What happens when Bitcoins are lost?

The loss of Bitcoin is a fairly common case in the crypto space. It is important that we take a number of precautions to protect our BTC, as there is a possibility of losing them forever, without being able to access them.

But, let’s get those all in order.

When BTC are considered lost

BTC are considered lost when they can no longer be used by anyone. We know that according to Coinmarketrate.com, in order to manage Bitcoins, a private key, similar to a password, is needed, which allows us to access a bank account on the Internet.

These keys allow you to generate digital signatures that are used to sign the transactions sending them.

Thus, if we are unable to sign, all the funds associated with this private key will become unavailable. So if we want to avoid this, we have to be careful with the private key.

There is no server we can turn to to find out which users cannot access their Bitcoins, so any number we find will always be approximate.

The vast majority of losses occurred in the early years of the existence of this cryptocurrency, when people did not understand what value it could have in the future. As a result, there were many losses, thefts and transactions by mistake.

It is estimated that there are 3 to 4 million BTC that we will no longer be able to access, which makes the true circulation limit 17-18 million, rather than the theoretical 21 million.

How Bitcoin gets Lost

Bitcoin works thanks to an immutable database known as the blockchain. As soon as a transaction is added to a block, it can be considered final, and it is almost impossible to cancel it. Therefore, we cannot blame this technology when we talk about losses, it is the person who is ultimately responsible for its safety.

There are millions of addresses with a large number of Bitcoins, through which funds have not been moved for a long time, and there is no way to know if they will ever return to circulation.

However, we cannot accept them as lost, because “sitting” in one place does not mean that the owner has lost the private key. Maybe this is a convinced hodler?

An important example for this topic and the history of Bitcoin is the large number of BTC stored at Satoshi Nakamoto’s address.

Having created this project and working on it incognito, he decided to disappear overnight. No one knows what happened to the private keys and whether they still exist, but they have not been moved from these addresses since.

The good thing is that we can consider this event as Satoshi’s last contribution to the system and to the world, since the million he owned has now left the market, making Bitcoin even more scarce.

When BTC are absent from the market for too long, the market reacts to this by fictitiously removing them from the total turnover and adjusting the price, depending on the decrease in supply. We cannot consider them lost, but the market perceives them that way.

• Human error

Bitcoin is a unique asset because it can be stored by the person himself, and not by a third party, for example, a bank.

However, this imposes a great responsibility on this person, who must take security issues and loss risks very seriously. If the user decides to take full custody of his Bitcoins and loses the private keys, then these BTC will be lost forever.11

There are many ways to manage private keys when we have full control, but those that were stored in the early years on devices such as memory cards or hard drives were the biggest cause of loss.

Mainly because over time they were thrown away or simply rewritten with other information, which led to the loss of keys.

There is a well-known case of James Howells, who accidentally threw away a hard drive worth $ 300 million at today’s prices.

Fortunately, today there are many reliable ways to protect the private key, for example, backing it up with seed phrases or using devices that perform exclusively the function of a wallet. Using both solutions can give excellent results.

• Because of a third party

A popular phrase in crypto communities, especially Bitcoin, is: “Without your key, these are not your coins”, which is used to emphasize the fact that it is the private key that allows you to control funds.

There are ways to store VTS, such as exchanges, but the problem is that they are the main target for hackers who can get hold of private keys and steal all the money.

There is another alternative, which usually involves a third party — escrow services. They usually have stricter security measures, such as storing private keys offline. Despite this, we still trust someone else to keep our money.

• Sending to the wrong address

After the transaction is confirmed, it is added to the blockchain, and it is very difficult to cancel it.

Therefore, if we send Bitcoins to the wrong address, there is little we can do to get the funds back. The only way is if the owner of this address decides to return the money. If this address was “created” and someone has a private key.

Fortunately, this type of error is less common, since wallets have an additional security mechanism that checks whether the address is valid before sending. However, it is always better to check the address several times before sending. This way we avoid mistakes of any kind.

• Do not hope to inherit the BTC

Bitcoins can also be lost if their owner dies and does not share the private key or develop a plan to disclose it in the event of such an event.

It is quite normal for a person not to disclose this important information during his lifetime, as this will jeopardize funds. But if something happens to him, and the heirs do not know about these BTC or do not have a private key, the BTC will be lost forever.

You can invite a lawyer who will handle the entire inheritance process, but many of them do not know how Bitcoin works and do not manage private keys properly, so we can say goodbye to Bitcoin.

Is it possible to restore them?

There is no way to actually return these funds. Perhaps if we have some information, for example, a part of the private key, we can try to do something, but in the end it is very unlikely.

In the case of transactions sent by mistake, there have been cases when recipients have decided to return them to the person who sent them, but I don’t think this is very common. It’s easy if you know who sent them, but if you get anonymous transactions? There’s not much you can do to get them back. Of course, provided that you want it.

How does this affect the Bitcoin network

Satoshi Nakamoto himself mentioned the impact of lost cryptocurrencies on the network in 2010:

“Lost coins just make other people’s coins a little more expensive. Consider it a donation for everyone.”

Lost cryptocurrencies increase the value of Bitcoin because there are fewer coins in circulation. We know that the limit on their creation is fixed, so if the same amount is lost, the limit will become even smaller.

As a result, the value of the remaining BTC increases, which is always welcome, although you don’t want to be the one who lost your funds.

How to avoid the loss of BTC

There are many ways to avoid losing the private key and, accordingly, Bitcoins. We have mentioned some applicable options, such as seed phrases and hardware wallets.

There are also developments of Bitcoin itself that allow avoiding human errors, such as sending to the wrong address.

Finally, we should try to use the latest standards in the field of security and information storage to avoid any problems. Everything we can do to protect our BTC is very important.

Conclusion

An estimated 4 million BTC is lost forever. When Bitcoin is lost, it helps to increase the value of the network.

The biggest reason for the loss of Bitcoin is related to the storage of private keys in local storage, which are thrown away or overwritten by other files.

If we want to protect our coins and not lose them, then first of all we need to be extremely careful.

We need to make sure that we are storing the private key correctly, and check in advance the address to which we are sending it.