Nearly 4 million bitcoins have never been circulated in the market, and their market value may not reach 10 billion US dollars

It is said that 2016 is the year of blockchain, as the outside world is very enthusiastic about blockchain, a distributed ledger technology. At the same time, I believe everyone has not forgotten that the global cryptocurrency market has also developed rapidly this year.

As of mid-June, the value of blockchain currency in circulation reached 140亿美金. The price of Bitcoin also broke through its historical high, and it deservedly ranked first among cryptocurrencies. Between May and June alone, the price of Bitcoin rose by $300, reaching a high of 700美金.

The price of Bitcoin continues to rise, and many people believe that the market value of Bitcoin is equal to the value of Bitcoin. The current market value of Bitcoin (already mined) is about 100亿美金, which is even higher than the market value of Twitter, the world's most popular social networking site.

Some people believe that Bitcoin’s market capitalization is unclear because it is impossible to accurately locate all Bitcoins in circulation.

Given the definition of "zombie" Bitcoin - some holders buy Bitcoin to store it for long-term investment rather than for circulation, some market observers believe that the market status and trajectory of Bitcoin are elusive.

But this may not be worth mentioning, because defining the market conditions for Bitcoin is a common problem in the digital currency field.

What matters is how to value a virtual currency with a limited supply, a process that could affect its digital business future.

What is Market Cap?

To understand the importance of total capitalization to the market, you must first understand the definition of market value (market capitalization) and how to calculate it.

Traditionally, market capitalization is a measure of a company's assets, equal to the company's current stock price multiplied by the number of common shares it owns. The growth of market capitalization is often used as a key indicator of a company's operating conditions.

The problem in the Bitcoin market lies in how to define "outstanding shares."

Most market analysts define market capitalization in the traditional way, which is "the number of shares that were available for trading in the past two weeks." This definition is fine for most securities, but it has two inevitable loopholes for Bitcoin.

First, assuming that Bitcoin is a digital currency, this definition of outstanding shares ignores Bitcoins that are not in circulation.

In 2014, NVIDIA engineer John Ratcliff deduced that about 30% of Bitcoins were in a "zombie" state and had not been circulated for more than a year. This 30% of Bitcoins included those connected to inaccessible wallets, those seized by the government, those "burned" (Contract Coin, etc.), and those that disappeared in the early days (more than one million Bitcoins held by Satoshi Nakamoto).

Given the security and decentralized nature of Bitcoin, any attempt to retrieve these lost coins is futile. Therefore, even if these Bitcoins exist, no one can use them unless you hold the private key.

The bitcoins mentioned above are not in circulation.

Whether intentionally or unintentionally, Bitcoin is kept dormant and cannot be part of the market capitalization.

Second, assuming that Bitcoin is a commodity, then the market value of Bitcoin is the short-term transaction gains, excluding long-term investment. But if this is the case, the market value of Bitcoin is only the current market circulation, not the total value. Then the market value calculated in this way is still inaccurate.

Stephen Holmes, CTO of IT company VirtusaPolaris Digital Banking Lab, believes that it is not appropriate to use market capitalization to estimate the value of Bitcoin.

Bitcoin is a store of value. Its advantage is that it has a limited supply, which makes it very different from fiat currencies because Bitcoin will not cause inflation and other problems due to excessive issuance. Scarcity is the true value of Bitcoin... and its price will of course change over time.

Security Question

One of the factors that influence the value of cryptocurrencies is their scarcity.

If cryptocurrency is considered a commodity, it should be an entity that can be traced back to its origin. But this is not the case. Every cryptocurrency transaction is stored and verified by the blockchain, and the immutability of the blockchain makes it futile to copy the currency.

However, this situation may be disadvantageous for novices.

For example, if a novice accidentally loses his wallet password or computer, he will lose the opportunity to obtain his bitcoins. Even if there is a wallet with storage function, investors will also worry about the custody of funds.

Chris McAlary, CEO of Coin Cloud, a bitcoin exchange and ATM company, said:

It's a double-edged sword. People use Bitcoin because it's not tied to the traditional banking system. But there are still some risks for newcomers. Successful Bitcoin companies always launch products that minimize risk.

Zombies and the Future

The "dormant" bitcoins have important implications for blockchain technology. They can be used to download digital goods, such as videos, music, and games, and these processes can be protected by the blockchain.

This will eventually lead to the prohibition of downloading and sharing in unauthorized mode (P2P mode).

However, this will also cause the problem of asset loss. If a product is sold in digital form, a recovery mechanism needs to be developed, which is currently impossible with blockchain technology.

Holmes said:

Any asset can be lost, and Bitcoin is no exception. The difference is that you have to store Bitcoin carefully, such as putting it in a Bitcoin wallet or directly in offline cold storage. Key management is still a major problem in the IT industry and a flaw of all cryptocurrencies.

In order to explore the true market value of Bitcoin, we must find the "missing" part and retrieve it. However, this seems unlikely.

But for some Bitcoin enthusiasts, this situation is totally fixable. Holmes said:

A few years ago, I lost the key to my safe. I carried the safe to several locksmiths but to no avail. Finally, I met a locksmith who opened my safe in two minutes. As long as the parties agree, both locksmiths and wallet crackers are a healthy development.