With the number of Blockchain wallet users steadily increasing every month and even Bitcoin ATMs springing up all over the world, the crypto arena is growing fast. All that despite Bitcoin’s recent drop in value and various hacks and heists that frequently shake up the crypto world.
In fact, the crypto scene seems to have reached its adolescence – growing fast, having all the world at its feet, yet going through unstable periods, mood swings, and sometimes spinning out of control.
Many benefit from Blockchain’s equalizing power that’s free of government meddling and bank fees. On the downside, it is deprived of the help those intermediaries provide, including protection against theft and fraud.
The fact that 3.79 million Bitcoins are already lost forever (amounting to 23% of the total Bitcoins in circulation) show that many people – and even the crypto community in general – still don’t know how to handle their digital assets.
As a result, cryptocurrency can be lost in a number of ways – not only through theft and fraud but also through careless handling and technological errors.
We’ve put together some of the most famous cases of losing cryptocurrency or access to it. We’ll also suggest ways to avoid these crypto misfortunes – so you don’t have to learn these lessons the hard way.
1. Passing away and taking your Bitcoins with you
As most cryptocurrency holders are young, only few have considered what will happen to their assets in case of death. However, there are cases of young bitcoin owners passing away without leaving a way for their families to access their wealth.
The most recent ‘scandalous cryptocurrency loss’ award goes to crypto millionaire Matthew Mellon. He died on April 16th at the age of 54, leaving more than 500 million dollars in cryptocurrency Ripple. Most likely, his family won’t be able to retrieve this money.
Mellon’s wealth is stored under false names all around the US in cold wallets – vaults that aren’t connected to the internet to avoid hacks or breaches. The millionaire’s assistant said that he was ‘paranoid about security’ and ‘trusted no one.’ As a result, no one else knows the codes to his wallets, and they were not mentioned in his last will and testament, so his fortune is as good as gone.
Matthew Mellon was an eccentric crypto millionaire who’s paranoia about his wealth lead to 500 million dollars worth of Ripple getting stashed away for good. Image Source.
How this could have been avoided: If Mellon had laid out instructions on how to access his fortune in his last will and testament, his heirs would now be in a much more favorable situation. If he wanted to avoid tax on inheritance or exclude intermediaries, he could have opted for a digital safe & heritage solution that would spread instructions to the recipients of his wealth after his death.
2. Thousands of Bitcoins lost in the trash
James Howells, an IT worker from Wales, is still famous for his catastrophic Bitcoin loss in 2013. His old hard disk containing a private key to 7,500 Bitcoins was accidentally thrown away during a cleanup.
As the years have passed, the value of his lost Bitcoin wallet has changed a great deal and now amounts to $50 million.
Recently his story went viral for attempts to excavate the landfill and dig through four years’ worth of trash to find it. Unfortunately for Howells, the local authorities didn’t allow the search due to environmental considerations.
James Howells offered the town of Newport 10% of the lost bitcoins’ value if they’ let him excavate the landfill. So far, his requests have been denied. Image Source.
How this could have been avoided: James could have avoided this calamity by storing his cryptocurrency smartly – e.g., by dividing his fortune between several cold wallets and creating backups for each of them. Additionally, he could have stored his access keys in an inheritable digital safe – a decentralized and bullet-proof means for protecting digital assets.
3. Cryptocurrency lost due to a technical error or bug
More than $300 million worth of Ethereum cryptocurrency was lost in November 2017 after a series of bugs in Parity – a popular cryptocurrency wallet service. A developer accidentally took control of the funds and then locked them up.
Unlike most cryptocurrency hacks, the money wasn’t deliberately taken: it was destroyed by accident. It seems that the developer accidentally stole hundreds of multi-signature wallets simultaneously, and then destroyed them in a panic while trying to give them back.
Parity had previously experienced another disaster when it was hacked and robbed of $32 million worth of Ether. Trying to prevent hackers from stealing more, Parity accidentally committed another technical mistake that affected the multi-signature wallets.
How this could have been avoided: Don’t store all your money in one online crypto wallet – instead, choose several providers hosted by different companies or keep your passwords in a hardware wallet. Make sure that every storage for your digital assets is among the safest cryptocurrency wallets out there.
4. Bitcoin owners robbed
In February, creator of cryptocurrency PRIZM, Yury Mayorov, was robbed of 300 Bitcoin worth $3 million at the time and $2 million today, as well as $20,000 in cash and three iPhones.
Cases of kidnapping and robbery of people involved in cryptocurrencies are becoming more frequent across Russia and Ukraine.
In another case, Russian cryptocurrency investor and YouTube blogger Pavel Makushin (a.k.a.Pavel Nyashin) committed suicide after bragging about his wealth on Youtube and being robbed.
How this could’ve been avoided: Many victims of crypto-related robbery became targets after publicly advertising their wealth. The crypto world still allows you stay relatively anonymous – so use this opportunity. This includes keeping your digital assets in a storage that lets you stay anonymous.
5. Bitcoins lost in hacker attacks
Some users keep a significant amount of their digital money in an exchange or another third party that acts as a custodian. But these accounts are more vulnerable to hacking.
Recently, Coincheck, one of the biggest cryptocurrency exchanges in Japan, confirmed that 500 million NEM tokens were stolen from its trading platform. The estimated value of coins stolen is $400 million making this one of the biggest exchange hacks in crypto history.
Even though Japan’s exchange refunded the affected users, hacks like this remind the crypto community that as long as it remains unregulated there’s no real protection for those affected by attacks. And, unfortunately, the thieves are rarely brought to justice.
Mt Gox, another Bitcoin exchange based in Japan, used to be also the largest in the world handling over 70% of all Bitcoin transactions worldwide. After the massive attack on February 2014, Mt. Gox lost about 740,000 Bitcoins (6% of all Bitcoin existing at the time), valued around $530 million at the time and close to $5 billion at today’s prices. It is presumed that most of the stolen bitcoins were taken from Mt Gox’s online (or hot) wallets.
The latest hacker attack happened in June 2018 and saw Korea’s Coinrail as its victim resulting in a theft of $40 million in various tokens from several ICO projects.
How this could’ve been avoided. This is an example of what can happen when users keep their digital assets within an exchange, instead of storing them safely in a private crypto wallet. Remember – exchanges should be used only shortly, for cryptocurrency trading.
6. Lost Bitcoin storage or password
Perhaps the most banal, but also the most common cause for lost Bitcoin, is misplacing its storage or forgetting the password. Much more often than being hacked or robbed, people forget their passphrases, their pins, or the location of their backups.
Cases of lost Bitcoin wallets are becoming increasingly frequent. There are services offering to find lost keys using high powered computers and algorithms and hypnotists helping their clients remember the password combinations. Of course – asking in return for a significant cut of the recovered trove.
However, hypnosis didn’t work for Mark Frauenfelder, a former editor at WIRED, who had to crack his Trezor wallet following the instructions by a “teenage coding wizard.” His story is still a rare success as he finally managed to retrieve his lost password.
How this could’ve been avoided: Don’t overcomplicate the way you store your assets and access keys – keep it smart & simple. Create a repeatable plan that you can go through without problems even in the middle of the night.
Don’t play the losing game
Even if there is a ‘Promised Land’ where all the lost Bitcoins go and wait for their owners to find them – so far we’ve no idea how to get there. All we can do is prevent our digital assets from falling through that rabbit hole.
These are some solutions that you can implement right now to make sure your crypto assets are stored safely while still within your control:
- Correct storage & asset management. From your first steps in the crypto game, follow the best practice for keeping your digital assets safe. In short – avoid storing your assets in online exchanges; divide your assets among several hardware wallets and create backups for them. Make this process tricky, but not too complicated for yourself to remember.
- Choose services that offer two-factor authentication. 2FA means that, on top of a password, an app or website requires a second method for signing in – e.g. something you know, something you have, or something you are. When using a cryptocurrency wallet or crypto exchange, make sure you sign in through 2FA – here’s how to set it up yourself.
- Take care of your inheritance. If a Bitcoin owner dies without passing on the private key, his heirs may discover his wallet only to realize that they’ll never gain access to the wealth inside. To prevent this, write down detailed instructions on where to find your private key and how to use it. To avoid situations when recipients fail to recognize a private Bitcoin key, entrust your crypto inheritance with an Inheritable Digital Safe like Digipulse.