Up to half a billion dollars’ worth of Bitcoin may be lost this year

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iol.co.za12d ago

In March, Netflix released a documentary about Gerry Cotton, founder of Canadian Crypto exchange QuadrigaCX. Cotton died while on honeymoon in India, and he died holding the private keys for Quadiga's Bitcoin wallets. Cotton's death, and the disappearance of the exchange's Bitcoin triggered a host of theories and crowd-sourced research, eventually leading to the conclusion that Cotton had been stealing funds for years.

While Cotton's story is extraordinary, most stories of lost crypto aren't. In this article we explore how much Bitcoin is lost day to day, and provide an estimate of the amount of Bitcoin likely to be lost in 2022.

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How does Bitcoin get lost?

Analysts have estimated that at least 20% of all Bitcoin is lost, and that the majority of those funds are irretrievably lost. (However, about 2.5% of those funds can still be recovered.)

Crypto gets lost for a host of reasons:

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People forgot the passwords to their wallets. People make a mistake in recording their seed phrases. People die without giving adequate instructions for how to access their funds. People unintentionally (or occasionally intentionally) send crypto to a burn address, or to an address on a different network.

However, this does not include Bitcoin lost to scams or theft. While such funds are lost to the original wallet holder, they are not lost to the total money supply of Bitcoin. Those funds will likely continue to circulate. As such, they are excluded from this research note.

How much new Bitcoin is issued each year?

A new Bitcoin block reward is issued every 10 minutes, and in 2022, the block reward is 6.25 Bitcoin. (The block reward will halve again in 2024, to 3.125 BTC / block reward).

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Since there are 525 600 minutes in a year, and a block reward is issued every 10 minutes, 52 560 block rewards, or 328 500 BTC, will be issued in 2022.

How much Bitcoin is lost every year?

The simple answer is that no one knows for sure. It’s clear that the vast majority of the approximately 3.8 million lost Bitcoin were lost early in the blockchain’s history, before it had any economic value.

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Chainalysis, whose 2017 estimate that 20% of Bitcoin is the most widely quoted, estimates that 2% of Bitcoin transacted in a given year is lost. They write that the 2% estimate “is based on scraping the internet for reports of lost coins… [and that the estimate] is not based on statistical extrapolation.”

The other occasionally cited estimate comes from a 2020 Cane Island Digital research note, which estimates that “about 4% of the Available Supply of bitcoin has been lost each year.”

Neither study provides a methodology for reproducing this estimate, so we will simply provide a range of estimates.

Given that between 2% and 4% of the 328 500 Bitcoin mined in 2022 are likely to get lost, somewhere between 6 570 and 13 140 Bitcoin are likely to get lost. As of April 20, when Bitcoin’s price was about US$41 500, this means that between $272 million and $545 million in Bitcoin alone is likely to be removed from the Bitcoin money supply in 2022. - supplied by Crypto Asset Recovery.