Understanding Ethereum’s Elusive Supply

In recent times, Ethereum has witnessed a notable portion of its currency becoming inaccessible. Conor Grogan, the head of product at Coinbase, reveals that approximately 913,111 ETH, equivalent to 0.76% of the circulating supply of nearly 121 million coins, are now out of reach due to user mistakes or software glitches.

The Financial Impact of Locked Ethereum

Coinbase has reported the value of these inaccessible coins exceeds $3.43 billion at the current market rate. When considering the additional 5.3 million ETH that have been consumed by the network’s fee-burn mechanism, the total amount of Ethereum that is permanently out of circulation climbs to about 6.2 million ETH, roughly 5% of all issued tokens. This represents an astonishing $23.4 billion in value.

Coinbase Highlights Significant Increase in Lost Ether

As of March 2023, there has been a dramatic 44% increase in Ethereum lost to errors, climbing from 636,000 ETH to the current 913,111 ETH. This increase has been mainly driven by routine transactions to burn addresses and some historical errors.

Underestimating the True Extent of Lost Ethereum

Conor Grogan points out that this number likely underrepresents the actual total, as it does not account for forgotten private keys and dormant genesis wallets. For investors, these numbers offer a clearer understanding of Ethereum’s true scarcity. Unlike Bitcoin, which has a fixed supply cap of 21 million coins, Ethereum does not have a capped supply. However, these instances of burning and loss reduce the number of tokens available for use, potentially impacting market sentiment and prices, especially if demand remains stable or increases.

Significant Errors Contributing to Lost Ethereum

Coinbase identifies three major incidents responsible for the majority of the lost ETH. A malfunctioning Parity multisig wallet resulted in the loss of 306,000 ETH. Quadriga’s flawed contract accounted for 60,000 ETH, and a bug during the Akutars NFT minting process locked away 11,500 ETH.

Ongoing Risks and Mitigation Efforts

Since Grogan’s last update, only an additional 1,000 ETH has been mistakenly sent to a burn address. Although no new major incidents have occurred, every small error contributes to the overall loss. Developers working on Ethereum continue to face the risk of accidental burns or unclaimed funds. While smart contract audits and user-friendly key management tools aim to reduce these losses, human error cannot be completely eliminated. Therefore, tracking the rate of lost tokens is as crucial as monitoring trading volume or price fluctuations.

Ethereum’s Flexible Supply and the Impact of Burns

Ethereum’s transition to a proof-of-stake model in September 2022, alongside the London hard fork in August 2021, altered its issuance dynamics. From a peak of around 121 million ETH at the time of the Merge, the supply decreased by approximately 0.4% up until April 2024 due to reduced validator rewards and the effect of the fee burn. Subsequently, net issuance has risen slightly, bringing the overall supply back to 121 million ETH.