Let the tale of poor James Howells and his lost cryptocurrency serve as a warning. In 2013, the Welsh information technology worker sold an old laptop he had once used to mine bitcoin and accidentally threw out the hard drive that held his coins.
Fast forward to today — bitcoin has been pushing record highs, and Howells has found that, as of the time that the Wired article was written, he threw away more than $75 million. He wants to dig for the drive in a landfill at Newport, South Wales, but it could be sitting under 200,000 tons of trash. And the city council won’t allow it due to the hazards involved, said Wired.
“‘It’s a little like looking at your bank account containing millions of dollars but not being able to spend it,'” Howells told Wired.
The Tragedy of Lost Cryptocurrency
Howells’ story isn’t unique. Wired also published the tale of Mark Frauenfelder — director of research at the Institute of the Future’s Blockchain Futures Lab — who nearly lost a fortune. He bought 7.4 bitcoins in early 2016, stored the bitcoin keys in an encrypted drive and then forgot the PIN. It took him many tries and a lot of hacking to recover it, and now he’s exponentially richer.
A recent study by Chainalysis found that between 2.7 million and 3.7 million bitcoins — about 17 percent to 23 percent of the total supply — have been lost forever, according to Fortune. At the current bitcoin exchange rate at the time this article was written, with one bitcoin worth about $16,200, that represents $43.7 to 59.9 billion of lost value.
Lost cryptocurrency isn’t limited to bitcoin, either. Earlier this year, an unlucky user accidentally destroyed more than $300 million worth of Ether — the currency used for the decentralized platform Ethereum. The developer Parity revealed that it had tried to fix a bug that allowed hackers to steal $32 million from digital wallets, but inadvertently created a second bug that let one user become the owner of all the digital wallets. In an attempt to fix this mistake, the assets were effectively locked with no feasible way to access them.
Safeguarding Digital Assets
Digital currency users face several threats, but a common mistake is not protecting cryptocurrency from hackers. That’s not surprising considering large-scale hacks, such as the disappearance of what was nearly half a billion dollars worth of bitcoin from Mt. Gox in 2014.
Losing access to your cryptocurrency is a potential threat as well. It’s important to realize that you’re responsible for the security of your digital assets. To avoid the scenario of lost cryptocurrency, here are some do’s and dont’s to consider, some of which came from the technology-focused website Di9it:
- Don’t keep a large volume of coins on an exchange you don’t actively trade on, as that could expose you to the danger of theft. The same applies to digital wallets on your phone or computer.
- Don’t ever share your private key with anyone or store it on an unencrypted device.
- Do use a cold wallet, such as a USB drive or other storage, to maintain a reserve of your currency offline.
- Do keep a copy of your PIN — as well as reminder words and numbers in case you lose the PIN — in a safe place. You should also consider keeping a backup copy in a fireproof safe or other storage.
- Do encrypt your laptop, phone and other mobile devices containing personal information, especially passwords related to your assets. Losing them could be disastrous.
- Do exercise caution with little-known cryptocurrencies, initial coin offerings and messages soliciting investment.
Taking a few basic steps like these can improve your digital hygiene and go a long way to making the cryptocurrency ecosystem a safer place. By sharing best practices, we can make cryptocurrency a secure store of value.