UPDATE: Earlier this week, Bitcoin surpassed the $16,000 mark. The cryptospace has become a frenzied environment flooded with speculators willing to give up thousands of their hard-earned dollars to help inflate what’s clearly a bubble.
Most of these speculators probably don’t even understand how cryptocurrencies work. Most don’t understand the potential implications of blockchain technology. Most are just following the herd, blindly pursuing riches toward the edge of the proverbial cliff. But again, perhaps they truly believe that Bitcoin is a safe-haven asset; a new form of gold.
What most of these speculators don’t know is that Bitcoin has a dark secret: 3.9 million coins have disappeared into thin air since 2009. And it will most likely happen again.
The blockchain may be impenetrable. It may be extremely theft-resistant. But like everything else, it is vulnerable to certain disasters that come with its own unique territory.
To be fair, precious metals and cash can also be stolen or destroyed. Holding or transporting physical assets are vulnerable to certain risks that exist naturally within their physical contexts. The theft and/or destruction of physical assets require a certain amount of measurable space, time, and energy.
But in the virtual world, where velocity and digital space is more or less immeasurable, or infinite, the risks are of a very different “nature.” Case in point: the disappearance of nearly 4 million Bitcoins:
Based on research by digital forensics firm Chainalysis, it is estimated that approximately 3.79 MILLION BITCOINS HAVE BEEN LOST.
With the price of each coin now beyond $10,000, it’s not farfetched to assume that many Bitcoin owners have lost everything, or nearly everything.
Chainalysis came up with this figure by conducting a thorough empirical analysis of the blockchain. As shown in the graphic above, Chainalysis reached their conclusion by segmenting the current supply of the digital currency based on transactional histories. The company used statistical sampling in certain segments to determine the number of coins lost.
Here’s the same data from another angle, one that shows “out of circulation” coins, mined 2 to 7 years ago, and belonging to long-term investors (designated as “hodlers”), many of whom got in during Bitcoin’s infancy from 2009-2010. Most of the lost coins belong to these holders.
These coins are permanently lost. They were not stolen. They were not in any way “hacked.” They just disappeared. Over $3.79 Billion worth of coins vanished!
And there’s nothing to assure anyone that Bitcoins won’t just randomly disappear. This is just one of the more unusual risks hidden within the cryptosphere.
For proponents of sound money, this scenario justifies one of the primary reasons why the digitization of money–as in the government’s “war on cash”–is so problematic.
SImply put, money that can be digitized can also be erased. Whether due to human error, cybertheft, technological glitch, or infrastructure collapse, your digital money can be lost in a matter of microseconds.
And if you don’t have the means or expertise to navigate that space–and most people don’t–then you are fully dependent on third-party institutions that do. In other words, you cannot truly exercise freedom over your money and wealth.
This also happens to be one of the stronger arguments in favor of tangible assets. Cryptocurrencies may possess the six main characteristics of money–durability, portability, divisibility, uniformity, acceptability, and limited supply–and perhaps they excel fiat currency with regard to some of these characteristics.
But they are not tangible; and tangibility is the critical weak point of all cryptocurrencies.
Disrupt tangibility and you disrupt accessibility. And without the means to access your money, all of the remaining characteristics of money are rendered meaningless.