How Not to Lose Your Coins in 2020: Alternative Recovery Methods
We explore the state-of-the-art in safe storage of cryptocurrency as debates sparked by Peter Schiff’s alleged loss of his funds continue.
When Peter Schiff claimed that his wallet lost his Bitcoin (BTC), many in the crypto community were skeptical. While some believe that Schiff simply lost his password, others, like Ethereum co-founder Vitalik Buterin, highlighted that losing private keys remains an important issue for cryptocurrency users.
Being your own bank is hard
Keeping custody of your own cryptocurrency is quite complex, especially for non-tech savvy users. Most wallets require the user to write down the private key before accessing the wallet. Storing the key can be done by simply writing it down on a piece of paper, a method that is prone to failure through the loss, theft or degradation of the paper.
Using hardware wallets or encrypted digital backups is an alternative, but requires a degree of preparation and technical knowledge that many casual users may find too much to grasp.
In response to Peter Schiff’s loss, Binance CEO Changpeng Zhao argued that storing coins on centralized custodians is safer for most users.
Nevertheless, this inherently goes against the principles of decentralization in the crypto community. Some members pointed to alternative methods developed on Ethereum as a potential solution.
As an alternative to complex storing solutions, the concept behind social recovery is to grant friends, family or even companies the right to restore access to a certain account.
The person losing access to his wallet would be able to call upon “guardians,” pre-selected entities that are authorized to re-assign control of the specific account.
Argent wallet is currently a live implementation of this idea. A user can set other Argent users or even other wallets owned by him as guardians. By default, however, the guardian is Argent itself, using the person’s email and phone as an identity guarantee. Without other guardians this recovery method cannot be removed.
Screenshot from Argent app.
A slightly different method is offered by Ethereum Improvement Proposal (EIP) 2429, developed by Ricardo Guilherme Schmidt and others.
Elaborating on the social recovery concept, it introduces “user secrets” — personal data such as biometrics from fingerprint scanners, a password, or personal information provided in a questionnaire.
This information must then be provided during the recovery process, ensuring that guardians cannot simply collude to steal the user’s wallet. Additionally, the list of guardians is never revealed until the actual recovery procedure is activated.
However, this is still a proposal under development subject to change.
Criticism of social recovery
A commonly cited drawback of social recovery is the reintroduction of trust — this time in friends rather than centralized entities.
Cointelegraph approached Schmidt for clarifications on the EIP. While agreeing that the system isn’t perfect, he maintained that the proposed system is far more trustless than simpler implementations:
“Social recovery is fundamental for adoption, it brings a web2 experience to self sovereign accounts.
The drawback is having to trust others, however EIP 2429 solves the problems of trusting guardians, so we are again in a trustless system, which is what we all love in Ethereum.”