Even those who follow crypto causally have heard at least one nightmare story of an early adopter throwing away a hard drive with a fortune’s worth of cryptocurrency stored on it. And nearly all crypto followers know this stat: According to the Wall Street Journal, about one-fifth of all bitcoin — or around $20 billion — is lost, most of it permanently.
If you count yourself among those who have lost their crypto, is there anything you can do? The answer is yes and no. As the U.S.’s recent recovery of some of the cryptocurrency paid to the Colonial Pipeline ransomware hackers, it is possible to get crypto back — but for the average crypto holder, it can be an extremely difficult process. Here’s what you need to know.
Why Is Crypto So Hard to Recover?
Though it is becoming as easy to use as a credit card, it is important to understand that unlike credit cards, cryptocurrencies feature no built-in consumer protection.
For example, if a consumer notices a strange charge on a credit card or bank statement, perhaps signaling fraud, they can simply dispute that charge in order to get their money back. Unfortunately, with cryptocurrencies, there are no chargebacks, and disputes do not automatically replenish funds in an account.
This is largely because crypto assets are not covered or insured by government-sponsored programs created to protect consumers and investors. The Federal Deposit Insurance Corporation (FDIC) covers all deposit accounts, including checking and savings accounts, for the standard amount of $250,000, in the event your financial institution becomes insolvent. However, this does not extend to cryptocurrencies. If your brokerage firm fails, the Securities Investor Protection Corporation (SIPC) protects the securities and cash in your brokerage account up to $500,000. Again, this does not include cryptocurrency.
While individuals have come to trust several crypto wallets and exchanges in order to carry out transactions securely, if your crypto assets are lost, hacked or stolen, there is usually no way to recover your funds.
The Pros and Cons of Bearer Assets
It’s important to understand that cryptocurrency is a bearer asset: Whoever holds the private key is considered the owner. This can make it extremely hard to demonstrate proof of ownership should a private key be stolen or lost, and is one of the reasons why recovering crypto assets can be nearly impossible.
Furthermore, this status is perhaps one of the biggest reasons why institutional players have been slow to accept cryptocurrency, as it is nearly impossible to provide meaningful protection against the loss of these assets.
What To Do if Your Crypto Assets Are Stolen or Lost
So what can you do if you lose hold of your crypto? Here are the few areas of recourse typical consumers can explore:
Contact the Exchange
If your assets were held with a larger, well-known exchange, that exchange is probably aware of it and has most likely begun the recovery process. You may not have been the only victim, so it is very likely they have mostly started working to understand the issue to try to recover assets on behalf of their clients. However, it is important to know that they are not insured by the government, so not all of your assets may be restored.
Hire a Cryptohunter
As their name implies, cryptohunters are individuals or businesses that seek lost or stolen cryptocurrency on behalf of victims. They may also help with recovering forgotten passwords and lost private keys. Cryptohunters work with both cryptocurrency holders and law enforcement agencies to search for and recover misplaced, inaccessible or stolen cryptocurrencies. They use specialized software to generate millions of potential passwords, and tend to charge a flat fee.
Record of Title: Another Level of Protection
At TransitNet, we’ve set out to create the first offchain title registry of record for digital wallets, in order to create an additional layer of protection for cryptocurrency assets. We are building a comprehensive platform to empower individuals and businesses with the option to create a record of title for their crypto.
Interested in being at the forefront of the new crypto infrastructure?
Request an exclusive registration for TransitNet’s title registry when it launches today!
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce, and IoT.
Sources
SIPC – Introduction
FDIC – Understanding Deposit Insurance
Investopedia – Cryptohunters
The Wall Street Journal – A Fifth of All Bitcoin is Missing. These Crypto Hunters Can Help.