Man Accidentally Tosses Bitcoins Worth Hundreds of Millions Along With Key

Nine years ago, Mr. Howells of Newport, Wales, inadvertently tossed a hard drive that had on it 7500 Bitcoins he had mined, now worth several hundred million dollars. But that wasn’t the problem. The hard drive also had the private key required to access his Bitcoins. Without that, his Bitcoins are worthless since he can’t access them.

Who Holds the Bitcoin and the Private Key Number?

No one but you has a record of your private key number. Digital currencies are exactly that—digital—so there isn’t a physical instrument like a stock certificate. The same is true for almost all financial instruments as well, but unlike Bitcoin, these are held in digital form by authorized institutional custodians.

CUSIP Numbers Identify Securities But Not Bitcoin

How can custodians know what they are holding? Because every stock, every bond, and every mutual fund has a specific CUSIP number. (Committee on Uniform Securities Identification Procedures). These numbers allow institutional custodians to keep track of millions of financial instruments. Bitcoins do not have a CUSIP number, nor are they held by a custodian.

Risk to Trustees of Holding Bitcoin

“Not Your keys, Not Your Coin,” is a slang expression in the digital currency world. You must have your private keys to access your Bitcoin on their blockchain. But many investors, like the unfortunate Mr. Howells in Wales, lose their private keys. Unfortunately, the private key number is valuable, not the Bitcoin itself. If you have the key, you have the coins, even if they don’t belong to you.

Why Would A Trustee Believe You?

Suppose you try to put your Bitcoins in an IRA (which requires a trust company to hold the account in custody) or in your personal trust being managed by a corporate trustee. What do you give them to signify you are the beneficial owner of the Bitcoin you claim to own? Your phone on which you have recorded your Bitcoin transactions or your laptop or a hard drive on which you have? No one would take these as proof that you are the beneficial owner of Bitcoins.

You would have to give them the private key numbers. If you give your trustee your private keys, and you keep a copy or get a copy if you purchase Bitcoin through a trustee, then you will both have access to your Bitcoin. No corporate trustee would put themselves in this position since you can take an asset they are holding in trust without their knowledge or permission.

Has Bitcoin Blockchain Been Hacked? Yes and No.

Since the trustee of your Bitcoin can only hold it on their blockchain, you are asking your trustee to be responsible for an “asset held elsewhere,” which very few will accept. Blockchains have been hacked worldwide because of bugs in different blockchains, which allow hackers to break through. Anything can be hacked, including the Bitcoin blockchain, which has been hacked at least twice since its inception by hackers exploiting bugs in the code.

Bitcoin Exchanges Hacked

The biggest hacks involving Bitcoin have happened on Bitcoin exchanges which have an alarming record of being hacked and going under. Many investors hold their Bitcoins in digital wallets and hold their wallets—with the keys— on Bitcoin exchanges. Rather than hacking the blockchain, hackers break into the exchange and take the Bitcoins and keys from the digital wallets. The exchange and the investors often lose everything. In 2014, Mt. Gox, a Japanese exchange then handling 70% of global Bitcoin transactions, got hacked. 750,000 Bitcoins disappeared by being transferred to Bitcoin accounts to which Mt. Gox did not have the private keys. Because of this hack, the exchange went under, and investors lost everything. [ii]

Did Mr. Howells In Wales Get His Hundreds of Millions?

No. Mr. Howells apparently wants to do a robotic search for his hard drive, which requires digging up the 110,000 tons of garbage in the local landfill. Fearing environmental damage, the City Council so far has said, “no.”

 

Resources: 

[1] https://bitcoinbriefly.com/hacking-bitcoin-history-of-bitcoin-hacks/

[2] https://www.europeanbusinessreview.com/5-biggest-bitcoin-hacks-of-all-time-2022/

 

Contributing Writer: Subject Matter Expert Charles McCain

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