Cryptocurrency custody solutions have become a big business in recent years. Standalone storage and security systems designed to store large amounts of cryptocurrency on behalf of clients can attract institutional capital and retail investors waiting on the sidelines, simply because they remove the primary fear: losing access to irreplaceable funds.
Due to the decentralized nature of large blocks such as Bitcoin or Ethereum, when a user loses access to their wallet and does not have a backup of their private keys, the funds in them cannot be recovered. There is no central block that can be referenced and no one can control the blockchain to give anyone access to their funds.
Storing the private key can be tricky because it has to be kept away from hackers, but it remains close enough that the user can access it when needed. In solving the problems of managing cryptocurrency, many simply invested their money in cryptocurrency exchanges, which created such a huge demand for crypto services that the fifth largest US bank offered a solution.
While holding cryptocurrencies with a third party is often seen as a security risk, since that third party can be hacked, experts told Cointelegraph that custodians are the best option when it comes to lost coins.
Early adopters of cryptocurrency lost cryptocurrency in a number of ways, including hacking into the exchange. These security breaches led Bitcoin academic Andreas Antonopoulos to post the famous slogan “Not your keys, not your coins.”
How much cipher lost?
Cryptocurrencies can be lost in many ways, but unless someone admits to losing access to their funds, it is impossible to tell from the data on the blockchain. Most often, users lose access to the private key of the wallet, which allows them to access the funds in it.
There have also been cases where users have sent cryptocurrency to the wrong address. Again, due to the decentralized nature of the blockchain, there are no remedial measures to mine these tokens. Finally, users can leave without giving anyone access to their money.
Kim Grauer, Director of Research at blockchain research firm Chainalysis, spoke to Cointelegraph noting the loss of approximately 3.7 million Bitcoin (BTC) (currently worth over $140 billion). Grauer said this estimate is a bit outdated and will be updated with more research later this year.
Crypto assets are often considered lost after being dormant for a certain number of years. Although this method refers to coins that are not actually in circulation, it is incorrect. For example, in 2020, a wallet with 50 bitcoins, which was first withdrawn in February 2009, moved its funds to two addresses.
Michael Fasanillo, director of training and regulation at Blockchain Intelligence Group, which helps government agencies, cryptocurrencies, and financial institutions combat fraud, told Cointelegraph that it can be difficult to estimate the value of the lost coins because “those who have experienced losses are not always interested in sharing such the information “.
The 3.7 million figure represents about 20% of the bitcoin supply in circulation that Grauer believes could have an “economic impact that will affect the long-term price” of the cryptocurrency. Grauer added:
There is also a greater psychological impact. Perhaps people will be more reluctant to invest in bitcoin for fear of losing it, and then not recovering it.”
The Head of Chain Analysis added that this quality is not unique to the cryptocurrency ecosystem and “should not be out of reach for further adoption,” as there are “many ways to keep your cryptocurrency safe, whether in your own possession or in a stock exchange.” .”
Chris Brooks, founder of crypto asset recovery firm Crypto Asset Recovery, spoke to Cointelegraph noting that in his experience, people should be more concerned about leaving seeds or private keys in misplaced paper wallets rather than hackers or hackers. . scammers. Brooks said:
“You are more likely to move into a new apartment and lose your encryption password in the process than to be hacked.”
In March 2011, a Bitcointalk forum user created a thread trying to piece together the known missing BTC. While tracking the thread over time, it showed how many users have lost access to the cryptocurrency over the years.
Grauer of Chainalysis said that these losses could have a significant economic impact on the cryptocurrency ecosystem.