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The Biggest Bitcoin Hacks and Thefts of All Time

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The story of bitcoin’s biggest hacks and thefts is the story of bitcoin itself. From its early days and its first hack, to the biggest theft of all time, bitcoin’s utopian promises often turned into a dystopian reality where scammers, thieves, unaccountable and often amateur exchanges, some, even fully anonymous, proliferated in a wild west of euphoria and hope for a new future combined with devastating, and at times, tragic loss.

It is estimated 10% to 20%, if not more, of all bitcoin in existence is held by criminals who exploited distrust in governments and their laws to give themselves freedom from any accountability whatsoever. Code is law so theft is right in some quarters, so much so that some argue the thief, in fact, is to be hailed as the smartest of them all. Moral rules should not apply, according to some, instead the free market and self-interest will magically provide the best exchanges. When things go wrong, it is always the victim’s fault.

For your pleasure, entertainment, and hopefully some information, I present below the wall of shame, starting with a less obvious and perhaps incorrect choice for the repugnant honor of the biggest bitcoin hack and theft of all time.

Bitcoin’s Defining Event – MT Gox’s Hack in 2011

As the world was looking for an answer to the banks going under, bitcoin rose on the promise of no more boom and bust, no fractional reserve money printing, cheap if not free and fast if not instant global transactions. Price skyrocketed from pennies to around $12 with general opinion, while overall balanced, mainly positive and moving towards considering bitcoin as the next big thing. Then…

Jed McCaleb, founder of Ripple (publicly announced he was to sell around one billion of them crashing the price to less than pennies) who then found Stellar (a Ripple like currency), created MT Gox to trade Magic the Gathering Cards sometime in 2010, but adapted the exchange for bitcoin trading and sold it to Mark Karpeles in March 2011.

The details of the sale are not fully known, except that McCaleb was entitled to audit MT Gox to ensure he receives part of the profits for six months or so after the sale. That auditing account was allegedly hacked in June 2011 with the hacker selling around 500,000 bitcoins, sending the price to pennies.

Hacking

This is probably the most defining event in bitcoin’s history for the digital currency was, for the first time, shown to be insecure and easily stolen. Coders and the general public dismissed the new currency as unworkable. Wired called it dead. Almost everyone left with bitcoin price going down and down, but some remained – ancaps (and we assume some techies) – who saw an opportunity to turn bitcoin into a vehicle for mainstream acceptance of ancap ideology (while the techies, now very much a minority, of course just liked the tech bit).

It is at this point, just six months after Nakamoto left (the bitcoin creator), where bitcoin stopped being primarily a technology and became more of an ideology. The focus shifted from cheaper, faster, to a metaphorical Trojan horse that somehow was to bring down governments and banks in a utopia where we all will live happily ever after.

What followed next is probably nature’s way of teaching those who proclaim universal laws, while undertaking as good as no analysis, how they are, just, wrong.

The Biggest Theft in the World – MT Gox 2014

When people found out bitcoin was somehow still around and not forgotten to a dusty archive page for there was still the technology aspect which offered cheap, fast, permissionless, trustless, programmable money, they flocked once more in early 2013, not least because a guy went around reddit giving away hundreds of thousands worth of bitcoin, amazing everyone. Euphoria, once more, was in the air, with price up and up every day. China came, Overstock, Dell, Microsoft, even Times Inc. Then…

As bitcoin reached gold parity with an all-time high of around $1,200, MT Gox, the biggest bitcoin exchange, announced bankruptcy. Almost one million bitcoin, worth at the time more than $700 million, were stolen, creating a new meme, the Bitcoin CEO – a gruesome reminder of the people who were driven to suicide by this tragic event.

MT Gox claimed at the time hackers had exploited a bug in bitcoin’s protocol called transaction malleability which allows coders to change transaction ids, making it possible to, in effect, double spend. Mark Karpeles, the CEO of MT Gox, was not fully lying. An academic study found hackers had indeed stolen from MT Gox by exploiting transaction malleability, but only 2,000 bitcoins, an insignificant amount compared to the overall theft.

Mark Karpeles, out on bail in 2016.

Mark Karpeles, out on bail in 2016. Image courtesy: news24

What happened to the rest we don’t know. 200,000 was found through blockchain analysis, forcing MT Gox to release the assets to the bankruptcy trustee, leaving 650,000 unaccounted. Speculation abounds. There were reports Karpeles, who was arrested and imprisoned last year, recently released, presumably awaiting trial, was spendthrift. The main theory, however, focused on 2011.

A report of MT Gox’s internal transactions, which were leaked, shows bitcoins started missing, if not all of them disappeared, around June-November 2011:

500,000 Bitcoin Held in MT Gox Suddenly Go Missing Around 2011 and 2012

500,000 Bitcoin Held in MT Gox Suddenly Go Missing Around 2011 and 2012 Image Credit Wizsec

New reports state at least 80,000 bitcoins were never there to begin with, suggesting, quite ironically, that it was a fractional reserve from the start.

With a probable trial of Karpeles around the corner, we’re likely to hear more, periodically, about the biggest theft in the world, but many have now moved on, except the creditors who, after almost three years, are still waiting for the distribution of 200,000 bitcoins, worth around $120 million, which should, at this point, happen soon… ish.

Bitfinex – The Faceless Exchange

People woke up last month to hear Bitfinex had a “security breach” which led to the theft of around $70 million. Bitcoin’s price instantly fell by around $200, to then almost instantly recover, somehow, with the theft now as good as not reflected in the price at all.

After more than a month and a half we still have no idea what happened at Bitfinex. They instructed a company no one heard of, Ledger Labs, to investigate, but although you’d think the company would shout from the rooftop that they are so awesome others entrust them with investigating one of the biggest theft in the world, their blog and twitter is very much silent which makes us wonder whether the company is a one-man show contracting out to very, very, busy big names.

As far as we know, there has been no third party confirmation of a hack or theft, so like the previous two, it remains an alleged “security breach”. Zane Tackett, former customer services representative at OKcoin, currently wearing a nicer title as Director of Community & Product Development at Bitfinex, stated they reported the theft to FBI, the world famous criminal investigations authority, which is mainly concerned with domestic matters while Bitfinex is based in…

boat-hong-kong

Well, we don’t really know. Their Hong Kong registered address belongs to a company that specializes in providing a local presence. There is no office as such and it’s not really clear who the directors are either or whether these people even exist.

However, the incident has also been reported to “European authorities,” according to Tackett, which is far more specific than the number of their general loss of 36.067% of total assets. Many bitfinex customers, however, are happy they instantly received 63.933% back of their own money, rather than having to go through a three or four yearlong bankruptcy process. For the remaining 36.067%, BFX IOU tokens from a bankrupt company were issued and an amazingly accurate 1.1812% was recently redeemed.

Bitstamp

Bitstamp gained goodwill by being the only alternative to MT Gox, increasing its market-share while Gox went under. Unlike the previous two, they list their personnel, but although they state they are “The First Nationally Licensed Bitcoin Exchange,” their page doesn’t provide much information, such as license numbers.

However, you can now insta-buy at Bitstamp with a debit or credit card, so we don’t have much reason to disbelieve their claim, but they lost some trust when they were hacked out of around $5 million in 2015.

The theft seems to have been a sophisticated attack, with phishing emails targeting bitstamp’s personnel. However, as the theft was limited to just hot wallets, they were able to fully cover it, leading to no direct customer losses.

Poloniex

Poloniex has risen as one of the biggest altcoin exchange with trading volumes of 100,000 btc or more in just one coin on one day. However, no one really knows who they are – they have no about us page – and of course they are not regulated, so it’s probably a disaster waiting to happen.

Furthermore, their team hasn’t really shown much competence. On March the 4th 2014, someone stole 12.3% of their btc (two decimal points are impossible in this space I’m afraid), which at the time was a pretty small amount as almost no one had heard of them. The way they stole them is by, apparently, just clicking withdraw more than once. An easy oversight because, as everyone knows, you can’t really prevent double spending in a centralized database (you can), that’s why we have bitcoin (it’s not).

He just covered the loss, presumably so that we can trust his exploited exchange, and that’s exactly what happened with the faceless exchange now controlling hundreds of millions.

BTC-E

The anonymous Russian exchange makes you wonder whether it is more trustworthy than even regulated exchanges or whether they will run with your money in the next few seconds.

No one really knows much about them, but their team doesn’t seem very competent as they had all their data stolen this month and in 2012 they had about 5k btc stolen:

“On July 31, 2012, the BTC-E Liberty Reserve API secret key was broken. This key was shorter than it needed to be at only 16 characters long. The attacker initiated many Liberty Reserve deposits and injected large amounts of USD into the system, which were quickly sold for BTC.”

It wasn’t much at the time, so we assume they covered the losses, but people keep reporting losses from the data breach which we doubt they’ll cover.

BitcoinTalk

It doesn’t really feel like bitcoin without some occasional news about bitcointalk being hacked. Amazingly, people still go there with around 4,000 online if their stats are to be trusted.

The most recent hack in May 2015. How did it happen? Who knows, they hardly communicate anything and it’s doubtful anyone even looks after the website which has not changed in years.

Its current owner, Michael Marquardt (aka Theymos), who was just gifted the forum by Nakamoto, raised millions in dollars’ worth of bitcoin for a less hackable site a few years ago, but web development takes time, a lot of time, years in fact (it doesn’t).

One Billion Bitcoin Out of Thin Air

Many like to say bitcoin, the protocol, was never hacked, but it was and very early on. Some clever unknown guy found on August the 6th 2010 an exploit which allowed him to “print” one billion coins or however much he liked – 184 billion.

Jeff Garzik sounded the alarm while Nakamoto solved the problem by hard forking. It is the only known instance of protocol exploitation as far as we know – thankfully at a time of no hardfork phobia – if you exclude transaction malleability. Hopefully it stays that way.

Evolution

We can’t have a bitcoin biggest hacks list without some inclusion of drug markets. There have been many, with most taking the form of exist scams since operators are anonymous, therefore they don’t need bother with any made up hacking story.

The biggest, I think, is SheepMarket and Evolution. The latter is a bit more interesting because someone came out stating that evolution’s admins, a fairly big marketplace where you could buy drugs with bitcoin, were exit scamming. Apparently, 120,000 bitcoins were stolen, around $70million.

Mt Gox 2013

This is another not really a hack, but deserves mention because it shows a different sort of hack, a hack of human nature – specifically, a hacking of emotions.

As bitcoin was rising to $260, MT Gox, at the time practically the only bitcoin exchange, froze and went offline. Euphoria quickly gave way to panic and fear with r/bitcoin having almost everyone online. The selloff was brutal, but $50 held and bitcoin (or willy the bot) went on to $1,200 a few months later.

MT Gox was DDOSed, claiming at the time it was a victim of its own success with apparently millions of accounts registering. In response, people left, with other exchanges gaining market share, but MT Gox still had almost a million bitcoin when it went under.

How, is anyone’s guess, with the obvious explanation being that people are lazy, so they just park their bitcoin somewhere and don’t want to bother any further, raising some interesting questions about the extreme end of the free market and just how easily trust and power can be given and abused.

Lessons Learned

It is amazing that five years after bitcoin’s biggest weakness – security – was revealed, which bitcoin barely survived, little if anything seems to have been done to address this very important – if not the most important – matter as shown by the occurrence of one of the biggest theft just last month.

Although segwit is now addressing transaction malleability, the loss it caused was far too small with the main issue seemingly being at a human, rather than protocol, level. However, there are way too many more things that can be done at the protocol level, such as Bitcoin Vaults, but for some reason, they are not even being considered for implementation.

bitcoin-bboard

At the social level, what is obvious and does not need mentioning (although some, amazingly, dispute it) is that individuals who handle our money should be public figures with their full background on display for otherwise they cannot be held accountable. Lacking such accountability, hundreds of millions, understandably, is far too tempting as we have often seen.

An equally important point is that bitcoin security is very hard. Exchanges, in particular, require highly experienced developers who are fully familiar with the bitcoin protocol, the many aspects of exchange coding and how to secure hard digital assets for, to truly secure bitcoin, exchanges need layers and layers amounting to metaphorical armed guards defending iron gates with vaults deep underground behind a thousand doors.

My biggest criticism is however reserved for CFTC because, although there is little that can be done about some incompetents putting up a website, CFTC can, should and must provide an alternative and allow, in my view as a matter of urgency, professional exchanges such as GDAX and Gemini and others, to provide margin and future trading.

Of course the culprits – the thieves, hackers, scammers and amateurs – have the repugnant honor of primary blame, but CFTC holds an almost equal level of blame for they are denying the people the right to flock and trade at professional exchanges which comply with the law and have their USD balances FDIC insured with some even having insurance for hacks or theft with incompetent websites, therefore, ignored and one hopes, eventually, becoming a thing of the past.

Although we are talking about abstract numbers and entities with bitcoin, even after almost eight years, still being something very new, every theft has a human tragedy at the other end. Fathers losing all their savings, mothers left with no retirement, entrepreneurs sent to bankruptcy, young industrious men sent back to nothing. We can of course criticize them and repeat that this space remains incredibly high risk, you might and perhaps will lose everything, but mistakes are made, people naturally dream of a better, richer, future, while traders and some entrepreneurs have no choice at all.

It is crucial, therefore, that my inevitable question of who is next to be hacked of millions finds no answer, at least for a decade, but alas, looking around at exchanges – Poloniex, Bitfinex, OKcoin, Houbi and others – and the lack of choice of professional exchanges, that is, unfortunately, unlikely.

Images from Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3 Comments

3 Comments

  1. sherifX

    September 20, 2016 at 12:35 pm

    You didn’t mention the most recent, and probably one of the biggest hacks: “Hash Ocean”, a cloud mining outfit that suddenly closed shop and ran away with millions worth of bitcoins last summer 🙁
    And as if this was not enough, they opened again under a new name “Hash Poke” [Grrrr]. It is painfully obvious that Hash Poke IS indeed Hash Ocean. Unfortunately not many people seem to notice this. Sad

    • Samburaj Das

      September 20, 2016 at 3:27 pm

      Thanks for letting us know! We’ll be looking into this incident and will include it in the article if it’s deserving of a place, after gathering the facts!

  2. ECGUY

    September 20, 2016 at 3:00 pm

    Respect those that attempt to navigate our new worlds and risk all doing it.
    However, more true than not: Explorers get slaughtered, settlers get rich.

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Bitcoin

Bitcoin Price Gains Momentum as BlackRock Gets Serious About Crypto

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After a week of lateral moves, the bitcoin price rose Monday on reports that one of Wall Street’s biggest asset managers was assembling a team to explore cryptocurrency adoption.

Bitcoin Price Update

The largest cryptocurrency by market capitalization peaked near $6,620 at 08:49 UTC, the highest in six days. At the time of writing, bitcoin was trading near the intraday high of $6,620 for a gain of 4%, according to CoinMarketCap.

Bitcoin held relatively steady over the weekend, with prices hovering between $6,300 and $6,400. The coin’s successful defense of $6,000 – a key technical and psychological threshold – has encouraged bids after trading volumes plunged to their lowest levels of the year.

As Hacked reported Sunday, turnover in the cryptocurrency market fell to $8.8 billion over the weekend. Bitcoin accounted for roughly a third of that total. On Monday, bitcoin’s trading volumes were back up to around $4.9 billion, the highest in two weeks.

Bitcoin is likely to run into resistance north of $6,800 – a region that capped last weekend’s rally. BTC/USD peaked at $6,866 on July 8.

Institutional Bull Run?

Bitcoin’s gains were fueled by speculation that BlackRock, one of the world’s largest asset managers, is planning an entry into the cryptocurrency market.

London’s Financial News, citing unnamed sources, said BlackRock has assembled a working group to investigate blockchain technology and cryptocurrencies. Sources also indicated that the team of exports is looking at what other asset managers are doing with cryptocurrencies and how it can impact BlackRock’s underlying business. The findings of the research will be presented to senior management.

“Like most financial institutions, BlackRock has a working group that meets periodically to exchange information on blockchain and consists of employees from various parts of the business,” a spokesperson for the company said in a statement, according to CNBC.

“We have been looking at blockchain technology for several years, recognizing potential for shared processes and data across market participants, clearing, settlement and reconciliation and simplified securities issuance.”

CNBC believes the working group was first assembled in 2015.

While cryptocurrencies continue to polarize Wall Street, major financial institutions are slowly changing their tack. It was only last year that BlackRock CEO Larry Fink said that bitcoin was merely a “speculative” instrument used for anonymity and money laundering. Now, his company may be on the cusp of entering the market.

Exchanges like Coinbase are betting big on institutional adoption and have created a suite of custodial services aimed at luring this segment of the market. Industry experts believe that the next major bull market for cryptocurrencies will be driven mainly by institutions, marking a significant departure from the retail-dominated surge of 2017.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 497 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Altcoins

Cryptocurrency Market Rebounds as Trade Volumes Recover from Yearly Low

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Cryptocurrency prices were seeing green Sunday, as market activity rebounded from the lowest level of the year with bitcoin and the major altcoins making tepid progress.

Crypto Market Update

Every cryptocurrency in the top-20 by market capitalization was trading in positive territory Sunday. As a result, the total market capitalization of all digital currencies rose by $6 billion to $254.5 billion. Bitcoin’s share of the pie remains roughly 43%.

The bitcoin price edged up 1.7% to $6,363, with the bulls continuing to defend the critical $6,000 level despite repeated downturns.

Ethereum, the no. 2 cryptocurrency by market cap, rose 2.4% to $447.

Bitcoin cash jumped 3% to $719. BCH has shown poise over the past five days even as accusations of node centralization continue to grow.

Ripple XRP rose 1.9% to $0.445. Meanwhile, EOS gained 2.4% to $7.13.

Volumes Hit 2018 Lows

Daily turnover in the cryptocurrency market bottomed fell to around $8.8 billion on Saturday, the lowest since November, according to CoinMarketCap data. Daily trade volumes rose by as much as 20% Sunday, reaching $10.5 billion. At the time of writing, 24-hour volumes were valued just under $9.9 billion.

Since the April downturn, trading volumes have thwarted multiple rally attempts for cryptocurrency prices. Daily turnover has crossed the $20 billion mark only once since June.

As Hacked previously reported, tepid volumes reflect a general decline in retail trading activity on major digital currency exchanges. This is further corroborated by the sharp drop in Google search results for terms like “bitcoin” and “cryptocurrency.” Basically, the half-year market downturn has spooked new traders from entering the market.

Amid the downturn, exchanges like Coinbase have reported a drop-off in app downloads as fewer traders show interest in buying cryptocurrency. Meanwhile, trading apps like Robinhood are still growing thanks to a suite of service offerings that extend far beyond cryptocurrency. Robinhood began offering cryptocurrency back in February but still maintains a thriving platform for traditional markets, such as stocks and ETFs.

Several leading exchanges have announced plans to relocate to jurisdictions with friendlier policies toward cryptocurrency. Malta, a tiny Mediterranean island state, has managed to lure Binance and OKEx to its shores thanks to favorable regulations.

As Hacked’s James Waggoner recently showed, much of the downturn in crypto trading activity has been associated with fears of a regulatory clampdown in jurisdictions like the United States and South Korea. In the case of China, those fears were realized last September when policymakers issued a blanket ban on cryptocurrencies and initial coin offerings.

However, a “tectonic shift” in regulatory thinking is currently underway, which could pave the way for a renewed uptrend in cryptocurrency markets. Case in point: the U.S. Securities and Exchange Commission (SEC) has declared bitcoin and Ethereum to be non-securities. So long as there is no conveyance of ownership, ICOs may also fall under this favorable regulatory purview.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 497 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Where Do Bitcoins Go When They’re Lost?

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Although it could conceivably happen with any cryptocurrency, the conundrum of lost Bitcoins is the most common because of its market dominance and stratospheric rise in prices. Having been around since 2009, there has been a lot of time for people to lose track of where they put their Bitcoin or how to access their private key, and the result is a sizable portion of the existing money supply being assumed lost.

A Lot of Crazy Stories

Every few months there is a major news story about some dramatic way someone lost their Bitcoin or tried to recover it. The issue is that in the beginning, no one knew how much Bitcoin was going to be worth. At the prices they bought it at (early on), they had no incentive to put much thought into how they were going to store it.

This is how you end up with stories like the IT worker who wasn’t paying attention and threw out the wrong hard drive. Now he is trying to excavate the local landfill to find his approximately $117 worth of Bitcoin.

People have also gone through the trouble of hiring experts to crack their hardware storage device, or getting themselves hypnotized in order to remember their passphrase. With every wild story we hear, there are likely 100 more cases where someone either hasn’t realized they lost their Bitcoin yet, or haven’t announced it to the world as lost.

Identifying Lost Bitcoins

It is actually quite difficult to determine how many Bitcoins have been lost, since people are unlikely to report their errors to the world. Bitcoin can be lost in numerous ways: by sending to nonexistent addresses, losing the hard drives, forgetting passwords, or even something as morbid as someone dying without passing on the access to their private key.

Chainalysis specializes in analyzing the Bitcoin blockchain to track down criminals or tax evaders, but they also have performed a detailed analysis of the money supply. By looking at all the coins that have been held for a long period of time, and then examining how they reacted during forks in the blockchain where further action would normally have been required, they have been able to get a general estimate of the amount of Bitcoin that has been lost. Right now, it is estimated at $2 billion USD, but that number may vary as time goes on.

Much of this becomes educated guesswork. For example, the 1 million BTC that Satoshi Nakamoto holds and has never traded are assumed to be lost. No one knows what has become of those coins or whether they will surface again, so assumptions like this must be made.

A New Industry

With a limited amount of Bitcoins ever planned to be minted, these lost Bitcoin will become more and more coveted as time goes on. A whole cottage industry is beginning to spawn for the “treasure hunters” who seek to recover lost Bitcoin. With approximately $20 billion USD on the table, there is plenty of incentive for companies to find ways to recover this money.

As a result of the high potential payoff, professionals are starting to offer their services in recovering lost coins. It is possible to hire a password recovery experts or a data recovery specialist who will help you gain access to your missing funds. These skills were previously employed in recovering data on computers, but with Bitcoin’s unexpected rise in the last few years, there is now huge monetary compensation available to those who are good at it.

These professionals either charge a fixed fee or a percentage of the recovered funds, which could work out to be a very lucrative business. We know the market is big enough, but the question is how possible it is to recover much of the lost cryptocurrency.

As such, even with this new trend emerging, everyone should be taking the time to secure their cryptocurrency by making backups (hopefully multiple backups) and storing them in safe places. And although it sounds crazy, you would do well to consult a legal expert about formulating a solution that would give your family access to your Bitcoin if something ever happened to you.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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