My Bitcoin: Lost Forever on the Blockchain
A person can lose cash if they have a hole in their pocket or are careless. However, it’s not easy to lose cash, unlike, say, bitcoin, which can be lost forever when your phone or device crashes. It happened to me in 2013 and I asked about it when speaking at the Cryptocurrency conference in Atlanta that year.
“Can any of guys help me out?” I asked the cryptogeeks from the stage. “My phone crashed and I lost bitcoin. I’ll pay someone to recover them.”
“Ha ha,” was the response. “They are lost forever, and you’ve made our bitcoin more valuable. Thanks!”
That was October 5, 2013. The following Monday bitcoin traded for $125.94. My lost crypto was no big deal then. Now, trading over $4,000 per coin. Much bigger deal. It turns out I’m just one of many to lose my coin. In a piece on Seeking Alpha, Albert YK Li writes, “Of the 16 and a half million Bitcoins that have been mined so far, it is estimated that up to 25% have been lost for good.”
While I don’t feel so bad, the loss of a quarter of mined bitcoin seems to be a negative when it comes to bitcoin taking over as the coin of the realm. Since over 16 million bitcoin have been mined, four million have been lost in the ether says Mr. Li. he writes,
A good estimate is around 25% percent of all Bitcoins (4 million Bitcoins), according to an impressive, albeit slightly dated, analysis by John W. Ratcliff. His article, written June 18, 2014, states that 30% of all coins were lost, equating to 25% of all coins when adjusted for the current amount of coins in circulation. The reason that Ratcliff's value can be adjusted for the current date is because the bulk of the lost Bitcoins originate from very early on in the history of Bitcoin, and as Bitcoin's value goes up, people lose their coins at a slower rate.
Li goes on to list how bitcoin can be lost.
Bitcoins can be lost due to irrecoverable passwords or private keys, forgotten wallets, hardware failure, or the death of the bitcoin owner. And sometimes, people just plain mess up. There's no shortage of newbies from all eras flubbing their coins, for example by accidentally sending Bitcoins to a valid but unowned address, in which the BTC would be transferred and then be as good as lost. Even veterans have made massive mistakes. Bitomat lost the private keys to 17,000 of their customers' coins. In general, it's extremely improbable and effectively impossible to recover lost coins. Lost bitcoins still remain in the block chain just like any other bitcoins, but lost bitcoins remain dormant forever because there is no way for anybody to find the private key(s) that would allow them to be spent again.
I’m happy to know my bitcoin is or are in the blockchain somewhere. But my possession was done and gone when my Android phone went, poof.
In the early days, plenty of coins were lost and nobody gave a damn. In some cases “Bitcoin can be lost is through ‘burning.’ This can be done by setting up a wallet with no known private key. The wallet can still be seen online, complete with every transaction, but the funds will likely never be retrieved. There are some addresses out there where no known private key exists.”
Mr. Li makes the point the conference goers made back in 2013. Lost coins make existing coins more valuable, since only 21 million will be mined. However, he’s right to say,
on the contrary, it may have contributed to a slower adoption to the mainstream. With Bitcoin it's possible to forfeit all of one's currency if precautions are not taken and one loses his or her private key. This is as opposed to say, fiat money in a bank, where identity can be used to verify the ownership of the money, and where the money is further insured by the government.
In Grant’s Interest Rate Observer last month, investor Paul J. Isaac asked the question, “What happens if there is cataclysm, eg. electromagnetic pulse attack?”
Jim Rickards reports, “North Korea’s cyber-brigades have hacked into South Korean bitcoin exchanges both to steal customer bitcoins and demand bitcoin ransom to cease the attacks. North Korea is building up a bitcoin stash to pay for weapons and food as the U.S. ramps up sanctions on conventional banking channels.”
That might just give US authorities the incentive to put the kibosh on cyber currencies just to keep Rocket man from loading up on munitions.
And then, as Rickards points out, there’s “If the power grid goes down for whatever reason (ask Puerto Rico after Hurricane Irma), good luck accessing your bitcoins. Bitcoin may have made you a millionaire on paper. But what good does it do if you can’t access it when you need it most?
“The theory of money necessarily presupposes a theory of the saleableness of goods,” wrote Carl Menger. “If we grasp this, we shall be able to understand how the almost unlimited saleableness of money is only a special case,—presenting only a difference of degree—of a generic phenomenon of economic life—namely, the difference in the saleableness of commodities in general.”
When the lights go out, on your phone, or devise, or the power grid, how is bitcoin’s saleableness?
