As early wallets continue to wake up, how many of the 1.8 million lost bitcoins will be put back into circulation?

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Original author: Jeff John Roberts, Fortune Magazine

Original translation: Luffy, Foresight News

On April 15, a dormant Bitcoin wallet revived after 14 years. The wallet’s owner sent 50 bitcoins to Coinbase, making more than $3 million in profits from the once-worthless coins. Such transactions are uncommon, but not unique. Early Bitcoin wallets resurrect almost weekly, raising the question of how many more presumed lost coins could be put back into circulation. A new investigation by Fortune and Chainalysis offers some insights.

As early wallets continue to wake up, how many of the 1.8 million lost bitcoins will be put back into circulation?

Chart showing the number of lost Bitcoins since 2018

As shown in the above figure, hundreds of thousands of lost Bitcoins (which Chainalysis defines as Bitcoins that have not moved since 2014) have returned to circulation over the past few years. The figure shows the net change in the total amount of Bitcoin in four wallets of different sizes, including wallets holding less than 50 Bitcoins and wallets holding 1,000 Bitcoins or more. Among them, the less than 50 category accounts for the vast majority of old Bitcoin wallets, as shown in the figure below.

As early wallets continue to wake up, how many of the 1.8 million lost bitcoins will be put back into circulation?

Chart showing a breakdown of lost Bitcoin wallets

Both graphs show that a disproportionate number of old wallets contain 50 bitcoins. This reflects the fact that in the early days of Bitcoin, the block reward was 50. (Since then, a series of “halving” events have reduced the reward to 25, 12.5, 6.25, and just last week, to 3.25 bitcoins).

Now that less than 10% of the amount of bitcoin being mined each day is being mined, early wallets — many of which contain vast fortunes — are likely to draw greater interest.

$121 billion

Those with only a casual interest in cryptocurrencies might be surprised to learn that there are about 1.75 million Bitcoin wallets that have been completely dormant for a decade or more, many of which contain large amounts of funds. As of mid-March, these wallets (excluding about 30,000 wallets associated with Bitcoin creator Satoshi Nakamoto) contained 1,798,681 Bitcoins, worth about $121 billion today.

Those 1.8 million “lost” bitcoins represent about 8.5% of the total supply of 21 million bitcoins (93% of which have been mined). In most cases, it’s impossible to know exactly where a particular wallet has gone, but it’s certain that many of the bitcoins in those wallets are indeed lost forever. In the early days of bitcoin, the cryptocurrency was worth next to nothing, and its price didn’t break the $1 mark until 2011. So many people who received bitcoins may have completely forgotten about it or didn’t bother to save the private key needed to open the wallet. Before 2012, companies like Coinbase that held private keys for users didn’t exist, so losing keys was especially common.

But not all idle wallets are lost or abandoned. Bitcoin is known for its large population of “HODLers” who swear to never sell their reserves (or at least hold on to them for the long term). It is these people (who have “diamond hands” in crypto parlance) who manage the handful of wallets that have been active since 2018.

So why are they selling? Chainalysis’ analysis of newly active wallets found a statistically significant correlation between Bitcoin price changes and wallet activity in a given week. However, most of the time, increases in wallet activity do not appear to be related to obvious external events.

Overall, the pace of activation of old wallets seems to be predictable. For example, during the week of March 25, a typical pattern emerged, with 172 long-dormant wallets becoming active, 169 of which had less than 50 bitcoins, and one wallet with more than 1,000 bitcoins. Many Bitcoin holders have more than one wallet, especially those who have had wallets before 2014, so the number of people activating wallets that week is likely much lower than 172.

Variable: Satoshi Nakamotos 1.1 million Bitcoins

Chainalysis’s survey data suggests that old wallets will continue to be revived at a steady but slow rate until the number of lost bitcoins stabilizes: around 1.5 million.

However, we can imagine that the pace of wallet awakening will accelerate in the future. That is, it may happen when pre-2014 HODLers grow old and bequeath their long-held Bitcoins to their children, who in turn sell them. However, such an event is still decades away, as most early Bitcoin holders are only in their 20s or 30s.

Finally, the aforementioned “lost” Bitcoin count does not include wallets controlled by Satoshi Nakamoto, who owns about 1.1 million Bitcoins, according to Chainalysis estimates. A recent Fortune report on Satoshi’s wealth (worth about $75 billion) found that most long-time cryptocurrency watchers believe the Bitcoin creator is a myth and will most likely never touch their wallets.

If this is true, the total number of lost bitcoins is currently about 2.9 million, accounting for nearly 14% of the total supply. In the long run, the best outcome is that these bitcoins become lost treasures that can never be found.

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