Lack of access to a crypto wallet: how not to lose funds?
There is a common problem for cryptocurrency exchanges – a lot of their customers lose passwords of their accounts. Sometimes they forget them and therefor cannot get access to their accounts.
Carelessness is the main reason for losing crypto
Forgetting the key to crypto wallets was the reason why many people lost access to Bitcoin and other cryptocurrencies worth billions of US dollars. The recent case of Stefan Thomas, who forgot the password to his IronKey hard drive, which holds his 7,002 Bitcoin, is a good example. Overall, it was found that about 20% of existing BTC are lost due to loss of password or initial phrase to reset the password.
There are several reasons for the loss of access to cryptocurrency exchange accounts, but the most frequent reasons are that:
- people forget the password or details of two-factor authentication (2FA) if 2FA is enabled;
- change the device on which the 2FA was stored or change the phone number to which the 2FA was bound.
This is ultimately due to a lack of care and mindfulness: people buy new mobile phones or change the phone number to which their keys are tied, to change their old 2FA data to new ones. Then, when they lose access, they often accuse exchanges of failing to promptly provide them with a new 2FA. But restoring access to an account is not as easy as recovering your password. If you have had 2FA enabled and you can no longer pass it, you will have to go through an identification procedure with an exchange to verify your identity and reset 2FA.
If a customer has previously undergone an identity check, they will have to do so again to confirm their identity. This is done to protect customer funds to ensure that the 2FA reset request does not come from an attacker. This procedure takes time as you have to send your photos to the exchange and they must be identified by customer service personnel. But many people do not like to engage in such procedures, considering them troublesome and time-consuming. And this, in turn, puts exchanges in an unpleasant position when they have to take into account both simplicity and convenience for customers, as well as their obligations to preserve the funds entrusted to them.
Sometimes it also happens that hackers get passwords and even 2FA on a hacked device. If this happens, hackers usually modify 2FA data in the victim’s wallet account. In such situations, withdrawals from the client’s account are temporarily blocked, which they are notified by email and SMS so that the account holder can take action in case he was not the one who changed 2FA.
Ways to restore access
There are several ways in which crypto-wallet support services ensure cryptocurrency security: initial phrase, multisignature, delayed money transfer and trusted wallets.
- The side-phrase is used in crypto wallets, which are only available to their owners, and consists of a few random words. If you forget the password to such a wallet, you can enter the initial phrase and thus access it. If you lose and forget the initial phrase, you will no longer be able to regain access to your funds.
- Multisignature mechanism using multiple keys is often used in online wallets (hot) on exchanges. Wallets with multiple signatures often have three signatures, and two of them are required to execute the command. Two of these signatures are held by the customer and the third is held by the service provider. Under normal conditions, the company key and one of the client keys are used for all operations. The second key that the client has is a backup, and should be kept safe.
- The delayed transfer mechanism is also a good way to keep your digital currency available to you, even if you have forgotten your password and can’t recover it. It automatically sends funds in the wallet to another address after the set time has expired. Thus, you will be able to restore access to your funds in another crypto wallet when the transfer is made.
- Trusted wallets are those used on cryptocurrency exchanges. Their advantage is that you can always restore access to them using the KYC procedure. But their downside is that you can only access them through your exchange account, not directly through the key.
We hope we helped you with questions about what to do so as not to lose access to your accounts, and how to act in situations where it still happens. Now you know how to simplify the recovery process. We can confidently argue that prudence and discipline are two principles that will be your best guarantees against the irrevocable loss of your cryptocurrency funds.