The story of James Howells of Wales is one well-known to many in the Bitcoin community when it comes to lost bitcoin lore. In June of 2013, Howells threw away a hard drive containing the private keys to 7,500 bitcoins. The price of Bitcoin at the time was about $130 – at $7,347 this tragic action cost Howells about $55 million today. Supposedly, Howells stopped mining and used the original laptop for parts – but kept the hard drive in a drawer at home. That hard drive was mistakenly thrown out. There are similar stories and all give Bitcoiners the chills!
So what happens to lost bitcoin? Researchers believe that 64% of bitcoins have never been spent, but it’s impossible to tell whether dormant coins are lost or being stored. The blockchain does provide some insight, as it is a public ledger that holds every transaction ever made. Miners who verify new transactions are simply appending new blocks to the blockchain. Addresses have ownership of a certain number of bitcoins and when coins are transacted from the address since the same person has access to all of them at that address, they are not lost.
The primary block in the blockchain is known as the “genesis block” and, since each block contains a cryptographic string of data (hash) from the previous block, the genesis block is guaranteed to always be the initial block and each bitcoin is guaranteed to trace back to it. The innovation of the genesis block eliminates the chance of double-spend or counterfeit bitcoins, but it can also be used to track every bitcoin in existence today.
Statistics that parsed the blockchain by BitInfoCharts show roughly 23 million Bitcoin wallets exist, but more than 13 million of them own only a fraction of a Bitcoin – a minuscule amount. The stats show that only 1,500 addresses hold between 1,000 and 10,000 Bitcoins, while the top 111 wallets have more than 10,000 Bitcoins each. Using their calculations, 87% of all Bitcoins mined are owned by 0.5% of all the Bitcoin wallets; 61% of all Bitcoins are owned by just 0.07% of wallets that exist.
The frequency of payments in and out of a wallet give a hint to identity, and the largest wallets are cold storage wallets – offline to avoid hacking. There are many wallets in the top-100 largest that haven’t had transactions in a long time, and some that haven’t ever had any Bitcoin taken out at all. These wallets could be owned by long-term “hodlers” or they could be lost to wiped out hard drives, forgotten passwords, etc. – no way of knowing but they are classified as “dormant” wallets.
The largest Bitcoin wallet in the world increased its amount by 60,000 Bitcoins at the end of 2017 – talk about “buying the dip”!!! Those with huge holdings of Bitcoins are known as “whales” and the spread of wealth among them is growing. While some of the top wallets are owned by exchanges, it is clear by the infrequency of transactions that many are owned by wealthy investors.
Whales have tremendous power over market movements as a result of all this hoarded Bitcoin. When the largest Bitcoin owners cash out, it can send prices tanking and cause smaller investors to sell their Bitcoin – which the whales then buy back at low prices to keep increasing their own holdings.
Recover Lost Bitcoin
A substantial amount of Bitcoin hasn’t been spent since 2011 – about 35% is estimated and much is most likely to have been lost. In the early days when Bitcoin had little value, security measures were not as practiced as they are today and a lot of early adopters made mistakes.
Bitcoin is a deflationary currency because only a finite number will ever be mined. Once 21 million coins are mined, that’s it – but because of lost or forgotten destroyed wallets, and even death of a Bitcoin owner, that number will be far lower. So, can lost Bitcoins be recovered, or are they lost forever?
The probability of recovering lost Bitcoins is effectively impossible, as this is what the security of Bitcoin is based on. Just as if you lost your private key and could not recover your Bitcoins – so it is with any other lost coins, regardless of the circumstances. While there are services that can assist people in recovering their wallets, the options are very limited and usually related to password recovery.
Bottom line is, if you don’t have the private key or seed words for recovery, there is no way to access the funds. Having the public key or address will not allow one to figure out the private keys and spend the coins. All Bitcoins ever mined are sitting on the blockchain in their respective addresses and are not “lost” at all – they are just not accessible since the keys that would allow moving (spending) them are lost.
Find Lost Bitcoin
So, what happens if you were to find lost Bitcoin – for example, you buy an old used computer and find a wallet, and more importantly the password to the wallet, on it? If there is no indication of the previous owner on the computer and you don’t know the previous owner – are you now the owner of the Bitcoin?
If the previous owner was tech savvy, it’s possible he has a copy of his private key on a new computer. If so, and some of his Bitcoins are transferred to another address, it is possible he would notice and change his password. If all were transferred, it is likely the owner would try and track down those funds. However, if they were transferred to a new address on a decentralized exchange – then exchanged for say, Monero in smaller transactions and then back to Bitcoin – it would be impossible to trace.
It’s also possible that the wallet you find is an outdated backup copy. Since a wallet is just a file that can be copied, whenever Bitcoins in the wallet are spent, it has to be updated. If it isn’t, then transactions are impossible as they will be rejected by the blockchain. You can search the blockchain to see if the wallet is up to date, as the blockchain contains records of all wallet transactions.
If it turns out that you don’t know or can’t identify the previous owner and were lucky enough to find a wallet and that you can access which contains the private keys to Bitcoin – then congratulations! You hit the jackpot, so learn how to secure them so the same doesn’t happen to you, pay your taxes if you cash them out to fiat, and enjoy finding some lost bitcoin!