In a previous article, I noted that Bitcoin’s security features actually work against the users, rather than for them. The “anonymizing” features don’t actually make you anonymous unless you are already a super-geek. And the fact that transactions can’t be overridden by a third party actually winds up benefitting the criminals more than the users.
This week, it has been reported that there is a Bitcoin exchange with $190 million dollars worth of assets which are no longer accessible by the users. What happened?
Were they misspent? Misinvested? Laundered? Stolen?
Nope. None of the above. In some ways, it’s worse than that:
Gerald Cotton, founder of Canadian cryptocurrency exchange QuadrigaCX, reportedly died of Crohn disease in India December 9, 2018, taking the secret password to a reported $190 million with him to the grave, according to his widow Jennifer Robertson:
“The laptop computer from which Gerry carried out the Companies’ business is encrypted and I do not know the password or recovery key. Despite repeated and diligent searches, I have not been able to find them written down anywhere,” said Robertson. Aaron Hankin, “Crypto exchange customers can’t access up to $190 million after CEO dies with sole password” at MarketWatch
In fact, if the reports are true, the $190 million hasn’t moved at all. And it never will. The problem is that they can’t unlock the wallet that contains the assets without the deceased’s password.
Note that this isn’t merely a problem of finding a way to prove that Gerald Cotton is dead (some are skeptical about that) to the courts so that his survivors can take control of the assets. No, the problem lies with the nature of Bitcoin itself: It attempts to set up a system without the benefit of societal trust. The only way to do that is to leave everything to the computers, nothing to humans. Then what happens when you forget a password? You are locked out of the system, permanently.
Bitcoin assets are entirely digital. The transactions are entirely digital. There is no central system that allows a user to challenge a transaction. The transactions can only be made using a key. And the key is only accessible if you have the password.
Worse, Bitcoin isn’t a system where, if you can’t get in without the password, your friendly neighborhood nerd can find a way around the problem. No, Bitcoin is mathematically secured. Therefore, access is not mathematically possible without the password.
Because users can’t transact in Bitcoin without the key, and they can’t get to the key without the password, that $190 million is now permanently stuck in the Bitcoin ether.
Everyone can see it. No one can get it out. Because that is how the system was designed.
Is this the future of currency? Seems like the Dark Ages to me. Bitcoin is a clever idea, but it is perhaps too clever for its own good.
Note: The news story is murky, with some Bitcoiners now claiming that the whole business might be an elaborate exit scam (where money is taken and then the firm or its owner disappears). Some details of the claims here. There are also accusations of theft. Various figures are given for the amount of money trapped in the ether too. None of it inspires confidence in the state of cryptocurrency at present. – Mind Matters
Jonathan Bartlett is the Research and Education Director of the Blyth Institute.
Also by Jonathan Bartlett on cryptocurrencies: How Bitcoin works: The social value of trust
Is bitcoin safe? Why the human side of security is critical
Also: How do bitcoins work anyway?