According to an article posted in Fortune this morning, there may not be as many coins in the already limited supply as most people think.

We all know that by 2040 there will be roughly 21 million coins mined from the original bitcoin, and at that point no more can be mined, at least as of today.

However, according to research by Chainalysis, a digital forensics firm that specializes in studying the bitcoin blockchain, when we do reach that 21 million supply limit, there will actually likely be significantly less coins available to trade or spend than even that 21 million number.

How much less supply are we talking about?

Well, according to their analysis they are already projecting that currently anywhere from 2.78 to 3.79 million bitcoins are lost forever. The rate that bitcoins are lost is likely to decrease going forward considering they are much more valuable than they were when they were first being mined.

People will likely keep track of them a lot better today than they did originally.

Which means that the number lost is expected to grow much slower as we get closer to our 21 million coin limit.

If those numbers stay exactly where they are currently, we are looking at 13% to 18% of the total supply likely lost forever. Currently those numbers account for 17% t0 23% of the existing supply.

How did they come up with those numbers?

The overall methodology used to figure out which coins belong in which class is confidential. Which is important for government agencies that it stay confidential because both the IRS and Europol rely on Chainalysis to figure out who might possibly own what in the blockchain world.

However, we can see from the charts above that they rely on segmenting the existing bitcoin supply based on it's age and transaction activity.

For some segments the company used statistical sampling to determine the amount lost.

Looking at the data it is apparent that the most losses came from coins mined 2-7 years ago, with the majority coming from those mined in 2009-2010.

There is one major caveat in all of this.

There is one major assumption in this data that may skew the results wildly in one direction or the other. That is the assumption that the coins likely belonging to the original creator (Satoshi Nakamoto), are gone for good and not coming back into circulation.

There is really no way of knowing that for sure, but the fact that the coins haven't moved from the time they were mined till now, despite them being worth almost $9 Billion today, is a pretty strong indicator that they may remain that way forever.

My thoughts:

Initially, I felt like this wasn't really telling me anything I didn't already knew. Just about every week I read about someone who has lost coins due to losing their password etc.

In most cases those coins are lost forever.

The longer the coins sit somewhere the stronger the likelihood that they are sitting there because they are not able to be moved.

Which is actually one of my dislikes about bitcoin and blockchain technology in general. It's great that everything is decentralized to an extent, but the aspect that there is no central authority to help in times when passwords are lost or forgotten presents a major hurdle for wide spread adoption of these things.

However, when you think about it, gold bars/coins were lost hundreds of years ago at sea as well as many other places, and that gold has likely been lost forever as well. Effectively taking it out of circulation.

When you consider that many regard bitcoin similar to digital gold and you look at it from that context, it makes much more sense how things like this can happen and should be expected.

It's not so much a flaw in the system like many might have you believe but instead just a feature. Another feature that is shared with gold.

The more I read and learn about bitcoin the more I am inclined to compare it to gold than a currency that can replace fiat someday. However, that isn't a knock against bitcoin at all, because if it takes just 5% of the current gold market we could be looking at prices of $25,000 based on 21 million bitcoins.

Not too shabby.

And, we just learned today that the 21 million number is likely to be significantly overstated... ;)

Stay informed my friends.

Sources:

http://fortune.com/2017/11/25/lost-bitcoins/

Image Sources:

http://fortune.com/2017/11/25/lost-bitcoins/

https://www.coindesk.com/information/who-is-satoshi-nakamoto/

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