When Does Bitcoin Become “Lost”?
When bitcoin can no longer be spent, it is deemed lost. Private keys are used to control bitcoin, much like physical keys are used to control cash in a safe or vault. Bitcoin transactions require signatures, which are produced by private keys. No signature can be generated without the private key, and all funds associated with that key are inaccessible. Thus, protecting private keys is the simplest way to prevent losing bitcoin.
How Much Of The Current Supply Of Bitcoin Is Lost?
The precise number of bitcoins that have been permanently lost is unknown. Early adopters of Bitcoin were unaware of its potential value, which led to numerous unfortunate losses, thefts, and erroneous transactions. According to reports, 3 to 4 million bitcoins may never be recovered, bringing the hard cap down from 21 million to 17 or 18 million.
The Way Bitcoin Gets Lost
Since the Bitcoin blockchain is an immutable ledger, all transactions are considered final and there is rarely a way to reverse a bad transaction. Humans alone, not Bitcoin or blockchain technology, are to blame for lost bitcoin.
Since millions of bitcoin have not changed addresses in a sizable amount of time, the market is unsure when they will start to circulate again. But this does not necessarily imply that they are lost.
The sizable bitcoin hoard held by Satoshi Nakamoto is a well-known instance of bitcoin that hasn’t been used. Nobody knows what Satoshi did with his bitcoin’s private keys or even if they still exist, but since their creation, the bitcoin has remained stationary.
1. Customer Error
Bitcoin is a special asset because it is simple to self-manage it without the help of a reliable third party. Self-custody, on the other hand, places the burden of security and the risk of loss on the user; if a user fully exercises self-custody and misplaces the private keys, the bitcoin is irretrievably lost.
Although there are many ways to self-custody bitcoin, private keys kept on a hard drive or other external storage device run the risk of being accidentally deleted or overwritten by new files. James Howells is notorious for tossing out a hard drive that was worth close to $300 million at the time.
Using a mnemonic phrase as a backup can be a useful way to keep a bitcoin wallet secure. Even if the device used to access the wallet is lost or damaged, a mnemonic phrase enables a wallet to be recreated.
2. Security Risks from Third Parties
The widely held belief that “Not your keys, not your coins” sums up the significance of private key control in the Bitcoin community. Exchanges have frequently been targeted by hackers who want to get their hands on private keys, and self-storage is prone to human error.
Custodians are institutions with experience and knowledge in custody; as a result, they are more trustworthy than self-storage and more secure than exchanges.
How Do I Get My Lost Bitcoin Back?
When bitcoin is truly lost, it cannot be recovered. Some erroneous transactions have been refunded, but only in rare instances when the counterparty knows the sender personally. Bitcoin associated with a lost private key is no longer usable.
How Can I Keep My Bitcoin Safe?
There are numerous protocols in place today to protect passwords and private keys. Self-custodial users are vulnerable to human error and other particular dangers. By following the most recent guidelines for data storage and information security, you can lessen the likelihood that you will lose your bitcoin.
