The real number of Bitcoin is lower than it seems.
Around 20% of all Bitcoin is lost. Make sure yours won’t be.
An important part of Bitcoin’s concept is that it has a fixed supply. There will only ever be 21 million Bitcoin and over 81% of that supply has already been mined. But the number of total available Bitcoin is actually much lower.
A significant amount of Bitcoin is lost forever. Because transactions are irreversible, sending Bitcoin to a dead address effectively destroys it. The coins still exist, but no one can use them and it’s impossible to get them back.
However, the main reason for loss of Bitcoin is improper storage.
There is now over 17 million Bitcoin in existence. Back in November 2017, between 2.8 and 3.8 million of it was already lost, according to blockchain intelligence platform Chainalysis. Under a valuation of $9000 per Bitcoin, that means at least 25.2 billion dollars’ worth of assets have been wasted. There is a fortune waiting somewhere on the Bitcoin network, but no one will ever be able to find it.
Most of these losses could be avoided with responsible storage of Bitcoin.
Keep your crypto safe
The internet is ripe with stories of people misplacing Bitcoin, from the guy who threw away a hard drive containing 7,500 coins, to desperate investors resorting to hypnotherapy to find lost passwords.
All of these losses could easily be avoided if people behaved with the same vigilance when storing Bitcoin as we do with traditional assets, like gold. In fact, just like with gold and paper money, the safest place to store crypto might be in a good-old safety deposit box. Because even though Bitcoin technically has no physical form, it can be stored offline.
The safest place for Bitcoin is offline
First, let’s make one thing clear: Bitcoin only exists on the blockchain. It can be transferred from one address to another, but it never leaves the network. When we say we store Bitcoin offline, what we actually mean is we write the private keys associated with the coins on some sort of medium and store those offline.
Bitcoin is accessed through a set of two keys: a public key, which is used to identify the wallet containing your coins and is visible to everyone, as well as a private key, which is known only to you and is necessary to access the coins. If the public key is the door to your Bitcoin safety deposit box, the private key is the combination that opens the lock.
Whoever controls the private key, controls the coins. Because of this, you can effectively store Bitcoin offline by writing the private key on a piece of paper (this is called a paper wallet) or storing it on an offline drive.
Using a paper wallet is safe as long as no pictures of it exist and no one sees the piece of paper it is written on. Storing the private key as a document on a drive, however, is definitely not safe. Any digital document is a potential target for hacker attacks. Even if you store your private key on a flash drive, you’re bound to connect that drive to a computer sooner or later — otherwise it would be useless anyway. If your computer is infected with malware, that could be all it takes to lose your coins.
Hardware wallets are the way to go for reliable crypto storage
To combat the problem of unreliable digital Bitcoin storage, specialized devices called hardware wallets were invented. Their functionality is similar to software wallets, which are usually hosted online. But hardware wallets, often referred to as offline ledgers, are made specifically so they can’t be hacked.
Instead of storing data on a traditional drive, most hardware wallets store private keys on a protected area of a microcontroller, so that they cannot be transferred out of the device by malware. This makes hardware wallets immune to viruses and hacking attacks.
When compared to paper wallets, this technologically advanced storage method has a distinct advantage in usability. If you write your private key on a piece of paper, you will have to manually input it into software at some point — like when you want to transfer your Bitcoin to an exchange. Hardware wallets can do that automatically.
Specialized apps are used to connect hardware wallets with software wallets or exchanges. It is important to note, however, that not every software is compatible with every hardware wallet.
Bitstamp supports simple Bitcoin deposits and withdrawals with Ledger and Trezor wallets. Even though we take the utmost care to protect our customers’ assets, we recommend storing your crypto offline on one of these devices. It is simply the safest option available right now.
Keep in mind, however, that you still need to store the actual devices in a safe place, like a safety deposit box. You don’t want to find yourself digging through landfills in a few years, searching for your lost stash of Bitcoin.
Since 2011, Bitstamp has provided millions of users with a robust and reliable entry point into the crypto universe. Register your free Bitstamp account and join us on a reliable journey through the crypto universe.
