How Not To Lose Your Coins In 2021: Alternative Recovery Methods (#GotBitcoin?)

When Peter Schiff claimed that his wallet lost his Bitcoin (BTC), many in the crypto community were skeptical. While some believe that Schiff simply lost his password, others, like Ethereum co-founder Vitalik Buterin, highlighted that losing private keys remains an important issue for cryptocurrency users. How Not To Lose Your Coins In 2021: Alternative Recovery Methods (#GotBitcoin?)

Being Your Own Bank Is Hard

Keeping custody of your own cryptocurrency is quite complex, especially for non-tech savvy users. Most wallets require the user to write down the private key before accessing the wallet. Storing the key can be done by simply writing it down on a piece of paper, a method that is prone to failure through the loss, theft or degradation of the paper.

Using hardware wallets or encrypted digital backups is an alternative, but requires a degree of preparation and technical knowledge that many casual users may find too much to grasp.

In response to Peter Schiff’s loss, Binance CEO Changpeng Zhao argued that storing coins on centralized custodians is safer for most users.

Nevertheless, this inherently goes against the principles of decentralization in the crypto community. Some members pointed to alternative methods developed on Ethereum as a potential solution.

Social Recovery

As an alternative to complex storing solutions, the concept behind social recovery is to grant friends, family or even companies the right to restore access to a certain account.

The person losing access to his wallet would be able to call upon “guardians,” pre-selected entities that are authorized to re-assign control of the specific account.

Argent wallet is currently a live implementation of this idea. A user can set other Argent users or even other wallets owned by him as guardians. By default, however, the guardian is Argent itself, using the person’s email and phone as an identity guarantee. Without other guardians this recovery method cannot be removed.

A slightly different method is offered by Ethereum Improvement Proposal (EIP) 2429, developed by Ricardo Guilherme Schmidt and others.

Elaborating on the social recovery concept, it introduces “user secrets” — personal data such as biometrics from fingerprint scanners, a password, or personal information provided in a questionnaire.

This information must then be provided during the recovery process, ensuring that guardians cannot simply collude to steal the user’s wallet. Additionally, the list of guardians is never revealed until the actual recovery procedure is activated.

However, this is still a proposal under development subject to change.
Criticism of social recovery

A commonly cited drawback of social recovery is the reintroduction of trust — this time in friends rather than centralized entities.

Cointelegraph approached Schmidt for clarifications on the EIP. While agreeing that the system isn’t perfect, he maintained that the proposed system is far more trustless than simpler implementations:

“Social recovery is fundamental for adoption, it brings a web2 experience to self sovereign accounts.

The drawback is having to trust others, however EIP 2429 solves the problems of trusting guardians, so we are again in a trustless system, which is what we all love in Ethereum.”

Elaborating further, Schmidt criticized open multi-signature implementations such as Argent’s for their failure to mitigate collusion. He still believes that they have a place in a setting where extreme transparency is warranted, such as holding public funds.

Itamar Lesuisse, CEO of Argent, clarified to Cointelegraph that calling its system social recovery is misleading, as it “implies people always have to be involved.” He explained:

“So the method is secure, and literally anyone with a smartphone can use it. Another advantage of this approach is that you can use these trusted entities to protect your wallet beyond just recovery. With Argent you can use them to lock your wallet and approve a large transfer.”

Lesuisse also welcomed the development of EIP 2429, noting that “it improves privacy in the scenario where users choose friends and family as trusted entities.”

Nevertheless, Schmidt conceded that the EIP is not immune to guardians extorting the user to gain access to the wallet, called a “griefing attack” in technical terms. He envisioned this being used in a positive setting, with a guardian company identifying customers and restoring access for a fee.

Speaking with Cointelegraph, Blockstream CSO Samson Mow criticized Ethereum, noting that the EIP is “largely complexity for the sake of complexity.” He added that social recovery is entirely possible on Bitcoin with existing software, by simply creating a multisig wallet and distributing portions of it to friends.

Nevertheless, Mow Is Skeptical Of The General Concept Of Social Password Recovery:

“The drawbacks to any social recovery system is really that your social circles change over time, and we live in a universe that tends towards entropy. So, your friends today may no longer be your friends tomorrow, and even if your social circles don’t change, your designated guardian may lose their part of your recovery scheme.“

Mow still considers the ability to recover private keys as important, though he referred to hard metal backups — storage devices aimed to be indestructible. According to him, the burden of securing Bitcoin remains with the users:

“The challenge is getting people to understand that they should secure their seed and plan for recovery from day one — social recovery doesn’t help in negating the “Schiff Paradox” (people caring about securing their Bitcoin after it’s too late) any more than metal backups do.”

Other Solutions

Since the early days of Bitcoin, Keybase has offered a private key generation service based on a user’s password and email.

Torus allows users to create Ethereum wallets by logging in with their Google or Facebook accounts. The private key becomes uniquely-associated with that account through some fairly complex assignment mechanisms.

As Schmidt Explained, However, Solutions Based Purely On Personal Secrets Are Extremely Difficult To Secure:

“In Web2 is safe to have a 8 password, because the authenticating server will block bruteforce attempts […] None of this is possible in blockchain, and using an 8 digit password as seed phrase, is probably an instant loss of funds, because is very likely that low entropy addresses are being constantly monitored.”

Updated: 2-4-2021

Meet The Technician Who Unlocks Your Forgotten Crypto Wallets

It’s a bitcoin bull run and you’ve forgotten the password to your wallet. What’s next?

Bitcoin, while down from its all-time high, is still well above its previous highs over the past few years. And with any exponential rise in the price of BTC, the number of frantic people with bitcoin stashed somewhere in a crypto wallet protected by a password they’ve long since forgotten – well, that’s increased exponentially as well.

This where “Dave Bitcoin,” comes in. The pseudonymous co-founder of Wallet Recovery Services helps people recover access to password-protected wallets, and with each bitcoin bull run, his inbox starts to fill up.

“These days because of the price rise and just the increased interest, we get around 50 to 70 requests daily,” he said. (For our interview we connected over a web chat service that doesn’t require user accounts, just a unique URL. Dave cares about his privacy and prefers an “ephemeral WebRTC conversation.”)

Wallet Recovery Services

Dave and his co-founder are equal partners of the company. They developed the software their company has used since 2013 as a hobby.

The proprietary software is essentially a brute force attack on your crypto wallet; it tries millions of passwords in quick succession. Run on Linux nodes hosted on AWS, the algorithms the software uses try a multitude of permutations of whatever potential password customers think might be associated with the wallet. This often works because unfortunately, people tend to reuse passwords, despite a host of reasons to not do so.

Early in their hobby days, Dave and his partner were posting in the Bitcointalk forum, offering their crypto wallet recovery services as something they were trying out.

“It was an excuse for us to learn about the tech and stuff like that,” said Dave. “And then what we’ve done is, over the years, we’ve developed our own software that lets us try variations of passwords based on the customer’s guesses, and then added support for many different kinds of wallets over time.”

Day-To-Day In A Bull Run

Even amid a bitcoin boom, Dave’s day-to-day might be recognizable to a lot of people – he spends a fair amount of time just answering questions via email from people who need help figuring out how to regain access to their crypto wallet.

“They’d be like, ‘Hey, I did a job once for someone two years ago and they paid me in bitcoin,’” said Dave. “’And I never really cared for it. But now I know I have bitcoin, but I don’t know how to get to it. Can you help me?’”

He then evaluates those queries and helps people figure out whether their quest to reclaim their neglected bitcoin is possible. For example, if your seed phrase is lost, there isn’t a way for you to access your funds. He’ll be clear about that, warning prospective customers that if someone says they can get their funds back in that situation, they’re scammers.

He says that at times customers know their bitcoin is a lost cause. They’re really just looking for confirmation.

The Inadvertent HODL

While there has been a ton of renewed interest in crypto recently and with a lot of focus on the whales holding huge treasure troves, most people who reach out to Dave don’t have high-value crypto wallets.

“For many of our customers, whether it’s a few ether or .05 bitcoin, this amount of money could make a big difference in someone’s life. So we put a fair amount of effort into all wallets, regardless of their size,” said Dave.

Some people come to them years after thinking their wallets were lost because they didn’t know services like this existed. As for others, it may be that Dave’s software has now had time to catch up to the problem. As the software gets better, the company may revisit wallets they were unable to access in the past.

“Whenever we add more stuff to our software, we’ll go back and have a test by trial, testing ‘pass or fail’ on wallets every once in a while from, say, five years ago,” he said. “Sometimes [the software] finally solves it and we’ll email the customer and it’s, like, it’s a great surprise for them. Some have said that this actually ended up being a good thing for them or they would have sold it much earlier.”

Let’s call it the inadvertent HODL.

The Crypto Wallet Risk

The fact of the matter is people who use Wallet Recovery Services are entrusting the company not to steal their cryptocurrency once they manage to hack into the wallet. But as Dave points out, the company has a long string of positive reviews; after all, the only way it could continue to exist is by maintaining its good reputation.

Dave also said he tells customers to change their passwords (because they usually use variations of the ones they give him) once he runs his tests.

Wallet Recovery Services takes 20% of the holdings of the crypto wallet as payment if they successfully access it.

“Historically, our success rate rate is about 35%,” he said. “So there’s a 65% chance we won’t get anything out of the wallets that we work on, which we spend time and resources on.”

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