5 Stories About People Who Lost Their Bitcoin
If you lose your keys you can call a locksmith to open your door or car. There are 26,000 locksmiths in the U.S., so clearly there is a need for this type of service. If you lose the private keys to your crypto wallet you are out of luck. Bitcoin, as well as all other major cryptocurrencies that came after it, is built upon public-key cryptography, a cryptographic system that uses pairs of keys: public keys, which are publicly known and essential for identification, and private keys, which are kept secret and are used for authentication and encryption.
If you lose your private keys you will not be able to authenticate that you are the owner of the wallet and you won’t be able to do transactions to move or sell your cryptocurrency. Here are five stories about people that lost their private keys and what it cost them.
James Howells And His 7,500 Lost Bitcoins
James Howells, a Welsh I.T. worker, began mining Bitcoin on a personal computer in 2009. By 2013, he had mined 7,500 Bitcoin which is worth about $56 million today. In 2013, he stopped mining and sold the computer he was using for parts on eBay. He kept the hard drive with the hope that Bitcoin would rise in value. In 2013, when cleaning his house he accidentally threw the drive away and it, along with the rest of his trash was taken to the local landfill in Newport, South Wales and buried. Asked how it ended up in landfill, he explained that it was “thrown out into a bin bag during a clear-out in a case of ‘mistaken (hdd) identity’ in summer 2013. There were two HDDs in the same drawer, the wrong one got binned? s*** happens.”
The landfill reportedly contains about 350,000 tons of waste and 50,000 more tons are added every year. An article reported that “a council spokesperson said their offices have been “contacted in the past about the possibility of retrieving a piece of IT hardware said to contain bitcoins,” but digging up, storing and treating the waste could cause a “huge environmental impact on the surrounding area.” As of 2019 he still had not gotten permission from the local council, but he started offering to do one-hour phone interviews with journalists for a £250 fee paid in BTC or BCH.
Mark Frauenfelder And His 7.4 Bitcoins
In January 2016 Mark Frauenfelder was the research director at the Institute for the Future’s Blockchain Futures Lab. Mark was also one of the founding editors of WIRED. In his new job, he decided to get the first-hand experience with cryptocurrencies and bought 7.4 Bitcoin for about $3,000. He stored it in a web-based wallet. By November the value of his BTC had risen significantly and he was concerned about the security of the web wallet, especially after the Mt. Gox hack and the government freezing of BTC-e, a Russian bitcoin exchange. So he did some research and decided to purchase a hardware wallet from Trezor. When he set up the Trezor device he entered a 24-word passphrase to generate a private key. He also entered a five-digit PIN code. He wrote the passphrases and PIN down on an orange piece of paper. He transferred his Bitcoin from the web wallet to the Trezor device and threw the Trezor and paper into a desk drawer.
In a great piece of long-form journalism in WIRED, Frauenfelder explains what happened next:
I took the paper into Jane’s bedroom, stuck it under her pillow, and we took a Lyft to LAX.
It was 6:30 in the morning. My 14-year-old daughter, Jane, was in London on a school trip, and my older daughter, Sarina, was at college in Colorado. My wife Carla and I were getting ready to leave for the airport to take a vacation in Tokyo. As I was rummaging through my desk drawer for a phone charger, I saw the orange piece of paper with the recovery words and PIN. What should I do with this? If our plane plowed into the ocean, I’d want my daughters to be able to get the bitcoins. The coins had already nearly tripled in value since I bought them, and I could imagine them being worth $50,000 one day. I took a pen and wrote on the paper:
Jane, if anything happens, show this paper to Cory. He’ll know what to do with it. Love, Dad
(“Cory” is Cory Doctorow, my friend and business partner at my website, Boing Boing. He’s not a bitcoin enthusiast, but I knew he’d be able to figure out how to retrieve the master private key from the word list.)
Unfortunately during the week, he was gone the cleaning service that cleans his house had found the orange paper under the pillow — and thrown it in the trash.
Frauenfelder was not too worried because he knew that he could use the PIN code to access the Trezor and his Bitcoin. About a week later he booted up the Trezor, entered the PIN code he remembered and found out that it was the wrong code. He learned that the Trezor has a time delay every time a bad PIN is entered. The delay doubled with each failed attempt. Over the next few days, he tried variations of the PIN but failed. The time delay kept growing and growing. In late May, he tried hypnosis, but that too didn’t work. In August he received an email from Trezor about a firmware update. He went on the r/TREZOR Reddit thread and found some people that could exploit the firmware update. Through a lot of machinations, loading of an exploit, some soldering, and a fee of 0.85 BTC he was able to recover the PIN and passphrases and rescue his 7.4 Bitcoins.
Mathew Mellon And His Lost $500 Million Cryptocurrency
Matthew Mellon was a prolific crypto investor and especially noted for his investments in Ripple and XRF. Mellon was a direct descendant of Judge Thomas Mellon, founder of the Mellon Bank, and Anthony Joseph Drexel, a banker whose investment firm was a precursor to Drexel Burnham Lambert. According to a Forbes article:
Mellon got turned on to XRP, spending some $2 million to acquire coins, which he liked because it’s one of the few cryptocurrencies that are working within the banking system. “Crypto is scary and dark. It’s anti-America,” says Mellon, 54. “I am pro-America, pro-business and pro-bank. That’s why I went with Ripple.” Mellon’s XRP is worth around $1 billion.
Mellon died unexpectedly at age 54 in 2018. Unfortunately, he stored his private keys in cold wallets that were distributed in various banks across the country. He never told anyone which banks and where the wallets were stored or what the private keys were. As of 2019, there have been no reports of the wallets or keys being located.
Gerald Cotton & QuadrigaCX
In 2018, Gerald Cotten, CEO of QuadrigaCX.com died unexpectedly at age 30. At the time it was reported that Cotton was the only person who knew the private keys used to access Quadriga’s crypto. Bloomberg reported that “Quadriga was primarily run by Cotten, using his laptop, and his widow has described his normal procedures for transactions as moving “the majority of the coins to cold storage as a way to protect the coins from hacking or virtual theft.”
An investigation by Ernest & Young Ernst & Young identified six cold wallet addresses used by Quadriga to store Bitcoin in the past. Five of those wallets haven’t had any balances since April 2018, and a sixth “appears to have been used to receive Bitcoin from another cryptocurrency exchange account and subsequently transfer Bitcoin to the Quadriga hot wallet” on Dec. 3. The only activity since was an inadvertent transfer of Bitcoin into that sixth wallet last month, which was disclosed earlier.
The mystery of what happened to the $150 million of Quadriga crypto is still unresolved.
Elon Musk And His Lost Bitcoin
Even the famous Elon Musk is liable to misplace his crypto. As he reported on Twitter:
How To Prevent This From Happening To You?
Wherever you store your cryptocurrency, make sure that you are actually given PIN codes, recovery codes, seed phrases or the private keys and back them up.
If you do not have access to the keys to your account, think twice about keeping your crypto there long term. Whichever primary security mechanism you use — back it up somewhere else, preferably in a vault.
Check out vault12.com as a digital option.