How Many Bitcoins have been Irretrievably Lost Since the Start of the Network?

How many bitcoins have been irretrievably lost since the start of the network?

Bitcoin, despite its digital nature, can be compared with minerals. The latter, as you know, sooner or later end. All that remains is a matter of time and the “appetites” of mankind – how much will they need certain raw materials or materials. The situation is similar with BTC. Its mining will also someday cease. And it’s not the reason for the loss of public interest, a similar feature is directly caused by the algorithm that underlies this cryptocurrency. So how many coins are limited by the Bitcoin system? Only 21 million By the standards of fiat money, in the case of which they often operate in billions, the offer of bitcoin looks more than modest.

Of course, do not forget about the differences in the division into smaller units: if there are a hundred cents in a conditional dollar, then in one BTC as much as 100 million satoshi. Bitcoin deficiency is also justified by the characteristic features of its mining. If you describe everything in a few words – the more computing power is involved in the network, the more complicated the mining process.

Do not forget about the “halving” – a mechanism that the creator of the cryptocurrency built in advance to prevent the quick extraction of all coins. As part of this procedure, every four years, the block reward becomes two times less. Such a simple trick allowed to extend the mining tentatively until the year 2140, while in total about 80% of BTC has already been mined. Does it mean that, that after some 120 years all 21 million coins will finally be in circulation on the net? No, this will never happen. Forbes publish an article about risks of Bitcoin investment here.

The Bitcoins we lost

What can prevent this? For example, the reluctance of some investors to show some kind of activity, preferring to accumulate and store BTC, just to spend them? Given the price rallies that cryptocurrency has already issued more than once, this behavior is very, very reasonable. However, these coins are still controlled by someone, therefore, they can be used. A completely different matter is lost bitcoins. And so their humanity has lost forever.

Returning to analogies with the real world, BTC, although they like to call it “digital gold”, unlike the latter, it will not be for decades or even centuries for a successful treasure hunter to be lucky to stumble upon a fortune. It’s a paradox, but along with the mining of new coins, the number of Taas stock in the world increases, which go into the category of lost ones. The increase in the value of cryptocurrency has forced a change in its attitude. Fun for geeks? No, no, that was before.

Now Bitcoin is a very good means of investment and enrichment. The next jump in the BTC exchange rate made many people painfully recall where the private keys to electronic wallets are stored, since they suddenly turned out to be more than a significant amount of money. At the same time, stories about discarded old laptops began to spread across the network, lost USB drives and missing pieces of paper with the desired combinations of letters and numbers. All of them provided the owner with access to a large number of bitcoins, but now these coins were lost.

How to count lost bitcoins?

Taking for granted the fact that part of the BTC is irretrievably lost, the question arises of the possibility of their exact calculation. Such techniques exist. One of them is based on the age distribution of coins.

As you know, in BTC there is a certain UXTO structure, which represents the output of unspent transactions. Each of them has a specific time stamp that allows you to identify a block or transaction when a conditional coin was created, received as a reward for mining or by transferring from another wallet. If you visualize this “age” and extend this approach to the entire array of bitcoins in the world, you get an interesting graph showing the distribution of coins by the last date they were used. The older a particular bitcoin is, the higher the chance that it is in the lost category.

Of course, we can assume that they are concentrated in the hands of some very conservative holders who do not plan to spend cryptocurrency without good reason, but this version does not look the most plausible. If you look back a few years ago, it turns out that their owners had more than enough reasons for operations with cryptocurrency assets: a rapid rise in prices, the same sharp drop, a hard fork of the network with the advent of another coin, the introduction of Sewed, and more. At the same time, a significant part of bitcoins “aged” remained unclaimed – no one began to spend them, no matter what. Maybe this is because people do not have access to them?

Age distribution and geology

The assumption, at first glance, seems very reasonable. However, do not forget about another feature of the methodology for calculating lost coins, based on the age distribution. UTXO provides only data on how and when bitcoin “came into being”, to determine whether it is lost or not will fail. After all, such BTC look exactly the same.

The age distribution is also interesting because outwardly the graphs are quite reminiscent of some illustrations from a geology textbook – all these layers of rock, each of which was formed in a particular era. Some, painted in bright colors, were in motion literally recently, while others, in layers of cold shades, may have formed even in the era of the beginning of the cryptocurrency era.

Back to the BTC losses. Can they be divided into conditional groups? Hypothetically, yes. There are two of them:

  • systematic
  • incremental

Systematic Coin Loss

Systematic losses mean the amount of coins lost at the dawn of the cryptocurrency, when only Satoshi Nakamoto and an extremely small group of enthusiasts mined. The hash of the network was extremely low, bitcoins were accumulating, but there was nowhere to spend them, and even that, at that time, was not a priority. As a result, they were simply lost. The closest analogy from the history of the development of the planet is the Carboniferous period. It got its name because it was precisely at this time that huge strata consisting of the remains of dead plants accumulated on the surface of the earth and under water. Organisms, to eat them during life or somehow processed after death, did not exist in nature. Over time, the trees turned into coal. Something similar was observed in the early years of the BTC network.

Stagnation and mining by a group of enthusiasts

What happened in the first years after the onset of BTC? Yes, practically nothing. Of course, there was a certain development, but people did not take the Nakamoto project seriously, apart from individual enthusiasts. It was something new and unusual, but tell me that soon, for coins that were not pulled as a means of payment, because there was no appropriate infrastructure, it would be possible to buy many different goods, and the cost of one BTC would be in the thousands of dollars – the interlocutor would laugh at face, or even twist a finger at the temple.

The year 2009 in the history of bitcoin can be described as a period of stagnation. Everything works, but the effect of novelty has passed, but something revolutionary is not offered. At the same time, Nakamoto’s followers were found and the mining of coins was quite active, which was facilitated by a low hashrate and a short time between block generation. Gradually, bitcoins in the world became more and more and by 2011 about 5 million BTC migrated to the wallets of miners. We recall how many of them all can be – 21 million – and we are horrified by the astronomical sums on the accounts of the elect, who initially believed in the bright future of cryptocurrencies. There is only one caveat – did the owners of these coins retain access to them?

Incremental coin loss

Incremental losses mean that bitcoins are lost by individual users at different times. That is, this is already a natural process, from which no one is safe, and not some features of the functioning of the network as a whole.

Returning to the hypothesis that most BTCs older than 5 years are almost certainly lost forever, let us see how the rate of “aging” of coins changed. We take the year 2014 as the starting point, when the “five-year” bitcoins begin to appear naturally. In the next two years, a significant transition of BTC to the category “older than 5 years” is observed. It is logical to assume that the bulk of these coins is just the volume generated in the era of the “Carboniferous period” in the history of cryptocurrency. In 2016, the situation begins to change rapidly. What is the reason for this?

First of all, at the price of an asset. Back to the past again. On the street the summer of 2011, and the first cryptocurrency shows unprecedented growth, rising from a dollar mark to a solid 33 USD per coin. Suddenly, a large amount of bitcoin on an electronic wallet turned into the equivalent of a fortune. The only problem is that many have changed computers for a long time, discarded damaged hard drives, lost USB drives, etc. Access to wealth was so close and incredibly far. But the miners who retained the keys overnight became wealthy people.

Bitcoin turns into a valuable asset

Along the way, the attitude towards the Nakamoto project itself has changed. Cryptocurrency mining overnight turned into a highly profitable business, which led to a massive influx of people wishing to get their portion of the pie. Total daily profit reached a quarter of a million dollars because of the Bitcoin price, while only a few months earlier this figure did not exceed several thousand USD. The community suddenly realized that Bitcoin:

  • is a full asset;
  • demonstrates high profitability of production;
  • can become ten times more expensive in a short time.

From now on, the average miner took care of the safety of coins and paid due attention to security issues, because the loss of keys hurt the unlucky user’s wallet.

UTXO and accuracy of counting lost coins

Ideally, it is reasonable to use more accurate and complex techniques to determine the amount of lost BTC. The age of UTXO is also suitable for this, but in the end, you still have to operate with approximate values, since you can only guess about the exact ones. Still, although the number of coins is limited by the Bitcoin system, it lacks tools for counting lost tokens, as such. For example, you can try to combine age groups with all kinds of metadata. As a result, this would make it possible to obtain more information necessary for the formation of the correct conclusions.

Note that a similar study was previously conducted by specialists from Chainalysis. They used the approach described above – when UTXO was combined with other metadata. According to their calculations, today mankind has already lost 2.8-3.8 million bitcoins in the region.

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