The Inevitable Loss Facing Early Cryptocurrency Hodlers
Substantial amounts of digital assets are going to be lost forever over the next few decades. The first generation of crypto hodlers will be dying off and many of their holdings will die with them.
These losses, often caused by misplaced private keys or forgotten passwords, add an unexpected dimension to the concept of digital scarcity. Many have heard the famous stories of early adopters who discarded wallets and hard drives containing thousands of Bitcoin.
In truth, most incidents of lost cryptocurrency remain unreported. The early years of this technology were marked by few safeguards and poor user interfaces, which made human error almost inevitable.
Long before secure software wallets and hardware devices became the norm, people stored their private keys on old laptops, scraps of paper, or unencrypted files. Once these access methods were lost, so were the assets.
Even today most crypto holders don’t have a clear succession plan. Does someone else know how to access your memecoin portfolio or those NFT’s that are collecting dust on the ledger in your sock drawer?
Owners who pass away without leaving instructions for their heirs will contribute to this permanent loss. Without a proper succession plan or clear guidance, these digital holdings will never be recovered by future generations.
The current circulating supply of certain digital assets will never be matched again. For Bitcoin, which has a fixed maximum supply of twenty one million coins, the idea of scarcity was always central to its value. However, the ongoing disappearance of lost coins means that effective supply is far lower than any on-chain analyst figures suggest.
I believe that as much as 20% of all Bitcoin is already lost, and this figure may double over the coming decades. Satoshi’s himself is a prime example as the largest Bitcoin holder who is presumed dead and the keys to those wallets are lost forever.
It’s not just Bitcoin, I would suggest that many other digital assets that are near or approaching their max supply are also now deflationary due to this dwindling supply.
At the same time, adoption of digital assets is growing. More businesses are accepting cryptocurrency as payment, more investors are adding it to their portfolios, and more financial institutions are developing structured products for their clients.
As demand rises and supply quietly diminishes, a natural imbalance will form. Prices may increase dramatically because the number of coins available to trade will decrease. Over time, this could lead to uneven market dynamics which create the digital scarcity that was designed from the start.
There is a need for improved education on best practices for storage and password management. Users should consider tools such as multi signature wallets, which can go a long way to ensuring that successors can recover funds.
This disappearance of digital assets, although not often acknowledged, is turning many cryptocurrencies deflationary. The world is witnessing a dynamic where what was once considered abundant is now quietly becoming scarce. Over the coming decades, the combination of rising demand and declining supply may reshape the entire digital asset landscape.
