Lost Bitcoins: Do They Affect the Value of Those Remaining?

What happens to the price of Bitcoin when all 21,000,000 have been released or gathered? How will the lost Bitcoin’s effect things when every Bitcoin has been acquired?

The price of everything is set by supply and demand. The maximum supply can be predicted, but no meaningful prediction about price can be made if the number of people willing to pay for Bitcoin is unknown.

Over 80 percent that will ever exist have already been excavated. By 2020, the figure will be 87%.

When fewer Bitcoins are available, the ones left will be in a higher demand and have a higher value. As Bitcoins are lost, those remaining will increase in value to compensate. As the value increases, the number of Bitcoins required to buy an item decreases. Standard deflationary economic model, nothing new. One difference between Bitcoins and “real” cash Bitcoins may eventually be denominated in sub-units of a Bitcoin such as milliBitcoins, called ‘Millies’ or microBitcoins, called ‘Mikes’.

Almost 4 Million Bitcoins Lost — Forever

As gold bars can be lost at sea and $100 bills can burn, Bitcoins can disappear forever. When all 21 million are mined by the year 2040, the true number available for trading or spending will be lower.

Chainalysis, a digital forensics firm which studies the Bitcoin blockchain, almost 3.8 million Bitcoins are gone already. Between 17 and 23 percent of existing Bitcoins, worth around $8,500 each, are already gone.

Chainalysis’s conclusions depend on segmenting the current Bitcoin supply and relied on statistical sampling to come up with the estimated amount lost. The figures reflect Bitcoins which are truly lost — not hacked or stolen, but lost.

In the future, more will be lost. The disappearance rate will be lower in the coming years than in the past. As they are so valuable people are becoming more vigilant about keeping track of them. Unlike the guy who threw away a hard drive with the key to 7,500 Bitcoins.

The study, published in Fortune Magazine, surprised Chainalysis’ Senior Economist, Kim Grauer. “What I found most surprising was how, when you unpack what it means to be ‘lost,’ things get very confusing.”

How Did Wired Lose $100,000 In Bitcoin?

In 2013 when Bitcoins could still be mined at home, WIRED was given a sleek mining device made by then popular Butterfly Labs. The Roku-looking machine was handed over to WIRED’s San Francisco office, and it went to work. It wasn’t long before about $100,000 of the Bitcoins were gathered. Then WIRED lost the money. Forever.

Stefan Antonowicz, WIRED’s head of engineering at the time, set up the miner and Robert McMillan, a then-senior writer for WIRED, authored an article about it.

Once the miner had generated a tad over 13 coins, the staff had to figure out what to do. With the money. Some employees argued for the coins to be donated and others said they should be destroyed. To avoid a serious conflict of interest, eventually the workers decided to destroy the private key which would unlock WIRED’s Bitcoin wallet.

The Takeaway

Chainalysis has made a name for itself in the Bitcoin world because of its ample data and sophisticated analyzation of blockchain wallets. Law enforcement agencies, including the IRS and Europol, depend on the company to provide detailed insight into who owns Bitcoins and how they are moved around.