While millions of Bitcoin are in circulation today, a good chunk of this supply has been lost over the years. But how can Bitcoin be lost? Has it been destroyed, or is it just sitting in a wallet, waiting to be found?

Let's explore how and why Bitcoin gets lost and whether lost Bitcoin can ever be found.

What Is Lost Bitcoin?

Lost Bitcoin refers to any Bitcoins that the "current" owner can no longer locate. Bitcoins are stored in cryptocurrency wallets, which come in a number of different forms. You can get software and hardware wallets, custodial and non-custodial wallets, and so on. But regardless of the wallet you use to store your Bitcoin, there's always a chance it can get lost.

When Bitcoin is truly lost, it becomes irretrievable. Sure, Bitcoin can be misplaced temporarily. Maybe you thought you'd transferred it to Wallet B, but it's still in Wallet A. But if you've completely lost track of your Bitcoin's location or you cannot access the wallet in which it is stored, it becomes permanently lost.

There was a wave of people reporting lost Bitcoin wallets when the crypto industry boomed in 2021. Many people invested in Bitcoin before its value even hit the double or triple figure. Some invested back in 2009, when Bitcoin was worth almost nothing, while others invested in the early 2010s. Bitcoin didn't pass the hundred-dollar mark until 2013 and only hit a consistent four-figure price in 2017. At this point, people were already trying to dig up old Bitcoin wallet keys, but the crypto boom of 2021 truly reflected how much Bitcoin had been lost.

A particularly notable lost Bitcoin case involved Stefan Thomas, a software developer who discovered that his old Bitcoin wallet of over 7,000 BTC was worth over $320 million in 2021. Stefan bought the Bitcoin holding back in 2011 when one BTC was worth less than $20. This would have still been a substantial investment, but nothing close to the value it would hold a decade later.

Thomas stored his Bitcoin wallet in an IronKey flash drive. IronKey requires you to enter a password to access any data stored on the drive, and it's this that Thomas couldn't remember. No matter how hard he tried, he couldn't access his wallet, which held hundreds of millions in Bitcoin. To this day, Thomas has not recovered his wallet.

But this should be a solvable issue, right? Let's explore.

How Does Bitcoin Get Lost?

When you forget your social media or bank account password, there are ways to recover or change your password, giving you access to your account. This is because most online platforms are owned and operated by centralized organizations. Therefore, they can control access to your account and allow you to recover your credentials for re-entry.

On the other hand, a decentralized organization has no control over the information stored within the network. There is no centralized server or data center, so there is no one authority you can go to if something goes wrong.

Data is spread across multiple nodes within the network, none of which have the authority to alter or delete data. The entire point of a decentralized network is to give control back to the users. This doesn't mean anyone can do what they want, but users can store their data and have their say in how the network progresses.

In terms of crypto wallets, it's every man for themselves in a decentralized network. If you lose your wallet's password, PIN, or seed phrase, that's unfortunately on you.

The exception here is if you're using a custodial crypto wallet, often offered by centralized exchanges. Custodial crypto wallets are looked after by custodians, meaning the private keys are guarded by them. This means you don't have to be responsible for storing your wallet's sensitive information.

How Much Bitcoin Has Been Lost?

It's almost impossible to know exactly how many Bitcoins have slipped through users' fingers since the cryptocurrency's launch in 2009. However, millions have certainly been irretrievably lost.

Cane Island investment manager Timothy Peterson has estimated that around six million BTC have been lost, a substantial chunk of Bitcoin's 21 million supply.

If correct, this means that almost 30 percent of Bitcoin's supply has been lost forever. Based on Bitcoin's current value, this amounts to $554 billion, all of which will never be recovered.

IntoTheBlock also revealed similar data, though it was stated that 29 percent of Bitcoin hadn't moved in five years. This doesn't necessarily mean all this Bitcoin is lost. After all, some people may be HODLing (holding on for dear life) long-term, keeping their BTC in one wallet for years at a time.

However, it's likely that a significant chunk of this figure represents permanently lost Bitcoin holdings, especially when considering other lost Bitcoin estimates. In the first tweet mentioned here, Timothy Peterson referred to a Cane Island research paper that stated four percent of all circulating Bitcoin is lost every year. This highlights just how much Bitcoin is being hemorrhaged through loss on a recurring basis.

How Is Bitcoin Lost?

With so much Bitcoin being lost in the digital abyss, one must ask: how is this happening?

1. Lost Private Key or Seed Phrase

Whether you use a software or hardware wallet, you cannot conduct transactions without a private key. If you lose your private key, you can't sell or move your Bitcoin funds, meaning they are stuck in your wallet. This is where a seed phrase, a backup piece of data, can be used to access your wallet and retrieve your key.

Without your private key and seed phrase, your wallet is irretrievable. A lot of people have lost access to their crypto simply because they cannot find their private key or seed phrase, meaning their holdings are lost forever.

2. Lost Hardware Wallet Device

If you're using a hardware wallet (i.e. a physical device) to store your private keys, losing the device itself can spell trouble. If you don't know your seed phrase and don't have your wallet to hand, your funds may be irretrievable.

However, if your hardware wallet provider offers replacements for lost, stolen, or damaged wallets, you may be eligible for a replacement. Contact your wallet provider if you find yourself in this situation to see what can be done for you.

Can Lost Bitcoin Be Recovered?

If it is certain that a person has permanently lost the seed phrase for their Bitcoin wallet, then that Bitcoin is, indeed, permanently lost. Seed phrases exist as a backup option for when a user forgets their wallet PIN or password, but there is often no backup option beyond this. Without your seed phrase, you're in trouble.

If you know you own Bitcoin but have no clue which wallet it is in, you can use a crypto hunter to track it down. Crypto hunters are either online services or individual professionals that help you track down crypto wallets, be it for free or for a fee. These services often require your blockchain ID and a guess at your wallet password, so make sure you use a legitimate website that won't steal the funds they recover.

Is Lost Bitcoin the Same as Burned Bitcoin?

It's important not to confuse Bitcoin loss with Bitcoin burning, as the two are not one and the same.

Lost Bitcoin denotes BTC funds that have been accidentally misplaced. Burned Bitcoin, on the other hand, denotes BTC funds that are intentionally sent to an irretrievable wallet.

Many cryptocurrencies are burned systematically and in large quantities to hedge against inflation and keep the supply scarce. However, Bitcoin has no auto-burn process. Anyone can burn Bitcoin, but without burning a substantial amount, it's unlikely to make any difference to the asset's value or scarcity.

Billions in Bitcoin May Never Be Found

There are currently billions of dollars worth of Bitcoin that cannot be recovered, and there's a good chance these holdings never will be. Without the correct information, a Bitcoin wallet can quickly become completely off-limits to the owner, meaning the private keys held inside will forever be out of reach.

Make sure you keep your crypto wallet password and seed phrase safe to prevent losing your Bitcoin funds.