Every asset, be it gold, fiat currency or even stocks, have a number of threats that can lead to loss or destruction, Cryptocurrencies are no exception. The digital assets are prone to loss just like any other asset by making even the smallest of mistakes.
Ownership of cryptocurrency is determined by the private keys to these assets and who holds them. Compared to centralized institutions where you can recover usernames and passwords by answering a few security questions or showing your ID. Unfortunately, this is not the case with crypto because the chances of regaining access to your digital assets after you lose your private keys are narrow or close to none.
The complex encryption of wallets makes it impossible for someone to access without the key. This is one hurdle that the crypto industry has been struggling to overcome – and in some cases, the consequences have been eye-watering costly.
Schiff loses it
Gold Bug Peter Schiff, one of the most renowned Bitcoin Skeptics is the latest victim of ignorance as he took to Twitter on January 19 to claim that he has lost access to his Bitcoin holdings.
This might be hard to believe, but Schiff does own Bitcoin and he had revealed it back in July 2019. He admitted to owning $100 worth of BTC, which he said he received as a gift. The cryptocurrency community, including crypto influencer Anthony Pompliano, in an attempt to win over one of Bitcoin’s biggest critics, started to send him donations that totaled $1811.
Now, Schiff claims that he has lost access to his wallet because his wallet has somehow gotten “corrupted” and that is why it won’t recognize his password which is being rejected. He believes that his password is no longer “valid.”
Lose your keys, lose your coins
Not many in the community would agree to Schiff’s claims as a crypto wallet getting corrupted is highly unlikely unless the device it is stored on gets damaged or infected in some way. Anthony Pompliano, Co-founder and Partner at Morgan Creek Digital, believes this was a case of a forgotten password and said:
“Same thing happens to your email if you’re irresponsible and forget your password, Peter.”
This is why private keys are so much more important than regular passwords. The above event is not so uncommon as a report from digital forensics firm Chainanalysis, shows that around 3.7 million Bitcoins were already lost by 2017 and the number must have gone up substantially by now.
The unexpected death of Gerald Cotton, the owner of Canada’s largest cryptocurrency exchange QuadrigaCX, in early 2019 itself saw £145 million of cryptocurrency locked in a digital wallet to which he reportedly had the only password.
The importance of private keys as a proof of ownership has also turned into a movement dubbed “proof of keys” that was started by Trace Meyer, a crypto-investor, to celebrate the 10th anniversary of Bitcoin’s Genesis Block. It posed the question as to whether digital assets exist since their value is only associated with the ownership of a private key.
Prevention is better than loss
While Schiff blames bitcoin for his loss, these incidents can be avoided with some healthy practices that involve taking some extra precautions while storing one’s crypto assets.
Modern-day companies offer multi-signature wallets, which require multiple parties to sign off on a transaction before it can be completed. The safest way to store one’s digital assets is by using a cold wallet, which has become hassle-free in modern times with plenty of affordable options available.
Besides using a secure wallet, it is also very essential to safely store the private keys. One of the most common ways to secure your private keys is by generating and printing a paper wallet. The safest method would be to store the keys in an offline storage device. There are a lot of options available and some even allow you to recover assets even if you lose your device.
For wallets that require an additional password to gain access, it is advisable to use a safe password manager, which is also available in plenty for all platforms. A good password is long and random. Some passwords need to be memorable, while other passwords can be conveniently stored in a password manager.
With the growing popularity of cryptocurrencies, the risk of losing your precious cryptocurrencies has also gone up significantly. It is vital that you upgrade yourself or you might end up like Peter Schiff, which not a feat many can endure. Especially those, who have a lot in line with their investment.