stefan thomas is a smart guy. He is a cryptocurrency expert and served as CTO at Ripple (XRP -0.78%) for five years. he was paid with cryptocurrencies when you and I had never even heard of cryptocurrencies.
Once, he did a job where he was paid in bitcoin (btc -1.23%). Specifically, Thomas was paid 7,002 bitcoins. at the time, a single bitcoin was worth a few dollars. Thomas put all his bitcoins in a digital wallet. and then lost the password.
Reading: Bitcoin password lost
thomas saved his password in three different places. the first two are completely lost. his last hope is an iron key, an encrypted flash drive. no one can force an iron key. Even the company that makes the iron key, Kingston Technology, cannot force an iron key. that’s the way it’s designed. it’s military-grade hardware, impervious to all attacks. You are only allowed 10 attempts to guess the password of an iron key. after that, the encryption key is automatically deleted and the information is lost forever.
Fast forward a decade. the value of bitcoin has skyrocketed, from a few dollars to $38,000. and thomas still owns his 7,002 bitcoins. at that price, his coins are worth about $265 million. the password to all that money is in the ironkey flash drive. the problem is that it can’t remember what password you used for that drive.
You can get an ironkey flash drive for $128 on amazon. and that little sucker is tough. thomas has made eight attempts to unlock the device. it’s 0 out of 8. two more failed attempts, and the iron key erases all information on it. If that happens, Thomas’ digital wallet password (and his money) will be lost forever.
With $280 million at stake, it’s possible someday some brilliant hacker will be able to outwit that little device. so far that $128 breakout momentum is holding strong.
he is not the only one
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In 2013, the BBC reported that James Howells had thrown away a hard drive that he hadn’t used for three years. all of his information was on newer computers, so he threw it away. unfortunately, his virtual wallet password was on that hard drive and that hard drive only.
a couple of months after realizing what he had done, howells ran to the landfill to try to recover his hard drive. he was hoping he’d sorted himself into a tech stack and maybe he could find it. unfortunately his computer was “compressed” and “buried” along with the rest of the garbage.
He had the password for 7,500 bitcoins on that device, bought in 2010, when bitcoin was super cheap. Forget trying to find sunken treasure. you might want to go digging in a landfill in wales. the value of the unit if it can be found? $300 million.
how much bitcoin is lost money?
20% of bitcoin’s supply hasn’t moved in five years or more, according to cryptocurrency analytics firm chainalysis. the company refers to this horde of bitcoins (3.7 million coins, worth $148 billion) as “lost.”
While this is a shocking number, keep in mind that a substantial amount of dollars is lost all the time. Several years ago, CNN reported that states, federal agencies, and private organizations have $58 billion in unclaimed cash and benefits.
Therefore, it stands to reason that a large number of bitcoin assets acquired cheaply many years ago could be abandoned, lost, or forgotten about today. In fact, as an internet currency that requires password protection, bitcoin is much more complicated than having cash in your wallet. most of us would be stressed out at the thought of having millions of dollars in our house or on our person. and as long as the cryptocurrency assets are held on the internet, you have your access password.
protecting your cryptocurrency
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One way the cryptocurrency industry has responded to this fear is by offering custodial services, such as a bank. An institution wishing to trade bitcoin, or some other form of cryptocurrency, could engage with a brokerage such as coinbase(coin -6.49%) or gemini to hold the coins. These third-party custodians provide solutions such as “hot” wallets (online computers) or “cold” storage (offline computers). this is how gemini describes the process.
Online solutions are capable of greater speed and liquidity, as the use of a network connection allows automated access to the system. being networked, however, means they are more vulnerable to attacks launched over the network, resulting in the creation of unauthorized transfers or the possible compromise of signing keys. possession of a signing key is the only requirement to move funds.
Offline solutions are generally slower to execute per customer instructions because their key storage systems can only be accessed at their physical locations. however, the design of this solution significantly reduces the risk of unauthorized transfers…
The good thing about third-party escrow solutions is that it’s not the end of the world if you forget your password. coinbase has a whole page for people who need a new password. So if you want to buy crypto and you’re not good with passwords, I definitely suggest letting your broker hold the crypto for you.
Cryptocurrency assets are not guaranteed by the government, of course, so you may be out of luck if a broker gets hacked or stolen. Part of the appeal of cryptocurrency is that it is much more secure than cash or credit card transactions. it is encrypted, which makes it much more difficult to hack. but it’s not impossible.
When I think of a “bank”, I think of money kept in vaults. and “bank robbers” are masked men who use guns. but theft, like the rest of our society, is moving online. Cybercrime is estimated to cause $6 trillion worth of damage in 2021. It may be that cryptocurrency, and blockchain, will drive that number down.
Cryptocurrencies have been concerned with security from the beginning. After all, that is why Thomas and Howells lost access to their cryptocurrency. security protocols kept them out. so it may be that one day cryptocurrency, that currency maligned as dangerous, will be a safer online currency than the dollar, the euro or the yen.
