Millions of Lost Cryptocurrency – A Cryptocurrency Horror StoryPosted: 26 Apr 2022
Recently I had an enquiry about helping to retrieve lost cryptocurrency funds. Typically (and rightly), when funds are sent to an incorrect address or network the onus and responsibility is on the sender. Many people who have been involved with cryptocurrency have made this mistake and to prevent this, it is prudent to send a small transaction to the address and confirm it has been received.
This recent scenario relates to an experienced crypto/blockchain user accidentally sending stable coin (USDT) on the BEP20 to their Coinbase wallet. Unfortunately, Coinbase operates on the ERC20 network (a totally different network) meaning that the stable coin sent from their wallet on the BEP20 network was in essence lost when it was sent to the ERC20 network.
The interesting point here is that Coinbase actually has the capability to integrate the BEP20 network but has chosen and continues to choose not to recognise or integrate it into their platform. The result, millions of dollars of funds sitting in limbo (the estimate being between $12,000,000 - $25,000,000 (see article below)). They haven't been lost; they are just floating around in the ether waiting to be received into the wallets of those unfortunate people who sent it to their wallets on the wrong chain. Having conducted some research into this, I found that around 15,000 people had made the same mistake.
The interesting point here is that Coinbase is aware of the issue but have failed to address it in several ways, thereby not preventing the risk and harm to customers, clients and users (most importantly retail users who may have less experience).
Simple ways platforms could address this issue:
- They should prevent the transfer from BEP20 and any other network to their ERC20 network by creating a pop-up that confirms the network (similar to Exodus) and even prevents such transfer.
- Integrate the BEP20 network (or other networks) so that the 15,000+ people who have lost funds can retrieve them and receive them into their wallets.
It begs the question why have they not done this? Why have they not eliminated the risk? Why have they not helped customers retrieve their funds by simply introducing the BEP20 chain to their platform?
In my view, this is something that needs to be addressed immediately to protect retail investors and rectify an error easily made by anyone. These issues need to be addressed both by the platform and the regulator with the onus being on the platform to protect consumers. Failing to address such issues weakens integrity and trust all around and regulation should extend to both individuals as well as institutions with penalties and sanctions where there is failure to adhere to them.
Interesting further reading:
Article written by:
Nicholas Blomfield is a Partner at Spencer West. He specialises in finance - regulation, acquisitions, project, Islamic finance; asset management - public & private funds and trusts; Investments – venture capital, private equity, start-ups, seed funding; Fintech - cryptocurrency, blockchain
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