January 13 (Business Insider) – Cryptocurrency enthusiasts praise bitcoin’s decentralized nature. Yet the imperfect methods used to secure the digital tokens are pulling millions of bitcoin out of circulation with little hope of recovery.
Bitcoin owners hold private keys necessary for spending or moving tokens. These keys exist as complex strings of data and are often stored in protected digital wallets.
Those wallets are then typically protected with passwords or authentication measures. While their complexities allow owners to more securely store their bitcoin, losing keys or wallet passwords can be devastating. In many cases, bitcoin owners are locked out of their holdings indefinitely.
Roughly 20% of the 18.5 million bitcoin in existence is estimated to be lost or trapped in inaccessible wallets, The New York Times reported on Tuesday, citing data from Chainalysis. That sum is currently worth about $140 billion. These bitcoin remain in the world’s supply and still hold value, but they’re effectively kept from circulation.
Put simply, those coins will stay trapped indefinitely, but their inaccessibility won’t change the price of the cryptocurrency.
“There’s this phrase the cryptocurrency community uses: ‘not your keys, not your coins,'” Jimmy Nguyen, president of the Bitcoin Association, told Insider.
For now, the adage holds true. Some exchanges such as Coinbase have some emergency 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 split on whether bitcoin should keep its rigid security methods or trade some of its decentralization for user-friendly safeguards.
Nguyen lands in the latter group. The cryptocurrency advocate argued that mechanisms should be created to allow users to recover inaccessible bitcoin in cases of forgotten passwords, estate transfers, and incorrectly addressed payments. The absence of such systems maintains a barrier between cryptocurrency enthusiasts and the population that hasn’t yet warmed to bitcoin.
“If I hold the keys to your house, it doesn’t mean I own the keys. I might’ve stolen the keys to your house. You might have lent me the keys,” Nguyen said. “It doesn’t prove who has ownership of that property or that asset.”
Maintaining the current method of storing bitcoin also cuts into its value, both as a new form of payment and as a security, he added.
“There is an inconsistency, if not downright hypocrisy – among the bitcoin supporters, because they want to advance this narrative that you must have the private keys for the coins to be yours,” Nguyen said. “If they want the value of the coin to grow because it’s growing in usage, then you have to adopt a much more open and user-friendly approach to bitcoin.”