Ethereum co-founder Vitalik Buterin has stressed the urgent need for enhanced wallet security solutions to reduce crypto losses caused by inaccessible funds.
On Feb. 28, Buterin shared his concerns on X, pointing out that a lot of lost crypto stems from users being locked out of their wallets rather than theft.
Buterin said:
“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 highlighted a key challenge in that investors who lose access to their funds often have no one to hold accountable. He believes many choose to remain silent out of embarrassment, further complicating the issue.
Buterin’s comment draws further attention to a significant risk of self-custody in the potential for permanent asset loss.
Although self-custody shields users from exchange failures and protocol hacks, it also puts them at risk of losing their holdings due to human error or technical failures. Without safeguards, investors can permanently lose access to their assets.
Recent figures illustrate the scale of the issue. A January report from River estimated that around 1.6 million Bitcoin—worth over $1.5 billion at the time—had become inaccessible due to self-custody mismanagement. This amount exceeds the estimated 1.2 million BTC lost in exchange-related incidents.
Social recovery solution
Considering this, Buterin urged the crypto industry to prioritize wallet security innovations that protect users from such irreversible losses.
According to him:
“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!).”
Buterin has promoted social recovery wallets since 2021. This method employs a multi-signature system, allowing designated guardians to help users regain access to their funds.
Social recovery wallets function like regular wallets, with a single key signing transaction. However, if users lose access, they can request that their guardians authorize a transaction to update the signing key.
Buterin emphasized that this approach balances decentralization with enhanced security and reduces the risk of theft and permanent loss.
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