What is a Dead Wallet in Crypto?

What is a Dead wallet?

A dead cryptocurrency wallet is one that has stayed dormant for a long period of time. Dead wallets hold crypto assets but haven’t sent or received any transactions for years. Dead wallets can occur due to the loss of wallet keys, holders holding long-term investments, or even the demise of the wallet owner. 

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Key Takeaways

• Dead wallets are wallets that have stayed inactive for many years during which they haven’t sent or received any transactions but are holding crypto assets.

• Dead wallets might be due to an investor holding their assets for the long term, an investor dying without handing down their wallets, or an investor losing their wallet passwords and passphrases. 

• Dead wallets will come to life if their passphrases are found anytime or the investor decides to move their assets after a long hold.

• Dead wallets are different from burn wallets, which are inaccessible wallets or null addresses. Crypto assets sent to burn wallets are considered as being removed from circulation.

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A publication by Decrypt in January 2020 claims that about 3.7 million bitcoins will never move again as they are locked away (accidentally and intentionally) for good. This is because these crypto assets are stored in truly dead wallets or have been ‘burned’. In the case of ‘burned’ tokens, these are deposited in burn addresses to control asset circulation.

While coins in dead wallets are still counted towards the circulating supply, these inactive cryptocurrencies are likely to be never moved again, rendering them essentially nonexistent with no impact on the market sell pressure or supply/demand friction.

How Are Dead Wallets Defined?

Put simply, a dead wallet is an inactive wallet. A wallet is considered inactive when it has stayed dormant for a (very) long time, say multiple years. The wallet must however be in custody of a crypto asset, else, it is more of an empty wallet than a dead wallet. Dead wallets are rampant, but the reason behind their inactivity varies.

In a normal scenario, a crypto wallet should receive and send transactions regularly, and when this is not the case, there are a few possible explanations.

An investor is simply locking up some investments with the hopes of coming back to them in the future when they are probably worth more. This could be within any period of time. During this time, the wallet stays inactive and is considered ‘dead’ due to a zero record of on-chain activity. However, once the investor adds more assets to their holdings, the wallet becomes active.

Another reason behind dead wallets is the loss of the wallet’s private keys. This could be due to poor storage or the accidental demise of wallet owners without the transfer of wallet keys. As blockchain technology makes private keys the only point of access to a crypto wallet, the loss of private keys renders the wallet inaccessible and inactive. 

Can a Crypto Wallet Expire?

Crypto wallets cannot expire. Even if a wallet is inactive for years or decades, the integrity of a crypto wallet remains intact. Once a wallet is created, its details are stored for eternity on the blockchain, and the wallet can be at any time used by anyone who has the required keys. 

This is different from bank accounts, as in most systems, a bank account that stays dormant for a long time will undergo an activation process before it can be used again, but this is not the case for cryptocurrency wallets. 

What Happens to Crypto Assets in a Dead Wallet?

Cryptocurrencies or NFTs in a dead wallet remain intact until the wallet can be accessed. The wallet’s details can be obtained and verified on-chain via blockchain explorers like Etherscan, but the assets within can only be moved by anyone who has the private keys. If the wallet doesn’t get compromised through any means, an investor that has locked away crypto assets will be able to come back to an intact asset whenever they wish.

Is It Possible to Use Assets in a Dead Wallet?

If a wallet becomes inaccessible because the owner and sole holder of the private key has lost them or has passed away, the wallet is truly dead and the contents cannot be moved. For fungible tokens like bitcoin, there is almost nothing that can be done with the wallet and its contents. But there’s a catch for NFTs.

NFTs are blockchain art and can be displayed as such using the NFT’s address. In a publication made on his Twitter account, NFT enthusiast Cozomo de’ Medici announced the donation of 22 works from The Cozomo de' Medici Collection to the permanent collection of the Los Angeles County Museum of Art (LACMA).

1/ Announcing the first donation of on-chain art from a collector to a museum, and the largest digital fine art collection to enter a museum

22 works from The Cozomo de' Medici Collection have been added to the permanent collection of the Los Angeles County Museum of Art (LACMA) pic.twitter.com/6ePSznorrM

— Cozomo de’ Medici 🛡️ (@CozomoMedici) February 13, 2023

In what is a breakthrough for NFT technology, art museums are displaying popular NFTs in their facilities. The museum does not need to be in the custody of the art itself or the NFT wallet’s keys, but must ensure the proper acquisition from the artist or the collector. NFTs in dead wallets can therefore be donated to museums through a simple verbal proclamation. 

"Collectors will be delighted to donate dead NFT wallets to museums. Museums won’t have to do anything in order to accession or preserve the NFTs. The blockchain is forever and transfer consists of nothing more than the collector saying, “I give you this wallet.” Deaccessioning is impossible. And even better, so is theft! Dead wallets will be the only asset museums don’t even have to insure."

- Brian Frye, "Why Not Donate Dead NFT Wallets?", CoinDesk Consensus Magazine 

Got a dead NFT wallet? You could put it to use by walking into a nearby NFT-friendly museum and telling them to “have it”.

Until a similar program is adopted for fungible tokens, fungible assets in dead wallets are of no use, unfortunately.

How to Simplify Wallet Recovery in Case of Accidental Demise

Cryptocurrency investments could grow into a fortune over time, regardless of how tiny they are initially. As long as an investor stays alive, it is recommended that they ensure sole knowledge of their private keys, but this also means that if the wallet owner dies suddenly, they will be unable to hand over the private keys before their demise. Here are a few means to make the wallet discoverable in such unfortunate cases:

Multi-Sig Crypto Vaults

Crypto vaults are handy for the management of crypto assets owned by multiple individuals. They provide an extra verification and approval system for crypto assets and therefore an extra layer of security. Multiple-signatory vaults require approval from all or majority of the signatories before approving a transfer. The key advantage here is that vaults do not use the private key system, and the risk of totally losing access to crypto assets is avoided when using vaults.

Using vaults also means possible delays of withdrawal requests and extra fees. When using vaults for the purpose of preserving assets, you can store huge-value assets in the vault and use personal wallets for managing routinely used assets.

Legally Bound Clues

One way to make it easier to recover crypto investments after the holder’s demise is by including hints about your crypto investment in your will and also clues of where to find the keys or the wallets. It is recommended to make this cryptic and with hints which are personal to intended kin.

Written Passphrases

Writing down your passphrases on crypto steel and hiding them in secret places, such as a safety deposit box, gives your surviving kin a chance to find them sometime in the future. 

Dead Wallets vs. Burn Wallets

Coin burning describes the act of permanently removing a crypto asset from circulation. This is done by sending the asset to a ‘burn wallet’ or null address

Dead wallets and burn wallets share a number of similarities, where both contain crypto assets that cannot be sent. Truly dead wallets and burn wallets contain assets that are technically removed from active circulation forever.

However, dead wallets are actually personal wallets that are left inactive either on purpose or by accident, while burn wallets are null addresses created for removing crypto assets from circulation. By design, burn addresses don’t have private keys and their contents cannot be retrieved through any means, where assets sent to such addresses are really lost forever. Dead wallets on the other hand have private keys and are inaccessible because the keys were lost. Should the private key be found anytime in the future, dead wallets can come to life again, but this is not possible with a burn address.

Finally, dead wallets have owners, specifically the creator and the sole holder of the wallet’s private keys. Meanwhile, burn addresses don’t have an owner; they simply exist for burning crypto assets and removing them from circulation.

Final Thoughts

The rigid security system in blockchain networks is a double-edged sword. On the bright side, it keeps your assets safe when you manage your wallet details properly. On the other hand, you are the only one responsible for your assets and the storage of your private keys. This is unlike centralized systems, where there is an account recovery option through customer support in the event passwords are lost or compromised.

This security structure means that you are your own bank, and assets in your custody remain yours whether you can remember your keys or not. In the latter case, you’re unable to use your wallet, but the contents remain yours until someone else obtains your keys. While this is not the only reason behind dead wallets, it is the only true death scenario for cryptocurrency wallets.

Unfortunately, the known ways to prevent the total loss of a cryptocurrency wallet reduce the rigidity of the security offered by blockchain technology.

As the crypto space develops, better ways to preserve wallet details might emerge, as in Starknet’s Deadman Switch. As always, do your own research before choosing any crypto storage solution, and the contents of this article are only educational and not financial advice.