If you own Bitcoin, you’re probably very happy with your investment. The price has soared, people are starting to trust this cryptocurrency more and everything seems to be coming up roses. However, just like you can lose your traditional currencies when you lose your credit card or your wallet, you can lose your digital wealth if you forget the password to your digital wallet.
There is a story about a programmer who was left with two guesses to figure out a password that is currently worth about $220 million. The password will let him unlock a small hard drive, known as an IronKey, which contains the private keys to a digital wallet that holds 7,002 Bitcoin. However, he lost the paper where he wrote down the password for his IronKey and he is allowed only 10 guesses before it seizes up and encrypts its contents forever. His first eight attempts have been unsuccessful.
Is he the only one?
Even though many Bitcoin holders have become very rich in a short time, despite the coronavirus pandemic which has ravaged the world economy, there are quite a few of them that are locked out of their Bitcoin fortunes because they’ve lost or forgotten keys. That means they can’t cash in on their digital wealth. Actually, it’s estimated that of the existing 18.5 million Bitcoin, around 20 percent, currently worth $140 billion are in lost or stranded wallets. Companies that help users find lost digital keys claim they are receiving dozens of requests a day from people who wanted help recovering their riches, three times the number of a month ago.
Effort and stress
You can imagine the frustration of Bitcoin owners locked out of their wallets, especially those who have owned the coins since the cryptocurrency’s early days a decade ago, when few had confidence that the tokens would be worth anything. They invested in the best Bitcoin mining hardware and spent countless hours mining and now they are investing hundreds of hours trying to get back into their wallets. Some have, unfortunately, lost fortunes already because they lost or forgot their passwords.
How is Bitcoin different from traditional currencies?
Bitcoin uses unusual technological underpinnings, which set it apart from normal money and give it some of its most vaunted (and riskiest) qualities. Traditional bank accounts and online wallets, such as Wells Fargo, and other financial companies, such as PayPal, feature an option for people to reset lost passwords. On the other hand, Bitcoin has no company to provide or store passwords. The rationale behind the central idea was to allow anyone in the world to open a digital bank account and hold the money in a way that no government count prevent or regulate. Bitcoin is governed by a network of computers that agreed to follow software containing all the rules for the cryptocurrency. The software includes a complex algorithm that makes it possible to create an address, and associated private key, which is known only by the person who created the wallet.
The software also enables the Bitcoin network to confirm the accuracy of the password to allow transactions, without seeing or knowing the password itself. In a nutshell, the system makes it possible for anyone to create a Bitcoin wallet without having to register with a financial institution or go through any sort of identity check.
What are the disadvantages?
It goes without saying that Bitcoin has become popular with criminals, who can use the money without having their identity revealed. It has also attracted people in countries like China and Venezuela, where authoritarian governments are known for raiding or shutting down traditional bank accounts. What the structure of the system didn’t envisage, though, is how bad people can be when it comes to remembering and securing their passwords.
Back to our programmer
Ten years ago, the programmer from the beginning of our story received 7,002 Bitcoin by an early Bitcoin fanatic as a reward for making an animated video, which introduced many people to the technology. He lost the digital keys to the wallet holding the Bitcoin the same year. Needless to say, he is devastated and claims that people shouldn’t be their own banks and hold their own money. After all, he says, “The reason we have banks is that we don’t want to deal with all those things that banks do.” He has put the IronKey in a secure facility in case cryptographers come up with new ways of cracking complex passwords. Keeping it far away helps him try not to think about it, he said. And that’s all he can do in an attempt to preserve his mental health.
It is clear that there is only one way to be able to use your cryptocurrency. Don’t forget or lose your password to your digital wallet and make it as secure as possible. Otherwise, you’ll not only find yourself unable to cash in on your investment, but you’ll also feel extremely frustrated, which is definitely something you want to avoid.
Dan Radak is a marketing professional with twelve years of experience. He is currently working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies. He is also a co-author on several technology websites and a regular contributor to Technivorz.