Complex Made Simple

The horrors of forgotten Bitcoin passwords and the billions of dollars lost

FOMO is most aptly used to describe a Bitcoin investor who failed to capitalize on a crypto bull market and the millions he or she could have made. Worse is having the Bitcoins and not being able to access them

Bitcoins in lost wallets account for around 20% of the existing 18.5 million Bitcoins, worth a total of $140 billion Bitcoin has no company to provide or store passwords Many of the largest Bitcoin exchanges over the years have lost private keys or had them stolen

FOMO is the extreme guilt and fear felt when someone misses out on a boom, be it crypto, commodity, or stock related. 

It’s most aptly used to describe a Bitcoin investor who failed to capitalize on a crypto bull market and the millions he or she could have made. 

That’s one thing.

Worse is having the Bitcoins and not being able to access them.

Read: Bitcoin breaks $37,000,: A fairytale or is the crypto about to rocket?

Throwing your Bitcoins in the dump

James Howells from Newport, Wales, has offered his city council a 25% cut of his 7,500 bitcoins if it allows him to excavate the landfill where he accidentally threw it away back in 2013.

Howells’ bitcoins were worth around $275 million when trading around $37,000 at the time of his plea with authorities.

However, Newport City Council said in a statement that it was not allowed to excavate the site, warning of a “huge environmental impact on the surrounding area,” “without any guarantee of either finding [the hard drive] or it still being in working order.”

Howells had mined the Bitcoins over the course of four years when cryptocurrencies were still in their infancy and worth very little and threw the hard drive away believing he’d already backed up the files he needed from it.

Howells is not alone in his misfortune: The New York Times reported recently that Bitcoins in lost wallets account for around 20% of the existing 18.5 million Bitcoins, worth a total of $140 billion.

Wallet Recovery Services, a firm that helps recover lost digital keys, told the Times that it received 70 requests a day from users trying to access their digital wallets.

2 attempts left to retrieve billions

A programmer from San Francisco has revealed he has just two attempts left to unlock a cryptocurrency wallet containing hundreds of millions of dollars’ worth of Bitcoin.

In an interview with the New York Times, Stefan Thomas recently explained he was gifted more than 7,000 Bitcoin in 2011, in which year the digital currency opened at just 30 cents per coin.

He stored his cryptocurrency in a digital wallet and kept the private key (which gives the owner access to the funds) in an encrypted USB drive, known as an IronKey. The problem is, he has since lost the piece of paper containing the access code.

IronKey drives give users ten chances to enter the correct password before permanently encrypting the contents. So far, Thomas has tried eight of his most commonly used combinations, but to no avail.

“I would just lay in bed and think about it. Then I would go to the computer with some new strategy, and it wouldn’t work, and I would be desperate again,” Thomas explained.

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More Bitcoin horror stories

Gabriel Abed, 34, an entrepreneur from Barbados, lost around 800 Bitcoins now worth around $25 million when a colleague reformatted a laptop that contained the private keys to a Bitcoin wallet in 2011.

Hundreds of millions of dollars in Bitcoin were lost by crypto exchange Quadriga after the untimely death of its CEO, Gerald Cotten, who was the only person with access to the company wallets.

The reason so much Bitcoin has been lost is that the network is not overseen by any single entity, so there is no safety mechanism to prevent loss. If crypto owners choose to keep their holdings in a non-custodial wallet, forgetting the private key becomes a fatal mistake.

Other problems with Bitcoin password technology

Bitcoin’s unusual technological underpinnings set it apart from normal money. With traditional bank accounts and online wallets, banks like Wells Fargo and other financial companies like PayPal can provide people the passwords to their accounts or reset lost passwords.

But Bitcoin has no company to provide or store passwords.  It allows anyone in the world to open a digital bank account and hold the money in a way that no government could prevent or regulate.

This software also allows the Bitcoin network to confirm the accuracy of the password to allow transactions, without seeing or knowing the password itself.  

That has made Bitcoin popular with criminals, who can use the money without revealing their identity.  

But the structure of this system did not account for just how bad people can be at remembering and securing their passwords.

Some Bitcoin owners have outsourced the work of holding their cryptos to start-ups and exchanges that secure the private keys to people’s stashes of the virtual currency.

Yet some of these services have had just as much trouble securing their keys. Many of the largest Bitcoin exchanges over the years — including the one-time well-known exchange Mt. Gox — have lost private keys or had them stolen.