Blockchain intelligence platform Chainanalysis revealed in November that 20% of Bitcoin currently in circulation has been lost at a value of about $25 billion. On May 11, Bitstamp used this data to advocate for offline storage and argue that this puts an upward pressure on the price.
Bitstamp: “That Makes Bitcoin Even Scarcer”
The data shows that around 20% of the circulating supply is inaccessible or has been destroyed. The price of a cryptocurrency depends on the ratio between buyers and sellers. If there is much more supply than demand, the price lowers and vice versa. As such a large percentage of the circulating supply is unable to be sold, there is less supply-side pressure. In theory, this adds momentum to the price rising.
Bitstamp said: “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.”
Bitcoins are lost when they are sent to incompatible addresses, including addresses for other cryptocurrencies. Alternatively, access to Bitcoins can be lost when a user no longer knows their private key. The Bitcoins are still in the network but will never be moved. James Howell hit the news when he asked his local council to dig up a landfill site to find his lost hard drive containing 7,500 BTC. This would have a current value of around $64 million.
However, while Bitstamp may be concerned with the safety of private keys, concerns have been raised over the storage of passport details by exchanges and companies running ICOs. Simon Lange, founder of Liberal Coins, said: “You can see with one of our competitors that they do Know-Your-Customer (KYC) checks in-house. I am very concerned with the passport data out there. Usually with exchanges, they secure cryptocurrencies in cold storage but with user data, we do not know how they store it.” In January, eight South Korean exchanges were fined for various privacy violations involving user data.
There are a lot of blockchain use cases, such as Datum, that are trying to solve the problem of user data and allow users the ability to sell their data and control who has access. With regard to exchanges, Yoti is trying to solve the problem by providing users with an encrypted ID. Mark Hindle, Brand and Communications Manager, said: “We believe the current process is outdated. If you are showing your passport, you are showing your details. It does definitely open you up to the potential of identity fraud.” They are currently working on integrating with a number of exchanges but have only recently moved into the cryptocurrency sphere.
Chainanalysis, who provided the data, is a company that focuses on compliance and investigations regarding blockchain technology. They work with businesses and governments to turn the obscure data of cryptocurrency transactions into usable data. This means they can help track criminal activity and suspicious behaviour. They have shown that although Bitcoin transactions are pseudonymous, in some cases users can be identified. The IRS has been using their software since 2015.
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