How to recover your Lost or Stolen Cryptocurrencies?

Cryptocurrencies are stored either in hot wallets or cold wallets. Hot wallets are always connected to the internet and are easier to set up. Access to, and spending these coins are relatively easier in hot wallets. Cold wallets, on the other hand, are storage devices and can range from simple pieces of paper to external storage units like hard drives or pen drives, or even encrypted phones and computing devices that aren’t connected to the internet. Thus, cold wallets are considered much safer than hot wallets. They, however, support a small number of coins as compared to hot wallets.

In order to store a cryptocurrency, you will need:

When someone decides to send cryptocurrency to you over the blockchain, they are sending those coins to a hashed version known as a Public Key. Another key, known as a Private Key is hidden from everyone on the blockchain and only known to the user. The private key can be used to derive the public key.

By using a hot wallet, the private keys will always be stored on a cloud storage which is always connected to the internet. There is always a risk of your wallet getting compromised if hackers manage to get a hold of your private keys. If your private keys are stolen, it is guaranteed that your coins will also be stolen from your wallet. An estimated $1.1 billion worth of cryptocurrencies were stolen by the end of the second quarter of 2018.

Cold wallets are more secure than hot wallets as they don’t require an internet connection, which makes it next to impossible for anyone to try and hack into. This makes it such that you can guarantee the safety of your coins from hackers, as the private keys are stored on a physical device. These devices can range from writing your private key information on a piece of paper to storing them on external hardware devices like pen-drives, external hard drives, laptops, phones or tablets.

The only drawbacks are related to the fact that one cannot instantly transact using a cold wallet, as they require to be connected to a computing device for transactions to take place on a blockchain. Another drawback is the fact that except for one or two specialized wallets in the market, one cannot store multiple cryptocurrencies in one wallet.

In the case of hot wallets, users usually set them up with cryptocurrency exchanges. Chances are that it might get hacked in case of a breach. In this case, the exchange is responsible for its recovery but there is no guarantee that you will get your coins back.

When Bithumb was hacked in June 2018, it was later reported that the company managed to recover almost 50% of the hacked coins. In most cases, and this is the reality of these exchanges — retrieving stolen coins is close to impossible, in which case the coins are lost forever.

In recent times, however, people have found techniques and methods to recover stolen coins. A zero-knowledge proof is one such method where one party (the prover) can prove to another party (the verifier) that something is true, without revealing any information apart from the fact that a certain specific statement is true. In regular blockchain transactions, the details of a particular transaction are visible to every other party in the network. In contrast to this, zero-knowledge transactions only let others on the network know that a transaction has taken place but the details of the sender, recipient, asset class and quantity are unknown.

The ways in which you can recover from cold wallets are:

In a nutshell, coins stored in hot wallets can be subject to hacks and theft resulting in the loss of your coins — unless your designated exchange takes some measures to restore them or tries to retrieve them from hackers. Using cold storage wallets is at the user’s discretion where you are completely responsible for the safety of your wallet, and subsequently your coins.

Bank of Hodlers is a Blockchain based firm that provides services in terms of ensuring security against Crypto thefts, providing Crypto credit cards and Crypto backed loans.

This article was written by our Content Writer, Rohit Baviskar.

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