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Up to 30% of the Bitcoin Economy May Be Unrecoverable

Early mining rewards may be lost forever.

For the first few years of Bitcoin, 2009-2010, mining was a relatively simple computational task. Miners could use idle CPU cycles and generate Bitcoin. The value of the digital currency was low, less than $0.05, and mining was a hobby for computer geeks.

Back then, the reward for mining a block was 50 Bitcoin. Every 2 years the mining reward halves; today it is 25 Bitcoin.

Since the blockchain, or distributed ledger of Bitcoin transactions, is public, one can determine the exact balance of every address. However it’s important to note that because an individual can have many Bitcoin addresses and there is no personally identifiable information, it is not possible to determine how much Bitcoin any single owner has.

But here’s the revealing data, first published by Reddit user rutkdn: there are 38,399 addresses with exactly 50 BTC.

The logical conclusion is that each of these was an address setup by a miner in the first 2 years of the digital currency. The reward was paid into that address and no currency was ever added to it.

When you sum it up, there are 1.9 million Bitcoin in these addresses, or about $2 billion of value ($1.4 billion after last night’s sell off). And it’s highly likely that this money is unrecoverable. That’s 16% of the total number of Bitcoin available today.

In the early days, all Bitcoin were stored on personal hard drives and mining was performed using desktop software. Again, 50 BTC at the time was worth very little, maybe up to $1 or $2. So why would any miner go through the trouble of backing up their Bitcoin wallets when they could easily mine more the next day?

Many did not, and when those hard drives crashed or computers were thrown away, a lot of Bitcoin went to spoilage.

Related: You May Have a Fortune on Your Hard Drive: Recovering Lost Bitcoin

Here are some testimonials from Reddit by miners who lost Bitcoin this way.

One miner wrote:

Mine went back to Sony when hdd failed under warranty. Never bothered to save them – clicking and adding that weird path to the backup of my documents didn’t seem worth it. Back then even if I wanted to sell or buy, I’d have to navigate IRC or do cash-in-mail. They were practically worthless, except for the educational value.

Another miner added:

When I first heard about bitcoin, right at the end of 2009- I was mining ~400-700 a day for a week or two. plain old AMD tower

I never actually spent any bitcoin in exchange for products at the time nor managed to exchange them – All deleted years ago,hard drive gone, kaput, send to trash and god knows where right now.

it’s so easy in retrospect to say you would of just mined for a few days and held those coins for 4 years and be rich. You’d have to have some crazy self control and strange level of foresight to hold onto them. once you got wallet balance them what would you do with it? There was nothing you could buy with them, no exchanges just a few guys on IRC.

there was no economy, it wasn’t seen as a get rich scheme nor an investment. it was just a test of niche beta software with a tiny community of hackers and libertarians.

So, 16% of the total Bitcoin economy is stored in these early miner addresses. What about other losses? Well, it’s reasonable to assume that early Bitcoin owners who accumulated Bitcoin via trade may also have been susceptible to loss due to hard drive failure or file corruption. Maybe even 30% of the today’s Bitcoin economy will never be recovered.

Will increased scarcity make your Bitcoin more valuable?

CC image by Images_of_Money

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