After seeing the UTXO age distribution above, many readers of Part 1 commented, “a large fraction of the oldest coins are probably lost.” This is a reasonable intuition. There were many reasons for BTC holders to transact in 2017 & 2018: a price rally and a pullback, the rise of ICOs, the BTC/BCH fork, new segregated witness addresses, etc. Coins which remain unspent for >5 years have a high likelihood to be lost forever. Can we make this intuition more precise?

Despite the richness of blockchain data, it’s extremely difficult to measure how much cryptocurrency is truly lost, as lost coins leave no trace in the blockchain. Lost BTC sits idly in the UTXOs of its last transaction, aging quietly as time passes. The problem is that so much BTC which is not lostlooks exactly the same on the blockchain.

Still, the UTXO age distribution does provide insight into how to think about lost BTC. The cooler-colored, older age bands can be thought of as low-pass filters which only allow the oldest coins to pass into them. As a result, they experience slower, less volatile changes than the hotter colored, younger age bands.

UTXO age bands are like geological strata: evidence of coins held some time ago, buried beneath layers of more recent transactions. Distinguishing lost coins from those dearly held requires unearthing subtle data from the oldest layers, from the deepest records of the blockchain.

The study of lost bitcoin is geology masquerading as data science.

We believe bitcoin loss occurred over two distinct “cryptogeologic” eras:

Systemic loss: a large cohort of BTC which was mined together and lost together in the earliest days of Bitcoin by Satoshi and the other first miners. (Bitcoin’s carboniferous period.) Incremental loss: BTC lost by individual users gradually over different periods of time.

We’ll show that the era of systemic loss has ended, and demonstrate that we are now in the era of incremental loss. Finally, we’ll estimate bounds on how much bitcoin is lost. Let’s turn to the data.

Early Systemic Loss

What was happening in Bitcoin in its earliest days in 2009? Answer: Almost nothing.

Satoshi published the original whitepaper in October, 2008 after working on the concept and the code for the prior couple of years. Satoshi mined the genesis block on January 3rd, 2009, and promptly released the first version of the bitcoind software (v. 0.1) on January 9th.

Very few people took Satoshi or Bitcoin seriously in those early days. Gwern Branwen’s excellent article Bitcoin-is-Worse-is-Better describes some of the initial negative reaction from “professional” cryptographers.

In the first days of Bitcoin, poor Satoshi was mostly mining alone, occasionally joined by other crazy people such as Hal Finney. The result was extremely low hashpower, as the chart below shows. Satoshi and the first miners were unable to exceed the minimum hashrate required to trigger an upward difficulty adjustment till the first days of 2010. The average time between blocks didn’t hit the target of 10 minutes until a month later, in February, 2010.

Despite the apparent stagnation above, there were still many, many blocks mined in 2009, and over 5M BTC was produced in this period by Satoshi and the first miners through 2011. That’s more than 23% of the all BTC that will ever exist. Where did it go?