Bitcoin's exponential 1000 per cent rise this year has captured imaginations and led to warnings of a "bubble". Picture / 123RF
Alex could have been a millionaire.
In late 2009, when the digital cryptocurrency bitcoin was still in its infancy and a single PC could "mine" a few coins in a day, the self-described technology enthusiast "got into it just for fun".
"In the tech community we didn't think bitcoin would be that big," said the Melbourne game developer, who asked not to use his real name because "if my wife knows I'm dead".
"It was just applying our PC hardware to a global network, something novel. In the early days of GPU [graphics processing unit] mining, a single card could mine quite a few coins per day."
As it progressed, the bitcoin program grew to gigabytes in size.
"It kept on ballooning so eventually I deleted it [and] backed up the small encrypted wallet file to keep on my USB stick."
That "wallet" contained the unique cryptographic "keys" for the thousands of bitcoins Alex had mined.
"The thinking was that it's offline, not on my PC, so in case something bad happened to the PC — [if] it blew up, or [was] hacked — I still had a backup," he said.
Around the end of 2013, when the bitcoin price peaked at just under US$980, he suddenly remembered his wallet.
"[I plugged] the USB stick back in to try and access the file, but the stick died," he said.
Today, as the current price smashes through a new milestone of US$10,000, 1000 bitcoins works out to be worth more than US$10 million.
Alex puts the number of his lost bitcoins in the "thousands, plural".
"Worst mistake of my life," he said.
Unfortunately, Alex's story is not unique. As bitcoin mania reaches fever pitch, attention is turning to bitcoin's missing billions.
Of the more than 16.7 million bitcoins in circulation, nearly 4 million could be lost forever, according to new research from digital forensics firm Chainalysis, based on a detailed empirical analysis of the blockchain — the "digital ledger" which records all bitcoin transactions, and which gives the currency its value.
The study, reported by Fortune, concluded that between 2.78 million and 3.79 million bitcoins — 17 to 23 per cent of existing supply — are lost, amounting to more than US$30 billion.
Long-term investors who mined coins in the early days — known as "hodlers" — own the vast majority of lost bitcoins, according to the analysis, which also assumed all of the one-million-plus "original" bitcoins belonging to its inventor "Satoshi Nakamoto" are lost forever.
One big source of uncertainty is whether out-of-circulation coins in the hodler category are actually lost or just being hoarded.
"It's very easy to lose crypto," said Martin Davidson, co-founder of Melbourne-based not-for-profit Blockchain Centre and business development director at Blockchain Global.
"Bitcoin is a predetermined currency issuance system, so there will only ever be 21 million bitcoins created up to the year 2140.
"It started in 2009 with the currency issuance of 50 bitcoins every 10 minutes, and every four years it goes down by half. It went down to 25, now we're in the third phase where it is 12.5 bitcoins every 10 minutes.
"When bitcoins are produced, they have a private key associated with them. It works using key-pair cryptography — you have a public address and a private key that go together. The public address is what you use to send bitcoins, the private key is what you need to spend them.
"If you lose the private key, because of the mathematics involved and the strength of the cryptographic system, which is what makes it so safe, it's impossible to ever get it back. What's commonly happened is people have just deleted the file off their computer — the text document that holds the private key."
While many have made analogies with burning a $100 note or losing a gold bar off the side of a pirate ship, Davidson agreed that the ease with which bitcoins can be accidentally lost forever at the press of a button — particularly given how valuable they now are — can make people uneasy.
"Absolutely, that is one of the largest barriers to adoption," he said.
"What people need to understand is this technology was born out of the cipher-punk movement, using cryptography for people's individual freedom and privacy for protection against the state.
"It was never designed to be user-friendly, but obviously now people are investing hundreds of billions of dollars into these systems that are still nascent with respect to the usability and design of the applications."
In order to keep their keys safe, some users literally print them out in what's known as a paper wallet, but Davidson said the best option was a Trezor USB wallet, which retails for about A$170.
"They're known as the best in the world, the most secure. They have firmware on the device designed to keep your private keys safe, they can store bitcoin, Ethereum, some other currencies."
This is going to become the biggest bubble of our lifetimes by a long shot.
Bitcoin's exponential 1000 per cent rise this year has captured imaginations and led to warnings of a "bubble". Its current market capitalisation — the price multiplied by the number of bitcoins in circulation — is now nearly US$169 billion, according to Coinmarketcap.
On Tuesday, IG Markets chief strategist Chris Weston described the massive influx of retail investors getting into the cryptocurrency as a "mania" fuelled by press headlines and fear of missing out.
It came as Mike Novogratz, trader with Fortress Investment Group, told an industry conference investors should brace for "wild crashes".
"This is going to become the biggest bubble of our lifetimes by a long shot," he was reported in the New York Post as saying.
Meanwhile, legendary investor Jack Bogle, founder of Vanguard and pioneer of "passive investing" championed by the likes of Warren Buffett, also weighed in.
"Avoid bitcoin like the plague," he told a New York conference, according to Bloomberg. "Did I make myself clear?
"Bitcoin has no underlying rate of return. You know bonds have an interest coupon, stocks have earnings and dividends, gold has nothing. There is nothing to support bitcoin except the hope that you will sell it to someone for more than you paid for it."
The 88-year-old said it was "crazy" to invest in the currency.
"Bitcoin may well go to US$20,000 but that won't prove I'm wrong," he said. "When it gets back to US$100, we'll talk."
AMP Capital chief economist Shane Oliver last week warned that "every generation gets sucked in" to an investing craze like bitcoin, which Japan Post Bank chief investment officer Katsunori Sago has described as "worse than the IT bubble" of the late '90s.
Many have defended bitcoin, however, dismissing suggestions of a looming crash.
Leigh Travers, chief executive of Perth-based digital currency and blockchain advisory group DigitalX, put the long-term value of bitcoin on par with gold — or over US$400,000 — while others are keen to prove its real-world usefulness.
Brisbane-based start-up Living Room of Satoshi says Australians are already using bitcoin to pay A$1 million worth of bills every week, and a growing number of properties are being offered up for sale in exchange for the currency.
On Monday, a Cairns man put his massive 32ha property on the market for 100 bitcoin — nearly A$1.3 million — while a A$2.5 million Mount Macedon estate this week became the first Victorian property to join the crypto-craze.
"Bitcoin is real money," the vendor said in a written Q&A released by the real estate agent. "In fact, it's better than most other monies. Bitcoin is deflationary which can be hard to spend because it is constantly rising in value.
"I will accept the Australian dollar value [$2.5 million] at the time the property is settled. If the cost of bitcoin continues to rise then I will be getting less bitcoin. Because we already hold bitcoin, nothing could make me happier."
Alex, for his part, said if he "had the spare cash" he would consider getting back into bitcoin, which he believes is a "fantastic gold substitute for long-term storage of wealth" that also has many other useful applications.
Earlier this year, he mined "a lot" of Ethereum, the now second most valuable cryptocurrency which has similarly soared in value.
"One day, maybe Ethereum might restore what I lost with bitcoin," he said.
"I've invested in Ethereum, Ethereum Classic and a few other coins while they were still priced cheap. It's been good. But some days it's depressing to think of the thousands of bitcoins I lost because of stupidity."
Concerns about the US dollar have seen other currencies gain, including the NZ dollar.