What happens when bitcoins are lost?

James Howells from Wales has become a tragic example of what happens when bitcoins get lost. In June, Howells had accidentally tossed a hard drive that contained more than 7,500 bitcoins that he had mined when the currency was worth little. Because bitcoins have skyrocketed in value, their worth now sits at somewhere around $1,000 per bitcoin, which means that Howells had thrown away a hard drive that had an estimated worth of over $7.5 million.

One data recovery expert later, Howells discovered that it was too late to recover the drive from the trash because it was beyond repair. While this is one of the most extreme cases, Howells’ case is not isolated, and there have been other people who have lost their bitcoins. Outside of the evidence, however, we have no way of truly knowing how many people have lost bitcoins, but there is an ongoing thread of similarities.

Bitcoin Black Friday’s founder has said that there are only around 78 percent of bitcoins in existence today that were circulated back in 2012. What makes the estimate difficult is that we have no way of knowing whether the dormancy of the coins is because of being lost, or they are being saved. When researchers looked at the statistics, they found that around 64 percent of bitcoins have never even been spent, and some are wondering if they even can be spent. Greg Schvey, a researcher of bitcoins, has said that while it can be difficult to discern between the lost bitcoins and the people saving them, you do have one major clue.

That clue relates to the block chain, which is a public ledger that will include all of the transactions that the bitcoin has ever made. When bitcoin miners verify their latest transactions, what this does it is appends the new blocks on the chain. Schvey says that every address will have ownership for a number of coins, and when you see the amount of coin coming from that address, you know that that same person has access to their bitcoins, and they have not been lost.

Schvey is the cofounder of the “Genesis Block,” which is a company that analyzes the primary block of a block chain. Every block will have a hash or cryptographic string of data, and the genesis guarantees that every bitcoin can be traced back. Arguable, the genesis block could be seen as one of the most useful innovations because of how it eliminates counterfeit bitcoins and those that have the chance for being spent twice. Because of the genesis block, every legitimate bitcoin will be identified, and no one can create a fake coin. That information also gives Schvey the necessary data for tracking every bitcoin that exists today so that he can determine which coins have been lost.

According to the research from Genesis Block, about 55 percent of the bitcoins that were issued to date saw activity in 2013, but there is an additional 10 percent of bitcoins that have remained dormant since 2012. We have also seen a significant 35 percent that have not been spent since 2011, and that third number is what most likely consists of the lost coins. When the community was first growing, 1,000 coins were of little value, but today, they’re worth millions.

We do have a finite number of bitcoins that can be mined, which means that bitcoin is a deflationary currency. These lost bitcoins, however, mean that the number will be much lower than that, and because of those lost coins, the currency will see higher prices. It’s the law of supply and demand, and the people who have had bitcoins in a savings account may decide to cash out. A rising supply could have a negative impact on the total value of bitcoin, so it has some positive news for the currency.

Whether bitcoins have become lost because of lost passwords or a forgotten wallet or the death of the bitcoin owner, we have many more people aside from Howells who has lost bitcoins. The question is if these coins can ever be recovered. According to Schvey, it is highly improbable and almost impossible that we will be able to recover some of the lost coins because of the currency’s security. The system has become so secure that it makes it difficult to recover coins if you ever lose them.

Not everyone believes that bitcoins cannot be recovered. Because of the surge in price and skyrocketing demand for long-forgotten wallets, there have been a plethora of recovery services that have started to pop up for helping customers recover their wallets. The thing to understand is that even these options are limited, and they almost always stress that recovery will be next to impossible without the remembrance of your password. It is worth trying to recover if you lost a lot of bitcoins, but you do not want to get your hopes up.