Crypto horrors: Tales of lost Bitcoin wallets

In the shadowy corners of the digital world, where the glow of computer screens illuminates faces with eerie light, there exist tales of lost fortunes. These tales act as a terrifying reminder of the unpredictable nature and volatility present in the cryptocurrency markets and the need to adopt stringent security measures. 

1. James Howells and the lost 7,500 BTC

A British man named James Howells unintentionally threw away a hard drive in 2013 that contained 7,500 Bitcoin (BTC), currently valued at over $258 million. The hard disk is still buried; he can’t figure out where it is, even after making several desperate attempts to retrieve it from the landfill in New Port, Wales. Howell’s story serves as a reminder that digital gold could be turned into digital dust.

James Howells makes a fresh plea to excavate the landfill site where his discarded hard drive containing 7,500 #Bitcoin likely resides. https://t.co/93AYMQEnrn

— Cointelegraph (@Cointelegraph) January 14, 2021

2. Stefan Thomas and the 7,002 BTC conundrum

San Francisco-based programmer Stefan Thomas (formerly the chief technology officer at Ripple) was plunged into a Kafkaesque nightmare after he lost the password to his digital wallet. Thomas was left with just two password attempts before the security system would encrypt his fortune forever, rendering them unusable and unreachable, with 7,002 BTC at stake.

The hard drive, named the Iron Key, boasts an impenetrable design engineered to withstand all types of attacks. Users are granted only ten wrong password attempts before the drive permanently locks out.

“I would just lay in bed and think about it,” Thomas told The New York Times. “Then I would go to the computer with some new strategy, and it wouldn’t work, and I would be desperate again.”

On Oct. 25, crypto recovery firm Unciphered extended an open letter, offering to unlock an IronKey hard drive owned by Thomas, which holds 7,002 BTC. Despite the offer, Thomas has not taken any action on this matter yet.

A painful memory. I hope others can learn from my mistakes. Test your backups regularly to make sure they are still working. An ounce of foresight could have prevented a decade of regret.

That said, I’ll do what I always do which is focus on building things, e.g. @Interledger. https://t.co/pCgObeAf4Z

— Stefan Thomas (@justmoon) January 12, 2021

3. Mt. Gox’s mysterious 850,000 BTC vanishing act

Mt. Gox — the largest Bitcoin exchange in the world at the time — declared bankruptcy in 2014 after a hacker stole 850,000 BTC, estimated to be worth $450 million at the time. The catastrophic collapse, veiled in intrigue, sent shockwaves throughout the crypto community, making investors and enthusiasts fearful and hopeless.

The unexplained circumstances surrounding the loss further added mystery to the story of Mt. Gox’s collapse. For a very long time, it was unknown exactly how the Bitcoin was stolen and who was behind the hack. The incident sparked investigations, legal disputes and rampant speculation within the crypto community.

On Oct. 9, the United States Justice Department charged Russian nationals Alexey Bilyuchenko and Aleksandr Verner with laundering around 647,000 BTC from the Mt. Gox hack. Bilyuchenko is also charged with operating the illicit exchange BTC-e from 2011 to 2017.

Almost 10 years later, the victims of Mt. Gox are still waiting for compensation.

4. Gerald Cotten and the $215 million puzzle

In December 2018, Gerald Cotten, the CEO of QuadrigaCX, embarked on his honeymoon in India with his wife — a trip that would take a tragic turn. While in India, Cotten, who suffered from Crohn’s disease, faced complications from his illness and passed away, leaving the crypto world in shock.

Cotten was the only individual who held the keys to QuadrigaCX’s crypto vault, meaning he had sole access to millions of dollars worth of customer funds.

Unlike other cryptocurrency exchanges, Cotten had not set up a fail-safe mechanism to ensure the transfer of these assets to others in case of his demise. This meant that, when he died, users were left with their funds stranded in the exchange’s wallets.

The public remained unaware of Cotten’s death for 36 days until January 2019, when the news surfaced. Following Cotten’s death, QuadrigaCX filed for creditor protection, acknowledging the exchange’s dire financial situation, with debts totaling $215 million in cash and Bitcoin owed to its 115,000 investors. Investors, already concerned about their investments, were now faced with a grim reality: their funds might be irretrievably lost due to the lack of access to the exchange’s holdings.

As investigations unfolded, suspicions regarding the authenticity of Cotten’s death arose. However, the emerging truth was equally shocking: the Ontario Securities and Exchange Commission revealed that before his demise, Cotten had depleted most of the funds through fraudulent trades. This revelation shattered investor trust.

5. The enigmatic journey of the $1.06 billion Bitcoin heist

In 2018, the seventh-largest Bitcoin wallet at that time, containing a substantial 69,000 BTC, was unexpectedly discovered in a less explored corner of the internet.

The Bitcoin had been dormant since April 2013. The wallet’s origins were traced back to the shuttered Silk Road darknet market. The marketplace was closed in late 2013 due to illicit activities, and in 2015, its founder, Ross Ulbricht, received a double life sentence plus 40 years with no chance of parole.

Notably, the funds had remained inactive for years after their initial deposit. Then, for the first time in seven years, the billion-dollar worth of BTC witnessed movement in 2018 out of the Bitcoin address 1HQ3Go3ggs8pFnXuHVHRytPCq5fGG8Hbhx.

According to Tom Robinson, chief scientist and co-founder at Elliptic, an encrypted file had been circulating on hacker forums since its discovery, purportedly containing the cryptographic keys required to seize the BTC at this address. If genuine, cracking the password on this file would have allowed the BTC to be moved.

Apart from this movement, 101 BTC were sent to BTC-e in 2015, a cryptocurrency exchange notorious for being favored by money launderers that was subsequently taken down by U.S. law enforcement in 2017.

According to Robinson, the transfer of the BTC could have been initiated by Ulbricht or a Silk Road vendor accessing their funds. However, the possibility of Ulbricht conducting a Bitcoin transaction from prison seemed unlikely. Alternatively, the encrypted wallet file might have been genuine, and the password could have been successfully cracked, enabling the BTC to be moved.

Upon deeper scrutiny of the Bitcoin address, the United States Attorney’s Office and Internal Revenue Service criminal investigation agents discovered its connection to Individual X (individual’s identity known to concerned authorities), who was found to have hacked funds from Silk Road. Subsequently, following the investigation into the hack, law enforcement confiscated several thousand Bitcoin on Nov. 3, 2020, valued at around $1.06 billion at that time.

6. The cryptocurrency conundrum of Brad Yasar

Brad Yasar, an entrepreneur residing in Los Angeles, has spent numerous hours trying to regain access to his wallets that contain thousands of Bitcoin he mined during the technology’s early days, now valued at hundreds of millions of dollars. Unfortunately, he lost the passwords long ago and has stored the hard drives in vacuum-sealed bags, keeping them out of sight.

“Through the years I would say I have spent hundreds of hours trying to get back into these wallets,” Yasar told The New York Times. “I don’t want to be reminded every day that what I have now is a fraction of what I could have that I lost,” he said.

7. Gabriel Abed’s 800 Bitcoin loss in a laptop mishap

In 2011, Gabriel Abed, founder and chairman of Abed Group and co-founder of Bitt, suffered a significant loss when a colleague accidentally reformatted his laptop. This laptop held the private keys to a Bitcoin wallet, resulting in the loss of approximately 800 Bitcoin.

“The risk of being my own bank comes with the reward of being able to freely access my money and be a citizen of the world — that is worth it,” Mr. Abed told The New York Times.

Mr. Abed said that the incident had discouraged him, stating that the transparent nature of Bitcoin granted him complete access to the digital financial realm for the very first time.

Like many in the industry, I have made a lot of mistakes with my keys in the early days. In this latest New York Times article about persons who lost their keys, I recap a story of how a reformatted computer would result in a loss,…https://t.co/VNGtRDrPAI https://t.co/cmzxufUWsi

— Gabriel Abed (@Gabriel__Abed) January 12, 2021

8. The unfortunate erasure of Davyd Arakhmia’s cryptocurrency fortune

Davyd Arakhmia, a Ukrainian politician, accidentally deleted an encrypted file from his hard drive containing 400 BTC, unknowingly discarding his private key. Before his political career, Arakhmia ran a business that accepted Bitcoin payments. In an attempt to create more storage space on his hard drive, he deleted the file along with a few movies.

Cryptocurrency security: The key to digital wealth protection

In the volatile cryptocurrency world, digital asset protection is critical. The tales of lost Bitcoin fortunes highlight how important it is to implement strong security measures. Safeguarding cryptocurrency holdings and ensuring private key accessibility should be top priorities for all investors.

Essentials include secured connections, frequent backups and a trustworthy, self-custodial wallet. Moreover, two-factor authentication provides an additional line of protection, while distributing assets among several wallets protects against losses. Also, it is equally important to remain vigilant against phishing efforts and keep up with the latest developments in security procedures.