It looks like the BTC system is gradually losing its influence on the market. The remaining 10% will stretch until February 2140. The issuance is getting tiny, and old coins are gradually going out of circulation due to natural reasons:
death of the owner;
computer breakage or destruction;
failure, loss or accidental ejection of the drive in the absence of backups, and so on.
There are many reasons. The drives retain the performance of 20-30 years, and people – a maximum of 122 years (under ordinary conditions on Earth, at normal speed and gravity). If paper money is printed every year to replace spoiled and lost banknotes, then in Bitcoin such a mechanism is not provided for.
In principle, there is nothing terrible here. Even if the global BTC reserves are reduced a thousand times, nothing prevents the introduction of three additional categories and calculated by smaller units, crushing Satoshi to any number of parts. At the moment, the cost of 1 Satoshi (0.00000001 BTC) is 0.042 cents or 3.1 kopecks, that is, there is still a supply. Moreover, on exchanges and in software, fractional units of the smallest digital assets, cents, kopecks and satoshi are used for accuracy.
However, to predict future trends, it is useful to know where the world’s BTCs are stored and what the rate of their disappearance is. That is, into how many pieces the remaining ones will have to be crushed.
The total number of wallets with non-zero balances grew by 23.2% last year, a fairly normal growth of the network in recent years.
The daily wallet activity is now about 275,000 addresses, which is roughly in the middle between bearish and bullish trends, but closer to bearish. However, this statistic is more interesting to intraday traders, because in the long run, activity cycles inevitably replace each other. The picture is similar for the number of transactions.
Only 24% of coins are on active addresses – exchanges and hot wallets. 76% of the total BTC supply is currently temporarily immobile (no movement for more than 155 days).
If you increase the period of inactivity to one year, the proportion of dormant coins is about 57%.
The proportion of dormant coins fluctuates within certain limits. However, it is obvious that lost/destroyed coins are in this category. And here their share irreversibly grows, and in infinitely distant prospect this indicator will approach 100 %.
As we said before, there’s nothing wrong with that, because the remaining coins can be re-crushed into pieces without too much trouble.
Now 6.3% of the total amount of BTC in circulation is stored on cryptocurrencies.
The rest lies in the hot and cold purses of the users. This is also where the irretrievable losses come in.
low technical knowledge
According to an estimate of the Parliamentary Committee on Financial Market, the Russians have invested in cryptocurrencies about 4.5% of GDP.
The situation is similar around the world, especially in countries with unstable fiat currencies. For example, the U.S. dollar lost 6.2% of its value over the past year, prompting ordinary people to look for alternative options to save their savings.
Naturally, ordinary users, rural dwellers and people of the older generation do not have very high technical knowledge. Therefore, the share of lost coins grows as this type of investment grows in popularity among the masses.
Divides the entire world reserve into three parts:
digital gold (savings);
The largest part of the coins lie in reserves like digital gold. These are the wallets of individuals and legal entities, from which small amounts (less than 25% of savings) have been spent over the past five years.
The lost include those that have not moved for more than five years.
According to Chinalysis statistics, the share of lost coins is now about 20% of all issued bitcoins, that is about 3.8 million out of 21 million. According to other estimates, the share of irrecoverable losses has already grown to 30%.
At the same time left to issue 2.1 million more. Thus, over the past ten years lost twice as much as will be issued in the next 120 years.
The loss graph looks roughly like the issuance graph, only in this case the money supply is shrinking by a few percent a year.
If we agree with the estimate of some analysts that in 2021 the amount of losses rose to 20% (21*0.2=3.8 million) and the percentage of issue to 90%, and every year from 2009-2021 the same proportion of coins were lost, then we can calculate the standard annual percentage of losses – and extrapolate it into the future.
The only difference is that the issue will end and the losses will continue. Given the increase in the number of users and turnover, this means almost inevitable deflation, which is not very pleasant for the economy.
Theft and human stupidity
Irreversible loss of coins is sometimes associated with theft and fraud. The fact is that the new owner is often unable to use the stolen coins because of their long prison sentence, confiscation, and loss of computer equipment, including drives and cold wallets.
For example, a few days ago a famous collector Todd Kramer had all his monkeys stolen from his Etherium wallet. The owner valued the 15 stolen Bored Ape Yacht Club NFT tokens at $2.2 million. Although art objects can theoretically be blocked at auction, but it is impossible in principle to “block” spent bitcoins, unless they have been sent to an exchange or other centralized service that will go along with them.
A total of 226 crypto incidents worth $12.1 billion were recorded last year in 43 countries, including Russia (Finiko fraud, $200 million).
In the early years of bitcoin’s life, news about lost drives, forgotten passwords and fraud caused bewilderment among some experts: “Are people really that stupid? But with time it became clear that there is nothing surprising here. This is a natural and adequate level of human intelligence. For example, 37% of Americans believe in ghosts and 82% of Russians consider GMO products harmful.
According to some experts, self-deception helps people stay mentally healthy, so it’s okay.
What drives are used for reliability?
Obviously, it is desirable to duplicate cold wallets on different drives and store them physically remote from each other to minimize the risk of loss in one event.
With multiple backups, the longevity of each individual drive is no longer very important; they are all periodically renewed. The most popular cold wallets are flash drives with encryption like Digital Bitbox, Trezor, Ledger, and KeepKey.
For example, a family of accidentally rich bitcoin millionaires from the Netherlands duplicated a cold wallet to five drives hidden on four continents in different ways (rented apartments, friends’ houses, bookmarks in nature, etc.). This is an example of an unconventional but logical approach. The point is to diversify the ways of reservation as much as possible.
In the usual situation, you can apply the usual backup techniques that are used for backups.
In theory, each redundancy element reduces the probability of node failure according to the formula:
where is the number of backup elements (decrease in reserve);
– probability of the element of the element ;
– the probability of the node of the node from elements (probability of failure of all elements).
Each person can choose the level of reliability that satisfies him personally. Some people need 99.9%, while others need five or six nines.
In principle, you can print the secret key simply on paper to expand the backup, you get a paper wallet. But this is a very unreliable method.
Can bitcoin survive a global catastrophe?
Gradual deflation is not a very pleasant phenomenon because it punishes a person for spending money. If money is infinitely more expensive, then even the smallest purchase will cost infinitely more when extrapolated into the future.
Can Bitcoin survive a man-made disaster, including blackouts and Internet outages?
Right now, most of the coins are stored on cold wallets offline, so a power outage is not much of a problem. Only a small portion of the coins that are on the hot wallets will be lost and will not be able to return to the network. Most likely, the share of lost coins will increase by a few tens of percent, which will cause some price adjustment.
Bitcoin is designed as a system that will continue to operate even after the internet has shut down. Even if all Internet traffic exchange points are completely destroyed and the Internet as normal ceases to exist, the most secure network nodes in remote locations will retain cross connectivity, perhaps using satellite equipment such as Blockstream.
Although the hash rate of the network in such a situation is sure to fall.
With maximum decentralization, it is almost impossible to completely destroy the network. Here is a map on bitnodes.io that shows the distribution of nodes around the world.
There are currently 14,806 nodes active. To destroy the decentralized network, it will be necessary to get to each of them. A node in the network can be controlled without an internet connection. Transactions are transmitted to the blockchain via any form of communication, including amateur radio, floppy disk, thumb drive, SMS or QR code.
Perhaps bitcoin is even better suited to work after the apocalypse than traditional materials like gold or silver. At the very least, digital assets are easier to hide from bandits and move from place to place. Especially if mesh networks based on protocols like LoRaWAN are deployed in inhabited areas.
It’s even interesting to see how blockchain synchronization will be done in the absence of the Internet: by radio, or maybe by courier, as in the cyberpunk classic “Johnny Mnemonic,” with gigabytes of files stored in the brain?