In January 2020, the New York Times published an article titled “Lost passwords to lock millionaires out of their Bitcoin fortunes”. And the story has gone viral because of all the good points.
The whole history of Bitcoin is well documented. The value of Bitcoin rose 224% in the year 2020. But the documentation of the history of Bitcoin is what happens if a user is locked out of their account due to lost passwords?
Lost/Forgotten Passwords Worth $220 Million
Heard of Stefan Thomas? If you haven’t then you should know he’s probably the most well-known Bitcoin owner. Thomas only has two more password attempts to open his account in IronKey. IronKey is a small hard drive that contains the private keys to his digital wallet. His wallet contains 7,002 Bitcoin which is worth around $220 million during 2020. However, Thomas can’t sell the Bitcoin and turn into a millionaire because he doesn’t remember the password.
All of us know the feeling when we can’t remember the password. Most of the time, the simplest thing we all do is try the combination of our most common passwords. Fortunately, most services offer a reset button or a way to recover the lost password.
But with IronKey, there’s no reset button. There’s no customer service line that customers can reach out to unlock the account. IronKey provides users with ten guesses before the account is seized up forever. Stefan Thomas has already made 8 attempts and 2 more failed attempts, and Bitcoins worth $220 million will be encrypted forever.
What the Cryptocurrency Systems Didn’t Account For
The nature of cryptocurrencies is what made them so attractive to users worldwide. However, the same nature of cryptocurrency is working against crypto owners. Traditional banking services like online wallets like PayPal offer people a way to reset the lost passwords or re-access old locked accounts.
Bitcoin and other decentralized crypto exchanges don’t provide this service. The idea behind cryptocurrencies was to allow anyone in the world to open a digital account that isn’t governed by banking bodies. Anyone can create a cryptocurrency wallet without having to register with a financial institution or going through an ID check.
Ironically, a currency that was made to ensure outside of regulation and restrictions, to make financial systems more accessible to anyone in the world. You should know that Thomas isn’t the only one, almost 20% of all Bitcoin is thought to be lost or stuck behind inaccessible wallets. These lost Bitcoins are roughly worth more than $140 billion.
Cryptocurrency & Regulations: Is the Situation Changing?
Anyone who knows anything about cryptocurrency is aware that it’s all about anonymity. However, anonymity doesn’t just create a problem with a lost password, the lack of identity checks provides the money launderers with a chance of laundering money without any regulatory body looking over them. According to a new report, criminals laundered $2.8 billion in 2019 using crypto exchanges.
This might only be a fraction of all the cryptocurrency transactions that happen globally every day. There are other methods that criminals use to launder money, but the use of cryptocurrency has brought it under the scrutiny of regulators.
Compared to traditional marketing, cryptocurrency is still a relatively new space. Regulations that the industry has to follow, how to buy, hold and trade cryptocurrency is always confusing for the customers.
There are different regulations for different centralized exchanges (platforms that users can use to buy, sell and trade cryptocurrencies). As decentralized exchanges offer direct peer-to-peer transactions, the exchanges pose a huge challenge for regulators.
However, a study found out that 81% of decentralized exchanges had weak or no KYC practices. Because of the very nature of the cryptocurrency, most exchanges ignore the implementation of the KYC process.
However, that situation is changing and cryptocurrency exchanges in countries like the USA & EU are being forced to operate under some regulations. As AML 6 Directive mentioned the regulation of cryptocurrencies, crypto exchanges in the USA and EU have to follow some regulations.
What’s Next for Cryptocurrency Exchanges?
Cryptocurrency exchanges have to focus on broader anti-fraud and anti-money laundering processes. The process needs to include better KYC procedures and screening of the customers. Decentralized and online solutions can’t rely on manual ID verification. This is where technologies like DIRO’s online document verification solutions.
Even though it adds an extra element to the customer onboarding process, identity verification offers a secure experience for both customers and businesses. The cryptocurrency space is still growing in its popularity as more people want to try their hands in it. As the interest in the industry grows, so will interest in the safest and most secure ways to trade cryptocurrencies.
DIRO’s online document verification process will help cryptocurrency exchanges to increase trust, security, and user experience.