Community
2024 is proving to be another volatile year for crypto. Since reaching a record high in March, the price of Bitcoin has fluctuated significantly. There is near-constant speculation around if and when the next bull run is coming, but in many ways, it doesn’t matter whether the market is up or down. It is crypto’s volatility itself that continues to attract new investors seeking lucrative returns.
The problem is that while many people are now engaging with crypto for the first time, they’re running into trouble when trying to convert it back into fiat. The difficulty lies in the custody of crypto assets, and doing so in a way that doesn’t lock you out of your assets forever. It’s estimated that a staggering 20% of all existing Bitcoin – worth around $140 billion – is locked away due to lost private keys or forgotten passwords and seed phrases.
These figures have likely increased as new entrants have bought crypto for the first time, influenced by this year’s market volatility. Reuters recently reported that wallet recovery firms have experienced a surge in demand due to a sharp rise in retail investors losing access to their holdings. These are often people hoping to make a profit and aren’t familiar with the risks of not storing their private keys and seed phrases effectively.
The dilemma is a stark reminder of how the user experience in crypto lags far behind that of mainstream investing and banking when it comes to security and safety. Private keys grant a user ultimate ownership and sovereignty over their assets, at the cost of losing it all if they get it wrong. Alternatively, high-street banks and payment providers like PayPal provide locked-out users with their accounts’ passwords or allow them to reset their credentials through a relatively straightforward and easy-to-follow process – whilst ultimately having full control over any assets in the account.
With crypto, it’s too easy to lose funds without any means of recovering them. Unlike in traditional banking, it’s not as simple as clicking “forgot my password” and going through the recovery process. It’s virtually impossible to retrieve access to your assets without your private key. In one case, reported by the BBC, a man had two attempts to unlock a hard drive containing $240 million worth of Bitcoin before the drive encrypted itself, making the wallet lost forever. In essence, once it’s gone, it’s gone.
This situation is the stuff of nightmares for the victims. Not only does it leave investors with a potentially sizeable financial loss, but often also the stress and anxiety of losing the assets meant for their families to inherit, or to support a retirement plan. We all know that feeling of frustration and impatience when you’re locked out of your phone, email or bank account. Now imagine that, but with no option to retrieve or reset your password.
We must help crypto users ensure they don’t lose access to their funds. Crypto adoption could reach a billion users by 2030. If the industry doesn’t take action to modernise its security infrastructure, it risks chipping away at confidence in crypto service providers and putting off new users.
Exchange and wallet providers must adopt robust recovery systems so users can recover their funds if and when loss occurs. Our own research found that over a quarter (28%) of consumers cite the risk of losing account access as the primary barrier towards increasing adoption, meaning companies must invest in recovery technology and key backup solutions that can prevent worse-case scenarios.
2024’s market volatility has highlighted both the opportunities and challenges facing the crypto sector. While the influx of new investors is a positive sign for the market’s growth, it has also exacerbated security problems that firms must proactively seek to address.
In doing so, they can ensure that cryptocurrencies’ promise is not overshadowed by the fear of loss and eliminate a problem that has caused some of crypto’s earliest adopters so much stress and anxiety.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Nick Jones CEO at Zumo
04 October
Nkiru Uwaje Chief Operating Officer at MANSA
03 October
Dirk Emminger Managing Director at knowing finance
02 October
Sireesh Patnaik Chief Product and Technology Officer (CPTO) at Pennant Technologies
Welcome to Finextra. We use cookies to help us to deliver our services. You may change your preferences at our Cookie Centre.
Please read our Privacy Policy.