Stolen Bitcoin Mark Massive Share of Circulating Supply
Whilst centralised Bitcoin hacks have become less of an early technology hazard than in recent years, the money supply has been riddled with thefts and heists. Diar analysis shows that a whopping 10% of bitcoins circulating have been the victim of theft. But with a public ledger and companies that track movement of wallets with stolen goods, it may prove too difficult to withdraw into fiat as exchanges adhere to Know-Your-Client (KYC) and Anti-Money Laundering (AML) requirements. What this could mean however, is an additional sum of lost coins.
In early December, Bitcoin mining marketplace NiceHash was hacked and more than 4,700 BTC was stolen. While the news was treated as an innocuous event due to Bitcoin’s latest bull run and futures markets start, the hack was actually the third largest breach in Bitcoin’s history in US Dollar value at the time of the hack. NiceHash lost $63Mn at the time of the hack, which is only topped by the Mt. Gox and Bitfinex heists. The largest incident was the Mt. Gox debacle where $358Mn of funds disappeared from customers. The second largest hack was Bitfinex, which resulted in a loss of roughly $68Mn. Just the three largest thefts amount to approximately 774,500 BTC or roughly half a billion dollars at the time of these hacks.
The Bitcoin network itself has never been hacked and with the current technology, it is thought to be virtually unhackable. MIT Technology Review reported in November that quantum computers pose a serious threat to Bitcoin as they will be able to break the cryptographic encryption fairly easily. However, quantum computers are still not developed and when they are, all the existing encryption will be at immediate risk, not just Bitcoin.
The ecosystem’s largest weakness are the centralized institutions that hold users’ private keys. When the private keys are compromised, the bitcoins are forever taken as all the transactions are irreversible. All reputable companies now keep most of their funds in cold storage and secured vaults. Popular exchange Coinbase stores 98% of their cryptocurrencies offline. As Bitcoin’s value continues to increase, it is becoming a more attractive target to hackers – even a relatively small amount of Bitcoin can net a fortune making this blockchain network the biggest bounty in the world.
Diar has consolidated all the publicized Bitcoin thefts and found that at least 1.43Mn BTC were previously involved in theft, which is almost 9% of all the bitcoins in existence. This is a conservative estimate as it does not include undisclosed hacks or personal hacks of smaller quantities. If the bitcoins from Silk Road that were seized by the FBI were to be included, the amount would be more than 1.6Mn or about 10% of the existence. And according to a recent research from Chainalysis, a blockchain analysis company, at least 2.78Mn to 3.79Mn bitcoins are lost. These figures do not include hacked or stolen bitcoins. If the conservative estimate of lost bitcoins (2.78Mn) is subtracted from the bitcoins in existence, at most, 13.95Mn BTC are currently in circulation. Assuming that there is no overlap of lost and stolen Bitcoin, that would mean that a little under 12% of bitcoins in circulation were involved in theft or involuntarily appropriated.
Data Table: Stolen Bitcoins 10% of Current Supply
|Period||Description||Type||BTC Stolen||USD Value (Date of Theft)|
|Jun-11||Allinvain (user)||User hack||25,000||$ 500,000|
|Feb-12||Andrew Nollan Scam||Scam||2,211||$ 10,834|
|Mar-12||Linode||Cloud provider||46,703||$ 210,164|
|Apr-12||Tony76 Silk Road Scam||Scam||30,000||$ 160,500|
|Apr-12||Betcoin||Betting site||3,172||$ 15,638|
|Jul-12||Mt. Gox||Exchange||1,852||$ 14,816|
|Aug-12||The Bitcoin Savings and Trust||Scam||265,678||$ 2,922,458|
|Sep-12||Cdecker (user)||User hack||9,222||$ 114,353|
|Oct-12||Trojan horse||Virus||3,500||$ 41,650|
|Mar-13||Bitcoin Rain||Scam||4,000||$ 344,000|
|Oct-13||Silk Road||Asset forfeiture||171,955||$ 17,195,500|
|Oct-13||BASIC-MINING||Mining company||2,131||$ 332,436|
|Nov-13||BIPS||Payment processor||1,295||$ 1,010,100|
|Feb-14||Mt. Gox||Exchange||650,000||$ 357,500,000|
|Jan-15||796 Exchange||Exchange||1,000||$ 235,000|
|May-17||WannaCry Ransomware||Ransomware||52||$ 88,740|
|Dec-17||NiceHash||Mining company||4,736||$ 62,752,000|
|Excluding Silk Road||1,430,590||$ 529,681,103|
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