How Crypto Investors Can Insure Against the Loss of Recovery Seed Phrases

How Crypto Investors Can Insure Against the Loss of Recovery Seed Phrases
фото показано с : zycrypto.com

2022-5-24 21:08

The storage of crypto assets is a big challenge for most people, including veterans who have been in the game for several years. As it stands, a majority of crypto holders have stored their assets with centralized custodians such as exchanges and yield generation platforms. However, there is a gradual paradigm shift with more investors opting for non-custodial wallets in a bid to avoid the prying eyes of regulators.

While non-custodial wallets give crypto users full control over their private keys, they pose a big risk in the event one loses their seed recovery phrase. So far, there have been several instances where crypto holders have lost a significant amount of capital as a result of misplacing their private keys or damaging their hardware wallets. According to a report by Decrypt, close to 20% of all the BTC accounts are currently inaccessible. 

Paper Millionaires Who Can’t Access their Crypto Assets

Fortunes have been made and lost in crypto, this market has given birth to a new crop of millionaires and an equal share of losses; after all, it is a zero-sum game. That said, the most disappointing losses are those attributed to losing one’s private keys. There have been multiple occasions where crypto investors have lost colossal amounts, earning them the title of ‘paper millionaires who have no access to their wealth’.

For instance, Stefan Thomas, a software developer and one of the earliest Bitcoin enthusiasts, lost about 7,000 BTC after forgetting the password to his IronKey hardware wallet. While the long-time crypto veteran has since accepted the loss, he previously noted in an interview that he tried everything possible to recover the coins, 

“I tried everything. I would stay up all night trying different ideas for how to recover it, or just, like, staring at the ceiling for hours.”

Stefan is not the only one who has lost a lifetime opportunity, there are some similar cases, including an incident where a British man threw away a hard drive that contained 7,500 BTC. On a larger scale, the QuadrigaCX scandal made headlines after the founder died without disclosing the private keys; this event was a wake call for the crypto community, given that roughly $190 million worth of digital assets disappeared into thin air.  

Insuring Against Private Key Loss 

By nature, human beings tend to forget some things; at one point, you have had to reset a particular password. Similarly, most crypto investors are susceptible to forgetting their seed recovery phrases. This is why the crypto industry needs insurance or backup solutions in the case of such an event. To this end, centralized crypto custodians have introduced mechanisms to recover one’s account, including via email and mobile phone verification. 

How about the non-custodial wallets? Apart from noting down one’s seed recovery phrase, there have been little to no options until recently. The invention of Non-fungible tokens (NFTs) and Decentralized Identifiers (DIDs) has given rise to DApps like Serenity Shield, which offers a decentralized solution to recover sensitive on-chain information. Powered by the secret blockchain network, this DApp is designed to protect against the loss of a seed phrase. 

At the core, Serenity Shield leverages NFT technology and smart contracts to introduce a ‘strongbox’ whose content can only be unlocked by the owner. For example, a DeFi investor looking to protect their sensitive information can configure a strongbox on Serenity shield. The sensitive data is kept secure by the privacy feature of Secret Network, which ensures data protection through transaction encryption and viewing policies controlled by owner-defined NFT fields.

As more crypto investors pivot towards non-custodial storage, it is pretty obvious that the market needs solutions to hedge against the loss of one’s seed recovery phase. Innovators building in this niche will not only make it easier for crypto investors to minimize their risks but increase the value of the larger crypto ecosystem. Like traditional assets, crypto wealth should not be lost because of mere inconveniences such as password loss or displacing a hardware wallet. 

Final Thoughts

As highlighted earlier, the crypto market is a gold mine for some of the youngest investors of our time. It would be naive to ignore the upside of having exposure to cryptocurrencies; at the same time, one has to understand the imminent risks. Simply put, crypto investors ought to pay attention to systemic risk factors such as volatility and the unsystematic risks like losing one’s login credentials. Prudent investors can adopt some solutions mentioned in this article to better protect their investments.

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