2020 Report on Fund Sources for Dormant Bitcoin Addresses

by the Crystal analytics team

Aug 04, 2020

Introduction

As of July 2020, there were over 10m bitcoins ($85b) accumulated in dormant bitcoin addresses with no outgoing transactions at all in 2019 (Coindesk and Medium).

On May 20, 2020, some of the earliest mined bitcoins were moved for the first time in 11 years (Crystal article). This, along with the number of addresses that haven’t activity for a long time prompted Crystal to analyze these dormant bitcoin addresses.

It’s hard to say the exact reason for this inactivity: perhaps the holders are waiting for the right time to sell their bitcoin, or perhaps they have just lost their private key and cannot gain access to their funds.

Whatever the reason, we can suppose that at this point, a big part of this accumulated bitcoin will never leave the addresses where they are right now.

If the Crystal analytics team considers the sources of the funds that were accumulated by these addresses between 2009 and 2020, however, we can gain a much better understanding of the fund flow dynamics. We can also hypothesize on the intentions of the entities involved, and even the potential reasons for this bitcoin address inactivity.

Crystal Blockchain is interested in analyzing fund sources for addresses like these as it can help law enforcement agencies when making varying assumptions in cases where funds were received from dormant bitcoin addresses. As well as that, given the significant amount of "silent" funds in these addresses, it's important to understand the origination of the funds.

While cryptocurrency regulations evolve, the dormant funds will become that much harder to cash out. The Crystal analytics team was therefore interested in what proportion of funds is shown in relation to the dark web or other illegal or "risky" types of activity.

Definitions and Limitations of Report

  • Dormant bitcoin addresses are bitcoin addresses that have no outgoing transactions for a certain period of time and have a non-zero balance.
  • In this research report, we worked only with dormant bitcoin addresses that have not had any outgoing transactions since January 1, 2015 (ie. no fund movements in the last 5 years and have a non-zero balance.)
  • As a focus group, we took all the dormant addresses that have not had outgoing transactions since January 1, 2015, that also have a balance >=1 BTC (approximately $9k as of July 2020.)
  • Unnamed owners/entities are entities unidentifiable on the Crystal analytics platform as of yet.
  • Risky activity or exchange means related to some illegal or fraudulent activity.
  • The date of data calculation for the report was July 21, 2020.

Dormant Bitcoin Address Distribution

To analyze the quantity and distribution of bitcoin in these dormant addresses, Crystal Blockchain split all dormant addresses into four groups depending on the balances held.

The ranges of balances for the analyzed groups are:

  • dormant addresses with a balance of less than 1 BTC;
  • dormant addresses with a balance from 1 BTC to 10 BTC;
  • dormant addresses with a balance from 10 BTC to 100 BTC;
  • dormant addresses with a balance equal to or more than 100 BTC.

The table below shows the distribution of bitcoin balances in dormant addresses by groups. Crystal Blockchain discovered that just 5% of the total number of all the dormant bitcoin addresses hold 98.7% of the bitcoin amount accumulated within the dormant bitcoin addresses.

This 5% is a group of dormant bitcoin addresses with a current balance equal to or higher than 1 BTC, as of July 2020. The total balance held by this group of dormant bitcoin addresses is 3,709,302 BTC and that total is accumulated in 121,435 different bitcoin addresses.

Distribution of Focus Group addresses by balance and number of addresses - July 2020:

IMAGE: The group of dormant addresses with a balance equal to or higher than 1 BTC will be the Focus Group for this report.

Leading Dormant Bitcoin Addresses

To determine the leading dormant addresses for the Focus Group, Crystal Blockchain observed two specific criteria that the addresses needed to fulfil.

The first determinant was the balance as of July 21, 2020.

See below a list of the top five dormant bitcoin addresses by balance:

The address 1FeexV6bAHb8ybZjqQMjJrcCrHGW9sb6uF had the largest bitcoin balance, as of July 2020. The balance was 79,957 BTC or about $745M, with just 329 transactions in total. We can't determine, however, whether or not this address has a private key in order to be able to withdraw the bitcoin, or if it was perhaps created to burn some cryptocurrency without the possibility of getting it back.

The top address - by balance - that we know definitely has a private key (ie. there have been outgoing transactions) is 12ib7dApVFvg82TXKycWBNpN8kFyiAN1dr. As of July 2020, the balance was 31,000 BTC or $289M, and it had completed just 103 transactions thus far.

The second determinant used by Crystal Blockchain for choosing addresses to analyze was the number of input and output transactions as of July 2020.

See below a list of the top five dormant addresses by the number of transactions:

While analyzing the top addresses by the number of transactions, Crystal Blockchain discovered that the lead address is 1111111111111111111114oLvT2. This particular address has completed 55,283 transactions to date and currently has a 70 BTC balance, but this address was also almost certainly created especially as an address for burning bitcoin with no private key (ie. it has no outgoing transactions and its hash is too complicated to have a private key.)

The top address by the number of transactions that definitely has a private key is 18GoSRDTdxPXBy7pXbwWTip5AWviqjJfD2 (ie. there have been logged outgoing transactions.) The number of transactions for this address so far is 14,085, with just 2 bitcoins as a balance in July 2020.

Source of Funds for Dormant Bitcoin Addresses

Now that we've established the Focus Group, we look at the sources of the funds that were accumulated within that group. When direct interactions are with addresses that have Unnamed owners we go further through interactions to find Known entities. We consider the interactions (via intermediate addresses) with Unnamed owners using the Crystal Monitor and Crystal All Connections features.

To study the fund sources, Crystal Blockchain analyzed all of the input transactions of the bitcoin addresses included within the same Focus Group. As of July 2020, the total bitcoin received by all of the addresses in the Focus Group between 2009 and 2020 amounts to 5,228,732 BTC.

The table below shows the amounts that the dormant bitcoin addresses within the Focus Group received from different entity types between 2009-2020:

The chart below displays the distribution of funds per entity source received by the Focus Group during the period 2009-2020:

The largest amount of funds came from Miners and Mined Coins at 54%, with 20% of the bitcoin coming from Exchange Services. 12% was received from Online Wallets, and 4% reached the dormant bitcoin addresses through Darknet Marketplaces. 2% of the bitcoin comes from Gambling, while just 1% of the sources are Mixers, Illegal Services, Ransoms, Stolen Coins, and Scams, and less than 1% comes from Payment Processors, Online Marketplaces, and ATMs. 5% of the bitcoin came from "Others" and "Unnamed" (ie. unidentifiable on the Crystal analytics platform as of yet.)

Focus Group received amounts from different entities (per year) in bitcoin:

Below is a visual representation of the Focus Group annual input amounts:

The biggest amount accumulated by the Focus Group was back in 2013 when a total of 1,285,479 BTC was collected. The smallest amount accumulated for the same Focus Group was in 2020 at 45 BTC. How did the fund source type change year-on-year between 2009 and 2020?

In the first two years of bitcoin, from 2009-2010, the Bitcoin Blockchain dormant addresses were receiving funds majoritively from Miners and Mined Coins, as well as Online Wallets, with a share of about 99.9%.

By 2015, about 60% of the funds received by dormant bitcoin addresses were mainly from Mixers and "Risky" entity types. This can be explained by the growth of popularity of blockchain analytics services (such as Crystal Blockchain) and therefore growth in popularity of Mixing Services among bitcoin users who were afraid of revealing the source of funds in their wallets.

Estimated Focus Group Received Amount (USD) vs. Approximated Balance Amount (USD)

To calculate how much money the dormant bitcoin addresses have earned by just "hodling" them all this time. We've compared the estimated received amount (USD) and the approximated current balance (USD). The estimated received amount (USD) was calculated by multiplying the received amount in BTC in all input transactions and the bitcoin rate at the moment of transaction. The approximated current balance (USD) was calculated by multiplying the balance amount (USD) in July 2020 along with the bitcoin rate for the same time period.

The focus group received $641M in total, while the estimated balance is $35B, which is almost 54 times larger. It can be interpreted then, that the earnings gained just by "hodling" the bitcoins in the dormant addresses are at more than $34B as of July 2020.

Cumulative Dormant Address Balance (USD) by Source Type

Crystal Blockchain also calculated the potential amount in USD lying in the dormant bitcoin addresses as of July 2020. For this, we took the sum of the total amount in the dormant bitcoin addresses (3,756,486 BTC) and distributed it in accordance with the source of funds share calculated for input amounts in bitcoin. As those bitcoins are still lying untouched, Crystal Blockchain converted them into USD using the current rate as of July 2020. The total amount of estimated bitcoins in these dormant bitcoin addresses in USD in July 2020 is $34,578M.

The following amounts (USD) are predicted to be resting in these dormant bitcoin addresses balances as of July 2020:

From these findings, Crystal Blockchain estimates that potentially $1.5B of the bitcoins resting in the balances of these dormant bitcoin addresses came from the Darknet, and potentially about $500M came from Mixers and other "Risky" entity types.

Summary of Findings:

  1. A total of 3,756,486 BTC is lying in dormant bitcoin addresses balances as of July 2020.
  2. 98.7% of this 3.7M+ bitcoin is collected in 121,435 addresses (just 5% of all dormant addresses) with a balance of equal to or higher than 1 BTC.
  3. 12ib7dApVFvg82TXKycWBNpN8kFyiAN1dr is the leading dormant address with an existence-proven private key (by balance). It has a 31,000 BTC balance.
  4. 18GoSRDTdxPXBy7pXbwWTip5AWviqjJfD2 is the leading dormant address with an existence-proven private key (by number) of transactions. It has participated in 14,085 total transactions in total.
  5. The biggest source of funds for the considered dormant bitcoin addresses is Miners & Mined coins at 54%.
  6. The share of all funds from Darknet sources to the dormant bitcoin addresses we considered to be 4%. (However, the potential amount lying in the dormant addresses received from the Darknet is $1.5B as of July 2020.)
  7. In 2009 and 2010 the biggest sources of funds were Miners & Mined Coins, and Online Wallets at 99.9%.
  8. The first addresses began accumulating meaningful fund sums from Exchange Services in 2010, the same year that the first Exchanges were created (BitcoinMarket.com, February 2010 and MtGox, July 2010)
  9. In 2015 the biggest source of bitcoin for the considered Focus Group was Mixers, along with other "Risky" entity types. The input was almost 60% of the annual sum (14,777 BTC of 25,561 BTC).
  10. The income amounts in dormant bitcoin addresses between 2019 and 2020 have been very low in comparison, and we can see the dominance of Exchange Services as a fund source (72% in 2019 and 89% in 2020). This could be related to dormant bitcoin addresses owners wanting to make their funds less "risky". In this way, they may avoid problems withdrawing the funds in the future as a result of the enhancement of regulation in the cryptocurrency market.

Conclusion:

  • Some of the information that came to light as a result of this analysis was expected, while other results were unexpected. It was surprising to see such asymmetric distribution of addresses and balances among dormant bitcoin addresses. For example, 5% of all addresses contain almost all of the balance of the total bitcoin amounted to these dormant addresses.
  • It was also revealing to discover that the share of Darknet sources is at just 4% for these dormant addresses. However, the approximated amount from the Darknet lying in the dormant balances $1.5B is quite high. The active use of Mixers between 2015 and 2016 was unexpected, but this can be explained by the growth in popularity of blockchain analytics services like Crystal Blockchain. The growth in the popularity of Mixing Services among bitcoin users was likely due to a fear of revealing the source of funds in their wallets.
  • The amount of earned USD just by "hodling", at $34B, is substantial. Even if a big part of this money has been lost, the total amount accumulated is still not pocket-change.

Predictions:

  • The number of dormant bitcoin addresses will reduce due to more complicated procedures for the withdrawal of funds, especially in cases where the funds are received from “Risky" sources such as Darknet Marketplaces and Mixers. As the Financial Action Task Force (FATF) enhances the regulation of virtual assets, there is no reason to hold your funds in case they are from some illegal activity.
  • The future incomes for dormant bitcoin addresses will be mainly from sources that are not seen as "Risky" such as Exchange Services and Online Wallets.
  • Some owners will try to reduce the risk score of their addresses in varying ways, while other owners understand they won't be able to withdraw funds if they are received from a suspicious source/s.
  • As bitcoin adoption continues to grow, there will likely be many more addresses that are left dormant.

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