Another factor that further muddies the waters around supply distribution is the number of coins that can never be spent because their Private Keys are lost, or they have been sent to a burn address.
Though there are some well-publicised cases where significant amounts of bitcoin have been lost, it is impossible to put an exact figure on the total amount of lost coins for any cryptocurrency.
Dormancy – a measure of how long addresses have been inactive – is the main hint that on-chain analysts use to calculate how many coins are genuinely lost. Studies estimate that around 3 million bitcoin are irretrievable, which equates to over 14% of the Maximum Supply.
This is an important consideration as price is a function of demand and supply. If the supply of available coins is actually smaller than thought, but demand is unchanged, existing coins become more valuable. This is another reason why Marketcap can be misleading, because it cannot account for lost or burned coins.
Intentionally burning Bitcoin – by sending to an address that is known to be irretrievable – is for obvious reasons, very rare. Burning coins is, however, an important concept in inflationary coins as way to counteract supply growth and the negative impact on price.
Unfortunately, burning generally happens as a manual action, without warning, because it is associated with price increases. Burning can be used programmatically to reduce supply inflation in uncapped cryptocurrencies.
As if measuring supply distribution data wasn’t hard enough, there is another crucial consideration impacting value, that raw data doesn’t account for, which is how coins can be shared out before a project is even launched.
If we compare crypto’s two dominant currencies – Bitcoin and Ether – were distributed at launch, we can understand why that is so important.
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