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Crypto wallet recovery without a private key or seed phrase

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3 months ago

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Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial.

When forgetting their online banking credentials, individuals only need to visit their local bank branches with the necessary documents to identify themselves and recover access to their accounts. The same goes for traditional brokerages; they can reset their password online or contact support for assistance in the recovery process.

But while recovery is easy for custodial services like online banking and brokerages, things can get rather complex in crypto. On the one hand, self-custody significantly reduces counterparty risks and prevents a loss of funds in cases like the infamous Mt.Gox hack and the FTX bankruptcy. On the flip side, it also comes with more responsibilities for investors.

If crypto investors’ private keys or seed phrases go missing, there is no customer support team that can help them recover their self-custodial wallets. At this point, the funds are lost forever. In fact, a Chainalysis report estimates the loss of 3.7 million Bitcoin (BTC), worth over $220 billion at the price of $60,000, which accounts for 18.74% of the current circulating supply. At the same time, the personal research of Coinbase Director Conor Grogan reveals that more than 912,000 Ethereum (ETH) is lost forever (worth $2.41 billion). While it represents only 0.75% of the total circulating Ether supply, lost keys account for 27.5% of the cases.

The most common scenarios of losing access to crypto wallets

In which cases do veteran crypto users, web3 builders, and business owners lose access to their cryptocurrencies? Let’s look at some example scenarios to better understand the events that could lead to lost keys.

In Scenario One, a crypto user stores the private key on his desktop and backs up his seed phrase on the same device. After upgrading to a new device, he wipes his old computer’s hard drive clean, forgetting he stored his keys and seed phrases there. Consequently, his crypto holdings are gone forever.

Scenario Two presents another nightmarish case of human error. This time, an investor backs up his recovery phrase offline, printing it on a sheet of paper and storing it in his home along with other documents. However, after moving to a new apartment, the sheet with the seed phrase goes missing, and the investor fails to recover his wallet.

In Scenario Three, the founder of a crypto startup trusts the organization’s chief operating officer to manage the company’s finances. In addition to the business’ bank and exchange accounts, the COO controls all the private keys belonging to the project’s digital asset wallets. After a heated dispute with the founder and other team members, the chief operating officer resigns, refusing to provide access to the startup’s crypto wallets.

While the organization can regain control over its custodial accounts, it can’t interact with its digital asset holdings because the COO left with the private keys. In this case, a criminal investigation is the only reasonable course of action the startup can take to recover its assets. However, the case can take multiple years to conclude, and success is not guaranteed.

The above are only a few examples of how experienced crypto users can lose access to their digital asset wallets. Other cases of lost crypto may involve data corruption, hardware failures, malware, hacks, counterparty risks, mortality, and fraud.

Prevent locking users out of their crypto wallets

If crypto investors have neither access to their private keys nor their seed phrases, the only hope for them is wallet recovery solutions. However, the chances of success are tiny in most cases, and many fraudulent providers operate in this space, asking for upfront payments without providing any real service.

That is why a more efficient alternative to wallet recovery services is a decentralized trust. When creating a decentralized trust, crypto investors designate a backup wallet in case something happens with their main wallets. Suppose they accidentally misplace their private keys and seed phrases, losing access to the digital assets stored in their main wallets.

In that case, after several months without activity, the decentralized trust’s recovery mechanism automatically transfers users’ assets from their main to their backup wallets. As investors have access to their backup wallets, they can now interact with their cryptocurrency wealth, which would otherwise be considered lost.

There’s also no need to worry about a loss of funds due to the owner’s mortality. A decentralized trust can be configured to pass on inheritance to heirs based on the terms and predetermined conditions set by granters.

The next step in the evolution of crypto wallets

With multisig technology, decentralized trusts require multiple private keys to sign transactions. This eliminates single points of failure (like the case with the crypto startup’s COO in Scenario Three), reduces the chances of human error, and safeguards funds against unauthorized access.

Thus, a decentralized trust is the perfect choice for decentralized autonomous organizations, distributed Web3 teams, non-profits, and other crypto organizations to collectively manage their assets efficiently. Business owners and DAO members can even configure signature rights in a flexible way to secure the project’s assets and prevent funds’ misappropriation.

Available at a fraction of the costs of their traditional counterparts, decentralized trusts provide an effective solution for recovering access to lost wallets. As the next step in the evolution of crypto wallets, they have the potential to become popular solutions for storing cryptocurrencies. When more investors replace their old wallets with decentralized trusts, fewer digital assets will be lost to human errors, fraud, hacks, counterparty risks, and single points of failure. Eventually, this will help create a more secure and resilient crypto industry.

Ruslan Tugushev

Ruslan Tugushev

Ruslan Tugushev is a seasoned entrepreneur and investor with over a decade of experience in business management and web development. He is the founder and CEO of UBD Network, a professional multisig platform designed to enhance security and collaboration in the cryptocurrency space, as well as the DeTrust Wallet. Ruslan has a strong background in investment capital, having previously established a successful crowdfunding platform that helped blockchain startups secure funding. Furthermore, he was also the CEO of Tugush Capital Partners, a venture advisory firm that focused on assisting companies in achieving investment-ready status, with a special focus on the blockchain sectors. 



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Phantom acquires Blowfish to boost wallet security

Published

2 days ago

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November 19, 2024

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Phantom, the non-custodial crypto wallet for decentralized finance and non-fungible tokens on Solana, has announced its acquisition of web3 security platform Blowfish.

The Solana (SOL) based cryptocurrency wallet disclosed the transaction on Nov. 19, noting in a blog post that the move aims to bolster security for wallet users. Blowfish’s team, known for protecting users and assets by alerting against scams and fraud, will join Phantom.

According to Phantom, acquiring Blowfish is a key step in combating harmful decentralized applications and bugs. The wallet has recently faced downtime and a buggy update, which affected user experience and safety.

Commenting on Blowfish’s role in enhancing user security, Phantom chief executive officer Brandon Millman stated:

“With their help, we’re going to offer the most secure and user-friendly platform to access, and interact with, apps, tokens, and collectibles across all devices.”

Blowfish has reportedly prevented over 2.8 million scams and scanned more than 1.3 billion transactions, securing assets worth over $18 billion. This capability will now be integrated into Phantom, with Blowfish’s current service being sunset.

In June this year, a fake Phantom wallet pushed on the Apple App Store saw unsuspecting users lose assets.

On Nov. 13, a buggy update caused some iOS users to be locked out of their accounts. The glitch introduced a bug that reset wallets and added a prompt for users to log in again with their recovery phrases. Several users reported losing funds, including one who claimed a $600,000 loss.

It’s important to note that Phantom is a non-custodial wallet and does not access user funds or store recovery phrases.

Separately, digital asset custody and wallet infrastructure platform Fireblocks recently launched a non-custodial wallet-as-a-service solution aimed at advancing security for user assets across the industry.



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SaaS animation platform LottieFiles alerts users to crypto threats

Published

3 weeks ago

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October 31, 2024

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LottieFiles revealed a supply chain compromise in which malicious code could lure users into connecting crypto wallets, potentially leading to asset theft.

LottieFiles, a platform that enables designers and developers to create animations, has issued a warning regarding a security breach involving its npm package, which may expose users to malicious code designed to compromise crypto wallets.

In an X post on Oct. 31, LottieFiles said that the affected versions — Lottie Web Player 2.0.5, 2.0.6, and 2.0.7 — were released on Oct. 30, prompting immediate concerns after multiple user reports surfaced about strange code injections. In response to the threat, LottieFiles released a new version, 2.0.8, reverting to the secure code.

“A large number of users using the library via third-party CDNs without a pinned version were automatically served the compromised version as the latest release.”

LottieFiles

For those unable to update, LottieFiles recommends informing end users about potential fraudulent wallet connection prompts associated with the Lottie-player. Users may also opt to remain on version 2.0.4 to avoid risk.

LottieFiles warned that applications using the compromised npm package may inadvertently prompt users to connect their crypto wallets, opening avenues for potential theft. The developer account linked to the malicious uploads has been stripped of access, and related tokens have been revoked to halt any further unauthorized activity, the firm added, though the full extent of the attack remains unknown.





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Standard Chartered-Backed Zodia Custody Launches Wallet, Partners Galaxy Digital

Published

1 month ago

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October 16, 2024

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Zodia Custody, a leading digital asset custodian backed by Standard Chartered, has launched its latest product, Unified Wallets today. The product focuses on boosting operational efficiency for institutional clients. Notably, this move comes as the firm partners with Galaxy Digital to expand its custody solutions.

Meanwhile, the new wallet feature allows institutions to pool assets and streamline transactions without compromising security, making it a game-changer for digital asset managers.

Standard Chartered Backed Zodia Custody Launches Wallet

Zodia Custody’s Unified Wallets offer a significant leap in digital asset management. The new solution allows institutions and fund managers to pool funds from various clients into individual wallets, simplifying transaction processing.

Notably, this innovation reduces costs, ensures smooth transfers, and enhances operational efficiency for businesses dealing with digital assets. By partnering with financial institutions like Galaxy Digital, the firm positions itself as a leader in the institutional digital asset space.

Meanwhile, the Unified Wallets system allows businesses to track deposits in real time and quickly withdraw assets from a cold wallet, all without sacrificing control or security. Zodia’s CEO Julian Sawyer emphasized this, stating that Unified Wallets combine the flexibility of omnibus wallets with the security of segregated assets, making it ideal for optimizing operations in the digital asset sector.

It’s worth noting that Galaxy Digital is the first to implement this feature, marking a milestone in Zodia Custody’s expansion into more sophisticated digital asset management. Andrew Taubman, Deputy Chief Operations Officer at Galaxy, praised the partnership, noting that the firm’s approach enhances their trading operations while maintaining top-tier security.

Strengthening Partnership With Galaxy Digital

Zodia Custody’s partnership with Galaxy Digital showcases its dedication to delivering secure and scalable solutions for institutional investors. As institutional engagement with digital assets grows, custodians like the firm need to offer solutions that balance operational efficiency with strong security measures.

The company’s clients like Galaxy, can now enjoy the benefits of the Unified Wallets alongside Zodia’s other offerings, such as the unique Interchange service. This feature allows sophisticated investors to choose their preferred trading venues while benefiting from off-venue settlement for market makers and OTC desks.

In addition, this enhances the flexibility of trading and settlement processes, providing clients with more control over their assets. Sawyer believes the growing adoption of Zodia Custody’s solutions reflects the strength of the platform. Besides, it also gained notable traction as investors often look for the top crypto wallets to safely keep their holdings.

He stressed that the company’s products are designed to meet the unique needs of digital asset businesses, providing the flexibility, security, and operational ease that today’s institutional investors demand.

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Rupam Roy

Rupam is a seasoned professional with three years of experience in the financial market, where he has developed a reputation as a meticulous research analyst and insightful journalist. He thrives on exploring the dynamic nuances of the financial landscape. Currently serving as a sub-editor at Coingape, Rupam’s expertise extends beyond conventional boundaries. His role involves breaking stories, analyzing AI-related developments, providing real-time updates on the crypto market, and presenting insightful economic news.
Rupam’s career is characterized by a deep passion for unraveling the complexities of finance and delivering impactful stories that resonate with a diverse audience.

Disclaimer: The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.





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