Cryptocurrencies are the big deal. But there are many ways to lose your hard-earned bitcoins. Knowing the most common ways to lose them may help you cling to your hard-earned crypto-treasures.
Not your regular bank account
To begin with, getting a hold of – and storing – bitcoins or other crypto-currencies is slightly more complicated than opening a bank account. The ledger is centralized but not the storage. And this is where problems begin. No one is going to look after your bitcoins in a highly secure facility. You are responsible for storage.
There are many sorts of wallets out there and they all hand you a complicated string of digits and letters. This is similar to your account number. Here’s mine: 0xa5EA624Aa0dF352928d9dD8955D1a46BFaE77011. Nope, I didn’t lose my mind. It’s not the secret part, you can even send Ethereum there (warning: I won’t send it back). But you won’t be able to access the wallet and steal my coins unless you have the private key.
Losing the private key
Whichever way you chose to store your coins, you need, at one stage or other, the private key to access the account.
In a bank, the key to open the safe is secure with the employees. Sometimes even out of the facility, for better security.
With crypto-currency, you hold that private key and how you get to lose your bitcoin depends on how uncaring you are with that key.
You may write the key and lose the paper, store it online and be hacked, put it on a USB drive and misplace it. The end result is always the same: if you can’t access the account, the coins are safe… from you… forever.
Losing coins due to storage
If you’re the hyper-connected, cloudy type, you keep your crypto-currency online. This may seem like the most efficient way to easily access the funds anywhere. Except that online wallets are prime targets for hackers. Marketplaces, such as Coinbase, store your newly bought currencies but encourage you to withdraw them right after delivery. Getting them offline is a lot safer… or is it?
The Hard Drive
If danger comes from outside, then storing locally, on the disk drive, may be a viable answer. You should just make sure you don’t discard your hard drive once the computer is outdated. This happened to James Howells who threw away (by mistake) an old hard drive containing 7500 Bitcoins. Only worth about $130 at the time, the dumped treasure in now worth anywhere between $47,000,000 and $120,000,000.
The hardware wallets
If going on a shopping spree with your hard drive feels cumbersome, get your hands on a hardware wallet like Ledger. It has the look and feel of a little USB drive and can host all sorts of coins and private keys. Once again, it is not human-error-proof. This Swiss citizen, walking around with his Ledger, had his bag stolen. You can’t say the funds are “stolen” (the thief can’t get them out of the account and they are still safely there). However, the owner can’t get to them either so they are indeed missing.
Another scam involving hardware wallet involves buying them from unofficial outlets (like eBay). The packaging can be tampered with and the retrieval seed (meaningless succession of words that gives you access without the private key) compromised. The coins are then available for transfer to the thief’s account.
Blockchain and crypto-currencies are very secure and reliable technologies. Human error (or human mischief) is almost always the source of the loss. The easiest way to lose your coins is to transfer them to another account and make a slight mistake when copying the account address. Technically, the coins are never lost: the blockchain makes sure every transfer is documented. But they’re not within your reach anymore… which is pretty much the same.
Is there a fool-proof process?
Hopefully, these examples have shown how careful and mindful one should be when dealing with crypto-currency. Safe storage of the private key and hardware are crucial.
Double-check of the address before transfer should be on the checklist too. Yes, it’s boring but it will save you hitting your head with something hard once you’ve discovered you have sent a lot of money to an unknown crypto-currency owner. If carrying coins around, it should only be small amounts and the bulk of the crypto-fortune should remain locked up.
If all else fails and your private key or password have disappeared in a deep dark corner of your brain, fear not. There is now a new type of professionals to lift your spirits. Not IT experts, not hackers but crypto-hypnotists to probe your mind in search of the precious private key. If all else fails.