What Percentage of Lost Bitcoin is Recoverable?

Digital forensics firm Chainalysis.com made waves in 2017 when it claimed that nearly 4 million (somewhere between 2.78 - 3.79 million) bitcoin were lost forever.  In 2018 Unchained Capital, a Bitcoin financial services company, attempted to calculate the number of lost Bitcoin using a different methodology.  They came up with a similar number of lost Bitcoin.

Given that there’s no definite way to determine whether the private key for Bitcoin held at a particular address is lost, or whether its owner is simply holding that Bitcoin for future use, these analyses turn on the assumption that a certain percentage of Bitcoin that hasn’t been moved in years is controlled by private keys that have been lost.

This study provides an estimate for a related, but different question: Let’s take as a given that around 20% of all Bitcoin is lost -- what percentage of that Bitcoin might be recoverable, if its owners were motivated to find it, and if they followed best practices in their search?

We estimate that about 2.45% of lost Bitcoin is recoverable.  Using Chainalysis’ estimate, this gives us a range of between 68,110 and 92,855 Bitcoin that are recoverable. At current prices (a Bitcoin is worth approximately $41,500 as of April 20, 2022) this suggests that between USD $3 - 3.9 billion in Bitcoin is recoverable.

Doesn’t Simple Math Guarantee that Once a Bitcoin Private Key is Lost it’s Gone Forever?

A Bitcoin private key is simply a number between 1 and 2²⁵⁶.  As Bitcoin.com put it: “even the world’s fastest supercomputer... would effectively take forever to break just one wallet”.  

So, if the private key is lost, isn’t it impossible for all practical purposes to recover it?

The answer depends on whether the record of the private key has been destroyed -- or whether it has simply been misplaced or encrypted.

For example, in 2013 Butterfly Labs, a now-defunct company making Bitcoin mining devices, sent on to Wired magazine in hopes that the company would write a review.  Wired editors configured the device and eventually used it to mine just over 13 Bitcoin (you can see them on the blockchain here).  Wired then intentionally destroyed the private key, thinking that if they owner Bitcoin, it might introduce a bias into their reporting.  Assuming that no one copied the private key before it was destroyed (which seems reasonable, given that the funds have not been moved in more than 7 years), it is impossible (given today’s technology) to recover those funds.  They are permanently and irretrievable lost.

Consider, however, the case of a block of 50 Bitcoin that was mined on February 9, 2009, within the first month of the Bitcoin network.  Those Bitcoin sat unmoving until May 20, 2020, when they were moved to a different wallet.  Those Bitcoin would almost certainly have been considered “lost” in Chainalysis’ analysis.  No one has claimed responsibility for the move (which was worth around $450,000 at the time) so we don’t know exactly what happened.  But, it’s certainly possible that an early miner found an old hard drive and retrieved a wallet previously believed to be lost.

Consider, also, the much smaller case of Stephen Kaufman, who lost the password to a wallet containing 1.8 Bitcoin. He used a non-custodial wallet company called Blockchain.com, which makes it possible to download a wallet backup (essentially an encrypted version of his private key).  After providing CryptoAssetRecovery.com with a series of password guesses, we were able to find the password that decrypted his wallet backup, and allowed him to regain access to his funds.

What about Satoshi’s Bitcoin?

Satoshi Nakamoto, the anonymous creator of Bitcoin, is believed to have mined around 1.1 million Bitcoin in the first 7 months of the Bitcoin network’s creation. There are several explanations as to why Satoshi has not spent his / her / its Bitcoin, including the possibility that Satoshi is dead, doesn’t want to be identified, or that the private keys are lost.

No matter the explanation, it seems unlikely that these 1.1 million Bitcoin are likely to re-enter the money supply, and so in this analysis (like those of Chainalysis and Unchained Capital) we will assume that they are permanently lost, beyond the possibility of recovery.

The Use of Burn Wallets

Burning is used in different cryptocurrencies to accomplish a number of different goals.  In January 2014 a group of developers and backers of the token Counterparty burned 2,140 Bitcoin.  This was a mechanism to distribute Counterparty’s own token XCP, and you can read more about their thinking here.

Counterparty’s burn is the largest documented Bitcoin burn, but until 2018 the website BitcoinWhosWho.com tracked known burn addresses, and determined that around 2,761 Bitcoin have been burned to date. 

What Type of Lost Bitcoin is Potentially Recoverable?

On May 4, 2011, SgtSpike, a user on BitcoinTalk.org, proposed a new post called: Let's add up the KNOWN lost bitcoins.  He proposed: “If you've lost bitcoins (i.e. they're gone forever, completely unrecoverable), post how much you lost, and add it to the running tally.”

Users contributed to that thread as recently as March 2021.  Like many forums, it’s a messy thread, and at some point in 2018 users stopped any sense of continuing with SgtSpike’s original intent of keeping a credible tally of lost Bitcoin.  

However, the thread gives lots of examples of Bitcoin that is lost forever, and of Bitcoin that is potentially recoverable.  

On the “lost forever” front are stories of 

• corrupted hard drives containing private keys that were overwritten and formatted multiple times
• hard drives thrown away years before anyone realized that Bitcoin might become valuable
• software errors caused by user misunderstandings or bugs in early versions of wallets 
• coins intentionally sent to burn wallets
• amounts lost that were so small that even at today’s valuations you would make pennies an hour trying to recover them.

The stories of “potentially recoverable” tokens fall into essentially two camps:

• People who had encrypted private keys, but they weren’t able to find the correct password.
• People that had failed hard drives with private keys on them.

Generating an Estimate of the Lost Bitcoin that are Still Recoverable

In the Bitcointalk.org thread mentioned above, 72 forum posts report losing at least .5 Bitcoin.  (We have ignored losses smaller than .5 Bitcoin in this analysis). The largest of these (that we could document independently) was the loss of 17,000 Bitcoin by crypto exchange Bitomat.pl which lost its wallet file when an Amazon Web Services instance was rebooted.

Of those 72 posts, we determined that 10 are potentially recoverable -- that is, they list either failed hard drives (where they don’t specify that the hard drives are lost or formatted) or people with encrypted private keys.

Taking this as a sample of all lost Bitcoin, it appears that about 14% of lost Bitcoin is potentially recoverable.  We then apply two further discounts to this estimate:

• The probability that a lost hard drive has been discarded, and is therefore lost forever.  We estimate that 50% of these are drives have been discarded in the meantime.  Given that Bitcoin has appreciated quickly, it seems reasonable that many people holding substantial amounts of Bitcoin have kept old hard drives.
• An estimate of the probability of recovering either a lost password or a wallet backup on a problematic hard drive.  We know from our own work recovering wallets that with motivated holders of Bitcoin willing to share a wide range of password guesses, that we can decrypt about 35% of passwords.

This means that about 2.45% of lost Bitcoin is likely recoverable.