Some poor schlub in an Ethereum Facebook group recently posted that he lost $4,000 worth of ETH when he mistakenly sent it to the wrong wallet. Apparently, he typed the address (never type the address) and mistyped one letter, sending the cryptocurrency to a wallet not his own.
Instantly, the thread blew up with comments like, “You typed???? Never type your wallet address!” or “Sorry buddy, that money is gone.”
Over 400 comments later, someone from the Ethereum foundation itself broke the bad news that, indeed, the ETH was gone forever. Had our hero typed something like “cottoncandy,” the blockchain would have bounced the transaction, since the string of letters do not conform to ETH wallet address mandated format. But because he was only off by one letter, the transaction was validated and confirmed. It is written into the Ethereum code that every possible address exists within the set character and length parameters, waiting to be claimed. But if ETH is transferred into an unclaimed address, there is no way for anyone to access the private keys, so that money is gone. Forever. For everyone.
Here are some tips to avoid losing cryptocurrency during moves and a few best practices for storing the coins you own:
The two best methods for non-technical people sending and receiving cryptocurrency are copy/paste and the QR code.
Copy/paste is safe, just confirm that the first and last letters are correct before hitting “send” (everything in between will be fine). The QR code requires a simple scan and confirm.
Never type the address. Human error is too easy, and the consequences are too dire.
Third Party Exchanges
Exchanges are the most convenient but riskiest places to store your cryptocurrency. Never forget the Mt Gox and Bitfinex hacks, which lost its users over 970,000 BTC ($12 billion)—none of which has ever been recovered.
Exchanges are not banks.
Here are a few of the most widely used cryptocurrency exchanges:
Coinbase is by far the easiest of all of the third party exchanges. The four main cryptos can be bought and stored there (BTC, ETH, LTC and BCH). Drawbacks: Coinbase does not support altcoins.
Most third party exchanges are free to store cryptocurrency, but transaction fees of around 0.25 percent are common. Also, deposit and withdrawal fees are low and varied.
Exodus.io is a decentralized application that is installed on a desktop. Users are anonymous to the company except for an email address given at sign-up in case an account is lost. It is a gorgeous, elegant user experience that displays the portfolio visually and hosts 18 of the most popular coins. Drawbacks: the private keys are stored on the user’s hard-drive, which is connected to the Internet, leaving it vulnerable to hacks. It only supports 18 of the over 1,400 cryptocurrency coins.
This is the industry standard for crypto pros. Hardware wallets allow you to move your cryptocurrency off of the Internet and out of the hackers’ reach. The top three hardware wallets are Ledger Nano S, Trezor, and KeyKeep. Drawbacks: They offer a clunky user experience — if you want to put the breaks on impulsive day trading, this is the way to go since it takes several steps to move crypto back to the exchange. Also, there is currently no hardware wallet that supports all 1,400+ coins.
Just like it sounds, this is a piece of paper on which the user’s private keys are printed. In terms of computer hacking, it is immune. The paper should be stored somewhere safe, for example a safe deposit box, since it is basically cash and if you lose access to the numbers you lose access to your crypto.
Folks with great memories can cross borders with billions of dollars, to the chagrin of customs and border patrol agents around the world. It’s not the most practical way to store Bitcoin, but it’s certainly the most personal.
Many of today’s crypto pioneers are regular folks standing on a paradigm crushing fault line. One foot is planted safely in the FDIC-protected banking world with all its security rich UX, and one foot is in the open scab of the blockchain where the only protection between them and complete financial annihilation are confusing exchanges, clunky wallets, or a string of characters too long to memorize.
So be careful. Bitcoin has given us the power to fully manage our own money, and with that power comes huge risk. Until the products catch up to the technology, we all have to beware.