The Actual Circulating Supply of Bitcoin: How Accurate Is It?
Bitcoin, the first and most prominent cryptocurrency, is widely recognized for its fixed maximum supply of 21 million coins. As of now, millions of Bitcoins have been mined and are considered part of the circulating supply. However, the question arises: does the reported circulating supply of Bitcoin truly represent the actual number of coins accessible and in use? This article explores the nuances behind Bitcoin’s supply and why the “real” available supply might differ significantly from the theoretical numbers.
What Is the Circulating Supply of Bitcoin?
The circulating supply of Bitcoin refers to the total number of coins that have been mined and are theoretically available for use in transactions, investments, or other purposes. This figure is derived directly from the Bitcoin blockchain, which records every mined Bitcoin and its corresponding transactions in a transparent and immutable ledger.
As of today, over 19 million Bitcoins have been mined, leaving less than 2 million coins to be mined before reaching the maximum cap of 21 million. However, this number does not tell the whole story about the true availability of Bitcoin in the market.
Factors Affecting the “Real” Circulating Supply
1. Lost Bitcoins
One of the most significant factors affecting Bitcoin’s actual circulating supply is the number of lost coins. Many early adopters of Bitcoin lost their private keys, making it impossible to access their holdings. Wallets that are permanently inaccessible still hold these coins, which remain part of the total supply but are effectively removed from circulation.
Estimates suggest that around 20% of all mined Bitcoins, or approximately 3.7 million coins, could be lost forever. This figure includes:
- Early mining rewards where private keys were misplaced.
- Wallets stored on hard drives that were accidentally discarded.
- Bitcoins sent to invalid or non-existent addresses.
2. Dormant Wallets
In addition to lost Bitcoins, a significant number of coins are held in wallets that have not shown activity for years. While these wallets are not necessarily inaccessible, their inactivity raises questions about whether the coins they hold should be considered part of the active supply. Some dormant wallets may belong to long-term investors (often referred to as HODLers), while others may belong to individuals who no longer have access to their private keys.
3. Satoshi Nakamoto’s Coins
The pseudonymous creator of Bitcoin, Satoshi Nakamoto, is believed to hold approximately 1 million Bitcoins in wallets that have remained untouched since their creation. These coins are widely considered to be out of circulation and are unlikely to ever be spent or moved.
4. Staking and Custodial Holdings
Large amounts of Bitcoin are held in custodial wallets by exchanges, institutional investors, and other entities. While these coins are technically in circulation, they are often not immediately accessible to the broader market.
Transparency of Bitcoin’s Supply
One of Bitcoin’s defining features is its transparent and decentralized nature. The blockchain provides an immutable record of every mined Bitcoin and its movements. This transparency ensures that the reported circulating supply is accurate from a technical standpoint. However, transparency does not account for coins that are lost, dormant, or otherwise inaccessible.
For example:
- Mempool and unconfirmed transactions: Coins involved in unconfirmed transactions are temporarily unavailable but still count toward the circulating supply.
- Long-term holdings: Coins in cold storage by long-term investors are technically part of the circulating supply but are unlikely to influence market liquidity.
Challenges in Estimating the True Supply
Estimating the true circulating supply of Bitcoin requires making assumptions about the status of dormant wallets and lost coins. Some key challenges include:
- Defining inactivity thresholds: Determining how long a wallet must remain inactive before its coins are considered lost or dormant is subjective.
- Uncertainty about key recovery: In some cases, individuals may eventually regain access to wallets they initially considered lost, returning those coins to circulation.
- Dynamic nature of the market: The availability of Bitcoin can fluctuate due to market events, such as exchanges moving coins or large transactions by institutional investors.
Implications for the Bitcoin Market
1. Scarcity and Value
The perception of Bitcoin’s scarcity is a key driver of its value. If a significant portion of the circulating supply is effectively inaccessible, the actual scarcity of Bitcoin may be even greater than commonly understood. This could contribute to upward price pressure as demand increases relative to the available supply.
2. Market Liquidity
The accessibility of Bitcoin is critical for market liquidity. Coins held in dormant wallets or inaccessible addresses reduce the amount of Bitcoin available for trading, potentially increasing volatility and impacting price stability.
3. Network Security and Miner Rewards
As Bitcoin approaches its maximum supply, transaction fees will become the primary incentive for miners. A smaller active supply could influence transaction fee dynamics and the overall security of the network.
Conclusion
The reported circulating supply of Bitcoin is an accurate reflection of the blockchain’s data, but it does not fully represent the coins that are actively accessible or in use. Factors such as lost coins, dormant wallets, and Satoshi Nakamoto’s holdings significantly impact the actual availability of Bitcoin in the market. While Bitcoin’s transparent nature provides a clear record of its supply, understanding its true scarcity and accessibility requires deeper analysis. As Bitcoin adoption continues to grow, these nuances will play an increasingly important role in shaping the cryptocurrency’s value and market dynamics.
This article presented by Loka Mining.
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