain where further action would normally have been required, they have been able to get a general estimate of the amount of Bitcoin that has been lost. Right now, it is estimated at $2 billion USD, but that number may vary as time goes on.
Much of this becomes educated guesswork. For example, the 1 million BTC that Satoshi Nakamoto holds and has never traded are assumed to be lost. No one knows what has become of those coins or whether they will surface again, so assumptions like this must be made.
A New Industry
With a limited amount of Bitcoins ever planned to be minted, these lost Bitcoin will become more and more coveted as time goes on. A whole cottage industry is beginning to spawn for the “treasure hunters” who seek to recover lost Bitcoin. With approximately $20 billion USD on the table, there is plenty of incentive for companies to find ways to recover this money.
As a result of the high potential payoff, professionals are starting to offer their services in recovering lost coins. It is possible to hire a password recovery experts or a data recovery specialist who will help you gain access to your missing funds. These skills were previously employed in recovering data on computers, but with Bitcoin’s unexpected rise in the last few years, there is now huge monetary compensation available to those who are good at it.
These professionals either charge a fixed fee or a percentage of the recovered funds, which could work out to be a very lucrative business. We know the market is big enough, but the question is how possible it is to recover much of the lost cryptocurrency.
As such, even with this new trend emerging, everyone should be taking the time to secure their cryptocurrency by making backups (hopefully multiple backups) and storing them in safe places. And although it sounds crazy, you would do well to consult a legal expert about formulating a solution that would give your family access to your Bitcoin if something ever happened to you.
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