Millionaires locked out of their Bitcoin fortunes due to lost passwords

A San Francisco-based programmer who owns $220 million worth of bitcoins is now unable to access his money because he lost his password. While this doesn’t seem like that big a story, especially with how easy it can be to recover passwords with most services these days, Bitcoin’s decentralized nature complicates things for Stefan Thomas.

Unlike other, more centralized services, Bitcoin does not store the passwords of users such as Thoman in a central server, as part of this, it does it allow them to reset it should the user forget it. As such, Thomas now only has two guesses left before he’s locked out of his IronKey – a small hard drive that continues the digital certificates that will let him access his digital wallet that holes 7,002 bitcoin.

To be able to recover his money, Thomas’ IronKey gives him 10 guesses before it encrypts its contents permanently, eight of which he’s already used up.

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

Thomas isn’t alone in this regard. More than a few erstwhile millionaires have been unable to access the fortunes that they should have made from Bitcoin.

Forgotten passwords, keys led to lost fortunes

Bitcoin has made an extraordinary and volatile eight-month run. Even if its price has started to drop from its previous all-time high, it’s still made a lot of holders rich in a short time.

But the cryptocurrency’s unusual nature has meant that more than a few people have ended up locked out of their erstwhile fortunes as a result of lost or forgotten keys. Instead, they’ve been forced to helplessly watch as the cryptocurrency’s price has risen and fallen sharply, unable to cash out.

According to cryptocurrency data firm Chainalysis, around $140 billion worth of bitcoin, or 20 percent of the total number of the cryptocurrency, appears to be lost or otherwise stranded in digital wallets. Meanwhile, Wallet Recovery Services, a business that helps people recover their lost digital keys, confirmed that it has gotten up to 70 requests a day from people looking to recover their keys in January. This is thrice the number that it did a month ago.

Many of these have been into Bitcoin since the cryptocurrency’s early days a decade ago, when most people did not have any confidence that it would be worth anything.

“Through the years I would say I have spent hundreds of hours trying to get back into these wallets,” said Brad Yasar, a Los Angeles-based entrepreneur who has a number of desktop computers that contain thousands of bitcoin he mined during the technology’s early days. While those bitcoins are now worth hundreds of millions of dollars, Yasar is unable to cash them out as he lost the passwords to his hard drives many years ago.

Bitcoin’s decentralized nature punishes those who forget passwords

The dilemma face by Thomas, Yasar and others like them is a stark reminder of Bitcoin’s unusual technological underpinnings. While these help set it apart from normal money and gives it some of its most vaunted qualities, these also make it risky.

Traditional bank account and online wallets provide people the means to reset their lost passwords. But there’s no company to store or reset passwords in Bitcoin’s case. According to the cryptocurrency’s shadowy creator Satoshi Nakamoto, the central idea behind Bitcoin was to allow anyone in the world to open a digital bank account and hold their money in a way that no government could prevent or regulate. (Related: The government is coming for your Bitcoin.)

This is made possible by the cryptocurrency’s structure, which is governed by a network of computers that have agreed to follow software containing all of Bitcoin’s rules. Included in this software is a complex equation that enables the creation of a unique address and associated private key known only by the person who created the wallet.

This structure allows the Bitcoin network to confirm the accuracy of transactions without seeing or knowing a user’s password, removing the need for a central server or institution to serve as an identity check.

But this structure does not account for how bad people can be at remembering their passwords, let alone securing them.

“Even sophisticated investors have been completely incapable of doing any kind of management of private keys,” says Diogo Monica, co-founder of cryptocurrency security start-up Anchorage.

Thomas says that he was drawn to Bitcoin in part because it’s outside the control of any country or company. In 2011, he was given 7,002 bitcoin by another Bitcoin fanatic as a reward for making a video called “What is Bitcoin?”

But that same year, he lost the digital keys to his wallet. Since then, the cryptocurrency’s value has soared and fallen, but he hasn’t been able to get his hands on his money. This has soured Thomas on the idea that people should be their own bank and hold their own money.

“This whole idea of being your own bank – let me put it this way: Do you make your own shoes?” he said. “The reason we have banks is that we don’t want to deal with all those things that banks do.”

For more on the problems with the concept behind Bitcoin, follow BitcoinCrash.news.

Sources include:

MSN.com

Markets.BusinessInsider.com

NYTimes.com