Bitcoin holders are getting richer as crypto prices skyrocket. But what if you can’t access your wealth because you lost your digital wallet password?
Stefan Thomas, a German programmer, has only two attempts left to enter the password to his crypto wallet, which is currently valued at $250 million.
The password will allow him to access a small flash drive from the manufacturer IronKey, which contains private keys to a crypto wallet containing 7,002 bitcoins.
Although the price of bitcoin fell sharply a couple of days ago, it has risen to a record high over the past month, and now it has almost recovered and is about 36 thousand dollars.
The problem is that about a year ago, Stefan lost a piece of paper where the password from the IronKey flash drive was written, which gives 10 attempts to enter the password, and then blocks access and encrypts the data forever. He had already used 8 out of 10 attempts, introducing options that seemed to him the most likely, but none of them turned out to be correct.
“I lay in bed and just thought about it. Then a new idea came to my mind, I went to the computer, tried it and it didn’t work, after which I again plunged into despair," says Stefan Thomas.
Bitcoin, during its extremely volatile eight-month period, has made many of its holders very rich while the coronavirus pandemic has ravaged the global economy.
But the non-standard nature of the cryptocurrency also means that bitcoin holders can easily forfeit their fortune simply by forgetting the password. They were forced to helplessly watch the price rise and fall, unable to take advantage of the situation and convert crypto assets into fiat currencies.
According to Chainalysis, 20 percent of the total 18.5 million bitcoins in existence today are worth about $140 billion and are held in lost or otherwise abandoned wallets. Wallet Recovery Services, a company that helps recover lost crypto wallets, says it receives 70 requests daily from people who want to get access to their funds, which is three times more than a month ago.
Bitcoin owners talk about endless days and nights filled with frustration trying to access their fortune. Many of them have been holders of bitcoins since the early days, when no one knew they would be worth anything.
“Years later, I can say that I spent hundreds of hours trying to regain access to my wallet,” says Brad Yasar, an entrepreneur who owns several hard drives containing thousands of bitcoins.
Now they are worth hundreds of millions of dollars, but he lost his passwords many years ago and put the hard drives in vacuum bags and hid them farther from view.
“I don’t want them to remind me every day that what I have now is just a fraction of what I could have,” he said.
This aspect is a vivid reminder of the non-standard nature of bitcoin and other cryptocurrencies, which distinguishes them from ordinary money. In the case of traditional bank accounts and virtual wallets, banks or other financial institutions can recover or reset the password after verifying the person’s identity.
However, a company that stores passwords from bitcoin wallets and could provide them in case of loss simply does not exist. The creator of virtual currency, shrouded in secrets, Satoshi Nakamoto said that the main idea of Bitcoin is to allow anyone in the world to open their own digital account and store money in such a way that no government can regulate them.
This was made possible by blockchain technology and a network of computers that agreed to use software that complies with all the rules for storing and exchanging cryptocurrency. This software contains an algorithm that allows you to create addresses and associated private keys that are known only to the creator of the wallet.
The software also allows the Bitcoin network to authenticate a password for a transaction without seeing or knowing the password itself. In short, the system allows anyone to create a bitcoin wallet without having to register with a financial institution or undergo any kind of identity verification.
Of course, this has made bitcoin popular among criminals who use it as a form of money that does not require identification. But it has also made it popular in authoritarian countries such as China or Venezuela, where the government can close or debit a bank account at any time.
The only thing that the creator of this ingenious system did not take into account is the psychology of people who do not remember their passwords well.
“Even sophisticated investors were completely unable to manage private keys,” said Diogo Monica, co-founder of Anchorage, a startup that helps companies secure cryptocurrencies. Diogo Monica founded the company in 2017 after helping a hedge fund regain access to one of his bitcoin wallets.
Stefan Thomas said he was attracted to the idea of bitcoin in part because it is not controlled by any country or company. In 2011, while living in Switzerland, he received 7,002 bitcoins from an early bitcoin fan as a reward for making the animated video “What is bitcoin?” which has helped many people become familiar with this technology.
That same year, he lost the keys to his digital wallet. Since then, when the price of bitcoin has skyrocketed and fallen, there is nothing he can do about it. Stefan became disillusioned with the idea that people should be their own bank and be responsible for their money.
“Do you make your own shoes? The reason we have banks is because we don’t want to do all the things that banks do,” says Stefan Thomas.
Other bitcoin holders have also realized the difficulty of managing their money and have outsourced the job of storing bitcoin to startups and exchanges.
However, some of these services have no less problems with protecting keys. Many of the largest bitcoin exchanges, including the once famous Mt. Gox have lost or had their private keys stolen in recent years.
Gabriel Abed, 34, an entrepreneur from Barbados, lost about 800 bitcoins – now about $25 million – when a colleague reformatted a laptop in 2011 containing the private keys to his bitcoin wallet.
According to Gabriel Abed and Stefan Thomas, any losses from mishandling the private keys are partly offset by the huge profits they made on the bitcoins they managed to hold onto. The 800 bitcoins that Gabriel Abed lost in 2011 were a small fraction of the tokens he has since bought and sold, allowing him to recently buy a 100-acre piece of oceanfront land in Barbados for more than $25 million.
Stefan Thomas said that he also managed to hold on to some amount of bitcoin, allowing him to make more profit than he can spend. In 2012, he joined Ripple, a cryptocurrency startup that aims to improve bitcoin. He was rewarded with Ripple’s own currency, known as XRP, which has since appreciated in value.
Ripple has recently been in legal trouble, in part because the founders had too much control over the creation and distribution of the XRP currency.
As for the lost password and not being able to access the bitcoins, Stefan Thomas has put the IronKey in a safe place in case cryptographers ever come up with a way to crack complex passwords.