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Reuters / Dado Ruvic
- The decentralized nature of Bitcoin has been one of its main selling points, but flawed storage methods have made millions of tokens inaccessible.
- It is estimated that about 20% of the 18.5 million existing bitcoins – worth around $ 140 billion – are lost or stuck in locked digital wallets, The New York Times reported on Tuesday.
- For now, these coins are effectively trapped behind incredibly complex encryption and forgotten passwords.
- Solutions may still come from cryptocurrency reform, Jimmy Nguyen, president of the Bitcoin Association, told Business Insider.
- Emergency mechanisms that can recover bitcoin in the event of forgetting wallet passwords or wealth transfers can make it a more “open and user-friendly” cryptocurrency, Nguyen said.
- Sign up for our daily newsletter, 10 things before the opening bell here.
Cryptocurrency enthusiasts praise the decentralized nature of bitcoin. Yet the flawed methods used to secure digital tokens are taking millions of bitcoins out of circulation with little hope of recovery.
Bitcoin owners hold the private keys needed to spend or move tokens. These keys exist as complex data strings and are often stored in secure digital wallets.
These wallets are then generally protected by passwords or authentication measures. While their complexities allow owners to store their bitcoin more securely, losing wallet keys or passwords can be devastating. In many cases, Bitcoin owners are excluded from their holdings indefinitely.
It is estimated that around 20% of the 18.5 million existing bitcoins are lost or trapped in inaccessible wallets, The New York Times reported Tuesday, citing data from Chainalysis. This sum is currently worth about $ 140 billion. These bitcoins remain in the global supply and still have value, but they are actually kept out of circulation.
Simply put, these coins will remain trapped indefinitely, but their inaccessibility will not change the price of the cryptocurrency.
Read more: CIO of $ 500 Million Crypto Asset Manager Breaks Down 5 Ways to Valuate Bitcoin and Decide to Own it After Digital Asset First Crossed $ 40,000
“There is this phrase that the cryptocurrency community uses: ‘not your keys, not your coins,'” Jimmy Nguyen, president of the Bitcoin Association, told Insider.
For now, the adage is true. Some exchanges such as Coinbase have disaster recovery measures that can help users regain access to forgotten keys or passwords. But exchanges are less secure than wallets and some have even been hacked, Nguyen said.
The Bitcoin community is now at a crossroads, where members are divided over whether bitcoin should keep its rigid security methods or trade some of its decentralization for user-friendly collateral.
Nguyen lands in this last group. The cryptocurrency advocate argued that mechanisms should be created to allow users to recover inaccessible bitcoin in the event of forgotten passwords, wealth transfers and misdirected payments. The absence of such systems maintains a barrier between cryptocurrency enthusiasts and the population that has yet to warm to bitcoin.
Read more: Julian Klymochko wakes up at 4:30 am to manage an ETF looking to profit from the SPAC boom. The Chief Investment Officer explains how the strategy works and shares 2 new PSPCs on his radar.
“If I hold the keys to your house, it does not mean that I have the keys. I might have stolen the keys to your house. You may have lent me the keys,” Nguyen said. “It does not prove who owns this property or asset.”
Maintaining the current method of storing bitcoin also reduces its value, both as a new payment method and as security, he added.
“There is inconsistency, if not outright hypocrisy – among bitcoin supporters, because they want to advance this narrative that you have to have the private keys for the coins to be yours,” Nguyen said. “If they want the coin to rise in value because it’s being used more and more, then you need to take a much more open and user-friendly approach to bitcoin.”
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