Bitcoin users have misplaced about 20% of all existing tokens, and unlike fiat currency which can potentially be recovered, it's highly unlikely that these tokens will be returned to circulation, analysis by the Wall Street Journal suggests. The reason for this has to do with the structure of cryptocurrencies and the emphasis they place on privacy and security. While the loss of 20% of all bitcoin is likely to not have a significant impact on the crypto market itself, it could surely affect individual investors.
The Cost of Security
Because bitcoin investors typically hold their tokens in digital wallets, protected by cryptography and accessible only via private key, it's very difficult for others to access those holdings. Normally, this is a good thing; a cold wallet (one that is used offline) is generally seen as a highly secure way of storing digital assets. However, if the wallet owner loses his or her access key, that wallet may be permanently inaccessible, along with the tokens it contains.
This downside to the security of BTC has given rise to a cottage industry of wallet hunters who aim to help investors recover lost funds. These wallet hunters typically charge a fee of anywhere from 5% to 40% of funds recovered, and they make use of various tools to aid in their investigation. Hunters may employ traditional investigative tactics when exploring hardware, or they may even resort to testing out different key combinations.
Negligible Broader Impact
For users who misplace a wallet or key, the process can be overwhelmingly frustrating. However, the misplacement and potential loss of 20% of all BTC tokens should have little effect on the broader cryptocurrency industry. Bitcoin is easily split into very small denominations, unlike fiat currency. This allows for loss of a sizable quantity of BTC without an overall impact on the currency itself. Even given that miners are approaching the final BTC, the rate of loss of tokens can continue for years without there being any sort of impact on the functionality of the coin. Indeed, even if there were very few individual tokens, the protocol for how BTC can be divided could be adjusted to facilitate its continued functioning. Of course, this doesn't help those people who have lost their tokens.
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.