Digital Wallets: What is a crypto wallet and what can go wrong?
Stefan Thomas, and James Howells — what do these individuals have in common? They are both cryptocurrency owners who have fallen into the unfortunate circumstance of being unable to access their digital wallets. This surprisingly common human error has resulted in individuals being locked out of fortunes worth millions!
Cryptocurrency adoption has reached an estimated 106 million users globally. With growing numbers of people investing their money into cryptocurrencies, wallet security has never been more important.
First, what is a crypto wallet?
Crypto wallets are a method of digitally storing the credentials needed to access crypto like Bitcoin and Ethereum. Unlike their physical counterparts (used to store cash and credit cards), digital wallets do not actually hold crypto. Instead, a crypto wallet holds the private key which enables you to safely send and receive crypto.
If you lose access to your private key, you may also lose access to your crypto. This is why it is essential that you keep your wallet safe. To ensure assets are stored safely, individuals must know how to access their seed phrases, securing them from unwanted third parties whilst simultaneously allowing sharing with those they love (if the unthinkable happens).
What can go wrong?
Like most people, you’ve probably been in this situation: scribbling a password on scrap paper, or typing it into a text file, only to forget an hour later!
San Francisco software developer, Stefan Thomas, found himself in the frustrating situation where he forgot the password to his crypto wallet stored on a USB stick. After eight failed attempts at cracking the password, he had to wave goodbye to an estimated $220 million in Bitcoin.
Similarly, James Howells made the ill-fated mistake of throwing away an old laptop. It just so happens that the hard drive of this laptop stored 7,500 Bitcoin (approximately £300 million). Despite making several offers to Newport City Council — including a 25% share of the fortune — they refused to give him permission to search for his laptop in the Welsh landfill.
Another potential pitfall is that your third-party crypto wallet could be hacked - even hardware wallets are susceptible. Once all your seed phrases are stored in a central location, who should have access?
Seed phrases have become the gatekeepers to our most valuable digital assets, yet the management of this information is often overlooked. Unlike for managed services (like email and bank accounts), most crypto wallets cannot be accessed if the key is lost.
PAD protocol as a solution
Secure and verifiable third-party access is essential in preventing potential loss of your crypto assets and we have a solution.
In part 2 of this blog series, we will discuss how combining the PAD protocol with a storage vault would enable you to share seed phrase access with your family and/or friends; allowing recovery and access in case of emergency without compromising your security.