After seeing this error nearly every time I open the internet, it is worth reviewing the err that keeps getting echoed before it could actualize further risk. The correction is that:
There is not 21 million Bitcoin in circulation (and never will be).
sections
I. coins permanently exiting circulation
I.a doormat wallets – the ‘will never be’
I.b Satoshi Nakamoto’s wallets – the ‘never has been’
II. coin yet to be mined
III. what this means, irl
IV. what is this important for
1. coins that have permanently exited circulation
2. coins not yet mined
coins permanently exiting circulation
There is a sizable chunk of BTC that never has been and/or will never be accessible, this is due to a variety of causes. Two of which are rather accessible in this short format and are discussed here.
doormat wallets – the ‘will never be’
Due to the well established cryptographic security of Bitcoin, once a password to a Bitcoin wallet is lost, it is effectively never recoverable. If someone loses their password and has to resort to brute forcing their way back in, there simply is not enough time. It is more likely that the sun will die before the password is recovered (at least with currently known technologies, maybe adaptations of Shor’s algorithm can eventually open this can of worms).
Let’s add some historical context to this to expound on its importance. In 2009-2012 many of the early adopters simply did not know how massive Bitcoin would become and did not care too much about their wallets or passwords. This was a time where tens up to thousands of Bitcoin could still be mined on a desktop computer from the 2000’s decade. At that time Bitcoin was more of a fascination to everyone involved, rather than anything of a fiscal nature; it stood as a staunch academic crypto-anarchist stance against widespread bank bailouts of 2008 and was ideologically aligned with the stances that evolved into the Occupy Wall Street movement a couple years thereafter. It both highlighted the inequities in what was then called a ‘capitalist socialism’ system (encompassed by the “too big to fail” ideology; which meant that financial firms that took risks, who therefore incurred gigantic losses, were allowed to continue with capital injections from the government… and many facets of society were not enthused about these firms margin calls being paid for by the taxpayer), and a government imposed monetary debasement plan that citizens were not allowed to directly vote on. To share a personal perspective here I remember in the early days of bitcoin, when in late 2010, 1 Bitcoin initially peaked at 49 cents. The idea of ‘a Bitcoin’, only a self-referential collection of byte information on the local hard drive, being worth almost two quarters, was absolutely mind blowing and almost nonsensical for many of us at the time. Even then, many of us never really took it seriously until early 2013, when the price of Bitcoin briefly crossed $200 for the first time. This caused some folks to take it very seriously and begin accumulating, while most others painted this as a ‘tulip mania’ like event. At the time, the small amount of mainstream media coverage was speculating who was going to be the greater fool/last bag holder of this craze. Still, some others began taking it more seriously in late 2013, when the first Bitcoin ATM popped up in Canada and therein cementing Bitcoin as something with tangible fiscal value for the first time. This personal aside is really to just share perspective on how many folks ended up with tens, hundreds, thousands, or more, Bitcoin, that was just left in wallets with forgotten passwords. To simply state this historical aside in the most direct terms:
at that time nobody believed that a couple of files that they downloaded from the internet would be the singular turnkey answer to building intergenerational wealth if they only wrote down the passwords and let the files sit there for a couple decades.
This volume of Bitcoin that early adopters accumulated, but considered worthless (or near worthless) and subsequently forgot about, is considered to be lost forever.
In 2024, Rewallet published research that between 3,840,969 BTC to 5,495,045 BTC is likely lost forever. This was done by first identifying private individuals’ wallets that have not had a single transaction event in the pervious 5 years, and then doing the same for private individuals’ wallets without any transactions in the previous 7 years. The amount of Bitcoin in those wallets was then summed up to respectively get a value between 3.8e6 BTC (zero transaction events in 7 years) to 5.5e6 BTC (zero transaction events in 5 years). Technical aside, a wallet is established to be owned by an individual if if does not have the demarcations of professional custodianship. I find methodology is somewhat conservative, given the anecdotal knowledge that most folks who are holding onto their bitcoin (hodling) will typically have at least one transaction event in 2-4 years, typically depositing some more in, spending a tiny fraction, or divvying chucks to other personal wallets. This methodology also omits BTC under custodianship (E.G. exchanges, governments, company funds) that may have also permanently exited circulation, thus largely only identifying private wallets alone. Taking the mean of these two values (average of the 5 years doormat and 7 years doormat numbers) for our purposes here, we can estimate that 4,668,007 Bitcoin will never be available again and may be considered permanently lost. Earlier I stated that, in my opinion, this figure is conservative and this is for a number of reasons. The only one worth detailing here is that all Bitcoin transaction are completely irreversible (this is true under nearly all possible circumstances because reversing one transaction takes more compute than is globally available, in normal circumstances; though the owner of Binance, CZ, once asked the world to do that for him in 2019). It is an unfortunate truth that that anyone who accidentally sends BTC to the wrong address can virtually never get it back, and this sadly happens all the time. Most of the time it is the case that that wrong address does not exist, and may not exist for thousands of years. Over these previous 5 and 7 year periods there is a sum of BTC sent to wrong addresses that have not yet been included in this statistic. We will circle back on this effect later by referring to this as the “real supply decay“.
Satoshi Nakamoto’s wallets – the ‘never has been’
Satoshi Nakamoto is the pseudonym of the original developer/creator of Bitcoin. Nobody knows who this really is, and it is widely believed that their real identity will never be confirmed. Through extensive research Sergio Lerner found that, with an extremely high probability, Satoshi mined 1,814,400 BTC from 2009 – 2010. From which 665,600 BTC was sent to other wallets, thus leaving 1,148,800 BTC untouched. For a multitude of reasons it is a widely held belief of the Bitcoin community that Satoshi’s wallets will never send out any BTC again. To compound this there is Satoshi’s very first wallet, called the ‘Genesis wallet’, that was used for the very first bitcoin transactions. Over time, an interesting phenomena has emerged wherein people still send BTC to that wallet, and other wallets believed to be owned by Satoshi. You can look up Satoshi’s Genesis wallet at its address: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa and see that it started off with 50 BTC and is now at 100+ BTC because folks keep sending BTC to it. This remaining 1,148,800 BTC is unlikely to have been completely accounted for in the research by Rewallet.de, since these wallets continue to have these transactions. If the genesis wallet (and all other associated wallets) are in fact unaccounted for in the Rewallet.de research, this brings up the total sum of Bitcoin that has permanently exited circulation up by an upper bound of 1,814,400 BTC. Assuming all of Satoshi’s wallets were perfectly accounted for then the lower bound estimate of BTC that has permanently exited circulation would be 3,840,969 BTC (3,840,969 + 0). Assuming that it has not been accounted for then the upper bound estimate would be that 7,309,445 BTC (5,495,045 + 1,814,400) has permanently exited circulation. For the purpose of staying on the conceptually safe side of this thought experiment, I will just account for half of Satoshi’s original remaining BTC (the 1,148,800 BTC value) as unaccounted in the previous research. Adding this out our previous estimate, we create an estimate of 5,242,407 BTC (4,668,007 + 1,148,800/2) as having permanently exited circulation.
coin yet to be mined
The process of ‘mining’ Bitcoin can be simplified to the process of helping ‘validate’ Bitcoin transactions (legitimize them as having happened). Mining entities with large amounts of compute power use their resources to solve pseudo random computer problems that ‘solve‘ each Bitcoin transaction, once these problems are solved the Bitcoin transaction is considered validated and gets to go into the blockchain. For their troubles and electricity bills the miners get to (a) collect a small fee from each transaction AND (b) are given a little ‘reward’ of Bitcoin that has never existed. This is where the 21 million Bitcoin number comes from. Once the miners are rewarded with a total of 21 million Bitcoin, they will only be collecting small transaction fees and no more new Bitcoin will ever be released. Until then, the miners that are assisting the entire Bitcoin network transact will continue to unlock ever smaller factions of the 21 million total theoretical supply. The amount of Bitcoin that miners are rewarded with changes logarithmically over time (rewards grow tinier and tinier as time goes by) until there is 0 reward left; once that 21 million BTC is all given to the miners, there is 0 left and they will only get transaction fees since all of the remaining Bitcoin has been ‘unlocked’. On Feb 21st 2010 Satoshi Nakamoto explained the idea behind this mechanism he created (quote links to Satoshi’s original statement):
As of the moment of writing, there have been 19,908,300 BTC mined since Bitcoin’s inception in 2009. Due to the logarithmic nature of how miners are rewarded with new Bitcoin, the remaining 1,091,700 BTC will take a very long time to produce. Galaxy’s research forecasts that the final Bitcoin will be mined in the year 2140 or thereafter. The majority of that remaining 1,091,700 BTC will come into the available supply within the next 40 years. Over the next 20 years it is somewhat reasonable to assume that we may get to a total of 20.5e6 BTC having ever been produced.
what this means, irl
Of the 19,908,300 BTC that have been mined thus far, the rough back of the envelope calculation we did here estimates, 5,242,407 BTC is permanently out of circulation. This means that the current possible Bitcoin supply for circulation today is 14,665,893 BTC (19,908,300 – 5,242,407). If we take the estimated total amount of Bitcoin created at the end of 20 years (~20.5e6 BTC) and subtract out the low end estimate of Bitcoin that has permanently exited circulation (20.5e6 – 3,840,969) we see that the “real Bitcoin supply” of over the next 20 years will likely reach a maximum upper bound of 16,659,031 BTC. Notwithstanding the fact that only about 2,241,243 BTC is currently available via exchanges (not including OTC or private markets), the amount of total ‘on-hand’ supply estimates should be much smaller than the generally quoted 21 million. What I am calling the “real Bitcoin supply” is the total BTC created (via mining) thus far minus the total BTC that has permanently exited circulation. This number will shrink over time as (1) more and more people lose access to their wallets’ passwords and (2) continue to accidentally send BTC to non existent addresses. Completely based on gut instinct (aka almost nothing, lol) I would estimate that the amount of BTC that is lost forever due to these two mechanisms on an annual basis will surpass the amount of BTC coming into circulation via mining at some point in the next 40 years. After which time the total available real Bitcoin supply will begin permanently decreasing. For the purposes of simplicity I will call this “real supply decay“, because these two mechanisms will continue to permanently decrease the total available real Bitcoin supply.
what is this important for
Many investment firms and ‘financial experts’ create long term Bitcoin price forecasts, attempting to establish the ‘fundamental BTC value’, based on calculations that involve dividing by the total BTC supply. In this article we reviewed how the total BTC supply may be much smaller than typically quoted 21 million, and mayhap only be 73.67% (14,665,893 / 19,908,300) of 21 million when considering the real Bitcoin supply perspective. This means that current price forecasts that use the current total supply number and not the current real supply number may have more realist forecasts by increase their estimates by 35.74% (73.67% ^ -1). As we start to incur more real supply decay, that eventually overtakes the amount of BTC being mined, the 35.74% value should increase over time. While there are many other technical and nuanced reasons why this is important for the technical details of cryptocurrency implementation, security, and monitoring, let’s leave it at this rather straightforward case…
On a final closing aspect, a lot of talking heads and ‘crypto-bros‘ will tout Bitcoin as being anti-inflationary because its value against the dollar has historically been compounding at a rate of 150% annually. This is shorthand for the fact that investing in Bitcoin has historically averaged a positive a hedge against the inflation of USD (the long term BTC value increase is larger than the long term American dollar depreciation over the last 15 years). Though, that does not mean Bitcoin in and of itself IS anti-inflationary. Contrarily, it is a little ironic when one considers that the available BTC has dramatically spiked from just 50 all the way up to 19,000,000+ in the 2009 – 2025 time frame; this is the very literal definition of inflation, this is an explosion of supply. My argument for Bitcoin, in-and-of-itself, actually being anti-inflationary is this real supply decay highlighted above, wherein more and more Bitcoin will be permanently removed from circulation, thus continuing to remove BTC from the real Bitcoin supply we discussed here.
Thanks for reading this to the end, I hope that you have both learned something new and also have found definitive numbers for this new idea! Let me know if there are any other concepts that would be interesting to explore.
#tech
mitch.tech 