Ethereum Co-Founder Urges Enhanced Wallet Security Solutions
Ethereum co-founder Vitalik Buterin has emphasized the crucial need for improved wallet security measures to reduce crypto losses resulting from inaccessible funds.
Lost Crypto Due to Inaccessible Wallets
On Feb. 28, Buterin expressed his concerns on X, highlighting that a significant amount of lost crypto is due to users being locked out of their wallets rather than theft.
“There’s also plenty of people who have lost huge amounts of crypto to *loss* rather than theft. Software bug, forgotten password, lost device, paper wallet burned down in LA fire, upgraded device without backing up data …. lots of ways for that to happen.”
He also pointed out that investors who lose access to their funds often have no one to hold accountable, leading many to stay silent out of embarrassment, further complicating the situation.
Buterin’s comments shed light on the risks associated with self-custody, as the potential for permanent asset loss looms large.
Challenges of Self-Custody
While self-custody protects users from exchange failures and protocol hacks, it also exposes them to the risk of losing their holdings due to human error or technical issues. Without adequate safeguards, investors face the possibility of permanently losing access to their assets.
A recent report from River revealed that approximately 1.6 million Bitcoin—worth over $1.5 billion—had become inaccessible due to mismanagement of self-custody, surpassing the estimated 1.2 million BTC lost in exchange-related events.
Social Recovery Solution
Given these challenges, Buterin called on the crypto industry to prioritize innovations in wallet security that safeguard users from irreversible losses.
“The truly robust wallet security solutions that our ecosystem needs to build should take loss into account too. (This is a big part of why I talk about social recovery so much!).”
Since 2021, Buterin has been advocating for social recovery wallets. This approach utilizes a multi-signature system, enabling designated guardians to assist users in regaining access to their funds.
Social recovery wallets operate similarly to regular wallets, with a single key signing transactions. However, in case of lost access, users can request their guardians to authorize a transaction to update the signing key.
Buterin highlighted that this method strikes a balance between decentralization and enhanced security, reducing the risks of theft and permanent loss.
