Keys lost, coins lost
The UK’s National Cyber Security Council broached the topic of unreachable BTC in its weekly threat report. The report attributes the loss to password or key deletion caused by mistaken hard drive disposal or reformatting.
They go on to cite the recent story of a programmer in the United States who lost the password to a hard drive that contained roughly $200 million in Bitcoin.
The programmer has a couple of attempts at guessing the password remaining before he is permanently locked out.
Stories like this are common in the UK too. Computer engineer James Howells recently offered his local council a share of the Bitcoins stored in a hard drive he threw away if they help him excavate a landfill site.
The Bitcoins on the hard drive are worth over $312 million, which could mean Newport Council receiving a $78 million collection fee.
A liquidity crisis
Users lost access to 20% of all bitcoins in existence, according to a blog post from cryptocurrency data company Chainalysis.
The report says that the majority of these losses occur because of misplaced private keys or erroneous transactions (transactions made to the wrong address).
At the top cryptocurrency’s current value, this represents over $134 billion in unrecoverable value.
As the bitcoin in circulation nears 89% of its total supply, some in the cryptocurrency community forecast an impending liquidity crisis. Demand for the top cryptocurrency, they say, will far outstrip its supply.
Recent investments from large institutions such as Grayscale and MicroStrategy compound the potential crisis. Grayscale recently revealed it owns just over 3% of all the Bitcoins in existence.
Some in the community warn of the effect on decentralization. Others point out that such a crisis will only lead Bitcoin to future highs. For those who lost considerable Bitcoin fortunes, this comes as little consolation.
However, there are an increasing number of custodial service providers who purport to offer a way for cryptocurrency owners to store their holdings with ease of mind.
Are custodial services the answer?
Maybe. Custody services like that offered by Coinbase, put the task of storing and securing cryptocurrencies into the hands of professionals.
This bears a resemblance to the traditional approach to storing value. People trust institutions such as banks and funds to use their in-house expertise to keep their savings safe.
One could argue that in the cryptocurrency space, where things can become quite technical, there is even more of a need for professional handling what sometimes could be massive fortunes.
However, this contrasts starkly with Bitcoin’s pseudonymous creator Satoshi Nakamoto’s vision. Bitcoin’s principal purpose is to wrestle away the control such institutions have over an individual’s finance.
This motivates a common saying in the crypto-world that warns users against reliance on centralized exchanges; not your keys, not your coins.
Nevertheless, 20% of the top cryptocurrency’s supply is lost. Maybe a slow transition between trusting third parties and trusting ourselves is needed before individuals can truly be in control.