All the Ways You Can Lose Your Cryptocurrency
One of the best things about bitcoin is that you’re in complete control of your money. One of the worst things about bitcoin is that you’re in complete control of your money – which means you’re responsible if something goes wrong.
It’s suspected that as many as 2 million bitcoins (out of the 21 million total supply) are permanently lost. Some numbers suggest it’s as high as 4 million. Some of these bitcoins will never be recovered. The private keys have been lost. Other bitcoins have been stolen or hacked.
Bloomberg recently published an article highlighting all the ways you can lose your cryptocurrencies. The list was separated into categories like, “Not Really Your Fault”, “Sorta Your Fault”, and “Totally Your Fault.” Keep reading to find out the different ways you can lose your bitcoin.
“Not Really Your Fault”
Sometimes, you’ll lose bitcoin and it’s not really your fault. There are ways you can prevent some of the problems listed below, or at least lower your chances of being affected by them. However, sometimes your losses are just a random event:
Phone Porting: Scammers can hijack your mobile phone account in a surprisingly easy way. They call your carrier and impersonate you. The attacker gets your number transferred to a new device. You might have 2FA authentication enabled on your account, but phone number-based 2FA is worthless if your phone account has been hacked. Phone porting is becoming increasingly common.
51% Attack: Bitcoin and other cryptocurrencies are decentralized. Decision-making power is spread across the community of nodes. But what happens when someone controls more than half of those nodes? This would be a 51% attack. Conducting a 51% attack on the bitcoin network would require you to gain control of more than half of the computing power on the bitcoin network. A 51% attack has never occurred on a major cryptocurrency network, but it’s theoretically possible.
Ransom Demands and Personal Attacks: Your private keys might be ultra-secure, but all it takes is a few minutes of torture to extract your private keys. Someone might kidnap a family member and demand a ransom in bitcoin. Someone might launch a ransomware attack on your computer, locking your computer until you send bitcoin to an address.
“Sorta Your Fault”
There are other ways to lose your bitcoins where it’s sort of your own fault. You aren’t totally at fault for the loss, but there were steps you could have taken to prevent the loss. These reasons include:
Exchange Problems: Cryptocurrency exchanges get hacked all the time. At one point, Mt. Gox was handling over two thirds of all bitcoin transactions in the world – and that exchange was famously hacked, leading to a huge loss of customer funds. Ever since the Mt. Gox hack, the bitcoin community has learned that no exchange is 100% secure. If you leave your money with an exchange, you risk losing everything.
Technical Glitches: Sometimes, exchanges don’t get hacked, but you still lose your bitcoin in other ways. The exchange might freeze your account, for example, or lose your money during a transfer. As mentioned above, exchanges aren’t 100% secure, and a single glitch can wipe out your bitcoins.$
Fraudulent ICOs: You send money to a promising ICO. You want to get rich quick. Unfortunately, the ICO is a scam and the creator has disappeared with your bitcoins.
“Totally Your Fault”
Lost Keys: Millions of bitcoins have been lost because people have lost their private keys. You may have heard about the guy in the UK who accidentally threw away a computer with the private keys for 7500 BTC (worth $80 million at the time the story broke). Don’t be like that guy. Practice good private key storage.
Scams and Phishing Attacks: Look at the replies to any crypto-related post on Twitter. There are always fake accounts offering BTC giveaways and ETH giveaways. All you have to do is send a certain amount of crypto to an address, and that person will send you crypto in return. If you’re dumb enough to fall for this scam, then you deserve to lose your bitcoin.
Sending to the Wrong Address: Sending bitcoin isn’t as easy as sending an email. You have to type in a 26 to 35-digit alphanumeric wallet address. If you make a single mistake when copying the address, your bitcoin could be sent to the wrong address. That could mean your bitcoins are lost forever. Or, it could mean some lucky random guy just received your bitcoin.
Ultimately, bitcoin’s biggest benefit – avoiding banks and centralization – is also one of its biggest disadvantages. Fortunately, with a little experience and careful private key management, you can avoid all of the problems listed above.
Kudos to Lily Katz and Andre Tartar at Bloomberg Businessweek, who wrote “All the Ways You Can Lose Your Bitcoin” on June 29, 2018.