There are millions of Bitcoin in circulation today, with more than 19.6 million of its total, hard-capped supply of 21 million having already been minted. However, it's well known that a good chunk of these funds have effectively been "lost" forever, dropping out of circulation because the private keys used to access them were misplaced by their owners.
People often talk about the amount of "lost" Bitcoin, but in truth these funds are never actually lost. Because BTC resides entirely on the blockchain, a publicly distributed ledger that anyone can examine, it's always possible to track down the address where any token was sent. When we speak of "lost" Bitcoin, what we really mean is tokens that have become inaccessible, due to the nature of cryptocurrency and its reliance on private keys, also known as seed phrases.
Because crypto is decentralized, security is the sole responsibility of the owner. When someone creates a crypto wallet, it will automatically generate a seed phrase—essentially a string of 12 or 24 random words—which acts as the password to that wallet. The user is required to store this somewhere safe, and never forget it, as it is the only way that they will ever be able to access their wallet.
Should someone lose their wallet's seed phase, the funds within it will remain inaccessible forever, save for them beating the trillion plus-to-one odds of correctly guessing it. We don't think anyone has ever got that lucky, nor will they ever.
How Much Crypto Has Been Lost?
Nobody knows how much crypto value has been lost due to people forgetting or misplacing their seed phrases, but suffice to say, it is a staggering amount. What's more, there are some real horror stories involving Bitcoin owners who claim to have lost hundreds of millions of dollars' worth of tokens.
One of the best known cases is that of the software developer Stefan Thomas, who first bought BTC back in 2011 when one coin was worth less than $20. He claims to have acquired more than 7,000 BTC, worth more than $475.5 million at today's prices. To be safe, he stored his seed phrase in an IronKey flash drive, which is protected by a standard password. Unfortunately, it's this password that Thomas says he has forgotten, and despite multiple efforts and assistance from cryptography specialists, he has been unable to regain access to that flash drive.
A similar case involves the IT engineer James Howells in the U.K., who has spent the best part of a decade trying to retrieve a discarded hard drive that contains around 8,000 highly-coveted BTC, worth a cool $543.4 million at today's rate.
Howells reportedly lost his hard drive in 2013, saying it was accidentally thrown away with the trash, when the Bitcoin inside it was worth around $4 million—already a significant stash. Despite securing the backing of professionals who say they'll use a combination of expertise and high-tech equipment, and making numerous pleas to government officials to be allowed to try and excavate the lost hard drive from the landfill site where it's likely to have been disposed off, Howells has so far not been given permission to do so.
The above two individuals aren't alone in their plight, for a 2023 estimate by the Cane Island investment manager Timothy Peterson puts the total amount of lost Bitcoin at more than six million, which is a huge chunk of the cryptocurrency's total 21 million supply.
If Peterson's estimate is correct, it means that almost a third of all Bitcoin ever minted has been permanently lost, amounting to over $400 billion in value at today's rates. It's a staggering number and it's likely fairly reliable, as other studies, such as this one by TheBlock, also come to a similar conclusion. TheBlock simply identified that 29% of Bitcoin hasn't moved in the last five years, so it probably isn't all lost, as there are many long-term "hodlers" waiting for a rainy day, but it's likely that a good portion is irrecoverable.
What's more, Peterson cited a Cane Island study that shows how around 4% of Bitcoin's circulating supply is lost every year, highlighting how millions of dollars in value is hemorrhaged by Bitcoin users on an ongoing basis.
Replacing Seed Phrases with Account Abstraction
Seed phrases work very well in terms of the security they provide, ensuring that users truly do own their cryptocurrency. Because of the way it works, someone can never be prevented from accessing their fund, not even by government interference.
However, the lack of any contingency plan for people who do forget their seed phrase is extremely troublesome, and is often cited as one of the major stumbling blocks in the way of mainstream adoption of crypto.
This is why the adoption of new "account abstraction" techniques is so promising. Account abstraction has paved the way for "smart contract accounts," which are deployed on the Ethereum blockchain and controlled by computer code, replacing the need for a seed phrase.
The aim of account abstraction is to decouple wallet accounts from their seed phrases, creating what are known as "smart accounts" that can be secured with custom logic instead of a private key. In other words, users will be able to create a crypto wallet using a simple email address and password, and recover their account in the event that they forget this password. It's bringing the Web2 experience to Web3, and will be a game-changer for the crypto industry.
Benefits of Account Abstraction
Account abstraction provides a lot of benefits beyond simple wallet recovery. It can be thought of as a bridge between Web2 and Web3, bringing more user-friendly functionality to crypto wallets. The benefits include upgradeable security, with users able to protect their accounts through the use of a hardware wallet, biometrics and two-factor authentication.
It also simplifies DeFi experiences by streamlining token approval processes, so users can batch transactions and save on gas fee costs. In addition, more flexibility for gas fees is introduced, with users able to pay these transaction costs in any ERC-20 token, rather than ETH alone.
But it's the account creation and recovery process that's likely to make the biggest difference. One of the first wallets to eliminate the seed phrase is Ambire Wallet, which is one of the first and most popular account abstraction wallet apps in the crypto industry.
Ambire Wallet is a self-custodial wallet, so the user retains control of their funds at all times, with no one else ever able to access their account or censor their transactions. From the user's perspective, it provides a simplified experience that's similar to that of a centralized exchange such as Binance. The user signs up with an email, creates a password and they're good to go. It really is that simple.
Under the hood, Ambire Wallet achieves this using a multi-sig technique that involves two security keys. One of the keys is stored on the user's device and encrypted with the password, while the other is stored securely on Ambire's backend infrastructure. It's this that ensures users can always recover their accounts.
Ambire Wallet has already made a big difference. Since launching its account abstraction features, it claims to have helped its customers recover more than $186,000 worth of crypto funds using its simple email recovery process. If only Mr. Thomas and Mr. Howells had used Ambire Wallet, they would have saved themselves from years of trauma and regret and no doubt be living very different lives today.
No More Lost Crypto
Account abstraction is a dramatic evolution of wallet security that will ensure lost crypto funds become a thing of the past. Moreover, it simplifies the user experience. By bringing the simplicity of Web2 to its Web3 wallet, Ambire Wallet is revolutionizing the crypto user experience.
Basically, anyone who knows how to create an email account can now set up and secure a crypto wallet, and this capability will likely do wonders for promoting the mainstream adoption of crypto.
