In a truly astounding stat, 20% of existing Bitcoin (worth ~$140B) is either lost or stranded in digital wallets, according to Chainalysis data cited by the New York Times.
While that number is a bit hard to grasp, the NYT recounts some personal stories to hammer home the point.
A private key is required to access Bitcoin
And — as anyone who has a Google Doc with all their passwords knows — a key (or password) is very easy to misplace.
The NYT writes about one German-born programmer living in SF who has a disk drive with $220m of Bitcoin on it.
Unfortunately, he’s forgotten the password to the drive (called IronKey), which locks forever after 10 failed attempts. The programmer only has 2 attempts left to unlock the drive…otherwise the Bitcoin keys are gone forever.
Better asset custody…
… is an essential part of mainstreaming Bitcoin. Crypto exchanges like the soon-to-IPO Coinbase partially solve this key problem.
Per Bloomberg’s Matt Levine, the Security and Exchange Commision (SEC) recently laid out best practices for financial institutions to custody digital assets:
- Identify whether the asset is a security
- Check the blockchain to make sure the asset works well
- Errr….don’t lose the private key (AKA password)
Levine himself didn’t get in early on the Bitcoin craze and writes hilariously on how he deals with envy of those who have: “I may have no Bitcoins, but at least I haven’t misplaced a fortune in Bitcoins.”