Exclusive: Nearly 4 Million Bitcoins Lost Forever, New Study Says

Just like gold bars can sink to the bottom of the ocean or paper money can go up in flames, bitcoins can also vanish from the Internet forever. By the time all 21 million bitcoins are mined – expected around 2040 – the number actually available to use or trade will be much smaller.

New research from Chainalysis, a digital forensics company that analyzes the Bitcoin blockchain, shows that between 2.78 million and 3.79 million bitcoins are permanently lost. That means between 17% and 23% of the total existing bitcoins – each worth about $8,500 today – are no longer accessible.

While people have guessed at how many bitcoins are missing, Chainalysis’s findings stand out because they’re based on a close, data-driven study of the blockchain, which records every bitcoin transaction.

As shown in the chart above, Chainalysis grouped all existing bitcoins by age and frequency of use. For some groups, they used sample data to determine how many are likely lost.

The “Mined Coins” group includes bitcoins mined in 2017, which are assumed to still be in use. The “Transactional” category includes coins moved or spent within the last year – almost none of these are believed to be lost. The “Strategic Investors” group includes people who’ve held coins for one to two years, and they also make up only a small portion of the missing bitcoins.

Here’s the same information in a different format. It shows that most of the missing bitcoins come from two groups: coins mined between 2 and 7 years ago by long-term holders, also known as “hodlers,” and coins from bitcoin’s earliest days in 2009 and 2010.

Category	Total as of mid-2017	Percent Lost	Lost Bitcoins
Mined Coins	604388	0%	-
Transactional	6066664	2%	121333
Out of circulation ("Hodlers")	5110898	50%	2555449
Strategic Investors	3557539	2%	71151
Original Coins ("Satoshi Coins")	1041715	100%	1041715
Total	16381204		3789648

These numbers represent bitcoins that are truly gone – not ones that were hacked or stolen. In those cases, the coins still exist because the thief had access to them.

Keep in mind the figures above are based on the higher estimate. The lower estimate, which assumes that only 30% of the “hodler” coins are lost, puts the number of missing bitcoins at 2,767,468. Both estimates also rely on the key idea that the coins owned by Bitcoin’s creator, Satoshi, are no longer accessible (more on that later).

More bitcoins will go missing over time. However, the rate of loss is expected to drop. Since Bitcoin has become so valuable, people are now more careful about keeping track of their wallets – unlike the person who accidentally threw out a hard drive holding the keys to 7,500 bitcoins. Still, there’s an open question: Do the Chainalysis findings suggest Bitcoin is more limited than people think? Or has the market already taken the missing coins into account in the price?

According to Kim Grauer, Senior Economist at Chainalysis, it’s a complicated issue. She explained that basic market cap calculations don’t consider lost coins. In such a speculative space, these market caps might end up influencing economic models that affect how people spend. But, she added, the market has adjusted based on what’s actually available – just look at trading behavior. Central banks often change fiat money supplies to manage exchange rates, so in this case, the answer is both yes and no.

Lost Bitcoins and the Secret of Satoshi

Chainalysis, known for its deep data pool and detailed analysis of blockchain wallets, has built a strong reputation in the Bitcoin space. Its clients include the IRS and Europol, and law enforcement depends on the company to track who holds Bitcoin and how it moves through the system.

While the company keeps its full process private, a spokesperson did share some insight into how they figure out which bitcoins are considered lost. One useful clue shows up when a “fork” happens in the blockchain – like the one earlier this year that led to the creation of Bitcoin Cash, a copy of Bitcoin. Events like this often trigger activity from long-dormant wallets, giving researchers a chance to study them more closely.

Clues like these help shape the Chainalysis estimate for the “hodler” group – wallets owned by early Bitcoin adopters. These wallets are the hardest to judge because it’s unclear if the coins are gone or just being held for the long term.

Chainalysis believes 2% of “transactional” bitcoins are lost. This number comes from searching the web for stories of lost coins. These losses might happen due to sending Bitcoin to the wrong address or losing private keys through death or simple mistakes. The company says this figure doesn’t come from broad statistical modeling and will likely become more accurate over time.

Lastly, there’s the mystery of what happened to the bitcoins owned by Satoshi, the anonymous creator of Bitcoin, who hasn’t been heard from since 2011. Chainalysis estimates that Satoshi’s wallets hold around 1 million bitcoins, though the company plans to release a more precise number later this year. Their model assumes that these coins – mined back when 50 bitcoins could be created with just a laptop – are permanently lost. That’s a major assumption, and if it turns out to be wrong, the total number of bitcoins in circulation could rise sharply, potentially shaking up the market.

Fortune asked Chainalysis what they found most surprising in their research on lost bitcoins.

Kim Grauer explained that when they shared the results with others, reactions varied. What stood out most to her was how confusing the idea of a Bitcoin being “lost” becomes once you start digging into what that really means.