Why the Cryptocurrency Bull Market Is Exposing Vulnerabilities

2024 is proving to be another volatile year for crypto. Since reaching one Record high In March, the price of Bitcoin fluctuated significantly. There is almost constant speculation about if and when the next bull market will come, but in many ways it doesn’t matter whether the market goes up or down. It is the volatility of cryptocurrencies themselves that continues to attract new investors in search of lucrative returns.

The problem is that although many people are now looking into cryptocurrencies for the first time, they are encountering difficulties when trying to convert them back into fiat. The difficulty lies in storing crypto assets in such a way that you are not locked out of your assets forever. It is estimated that it is breathtaking 20% of all Bitcoins in existence – worth around $140 billion – are locked due to lost private keys or forgotten passwords and seed phrases.

These numbers have likely increased as new entrants have purchased cryptocurrencies for the first time due to this year’s market volatility.
Reuters It was recently reported that demand for wallet recovery firms has surged as more and more retail investors lose access to their holdings. These are often people who are hoping to make a profit and are not familiar with the risks associated with inadequate storage of their private keys and seed phrases.

The dilemma is a stark reminder that the user experience in crypto lags far behind that of mainstream investing and banking when it comes to security. Private keys grant a user ultimate ownership and sovereignty over their assets, at the cost of losing all assets if they do something wrong. Alternatively, major banks and payment processors such as PayPal provide blocked users with their accounts’ passwords or allow them to reset their credentials through a relatively straightforward and easy-to-understand process – while ultimately maintaining full control of all assets in the account.

With cryptocurrencies, it is too easy to lose funds without the possibility of recovering them. Unlike traditional banking, it is not as easy as clicking “forgot password” and going through the recovery process. It is virtually impossible to gain access to your assets without your private key. In one case, reported by the BBCA man made two attempts to unlock a hard drive containing $240 million worth of Bitcoin before the hard drive encrypted itself and the wallet was lost forever. Essentially, once it’s gone, it’s gone.

This situation is a nightmare for the victims. This means investors not only face potentially significant financial loss, but often also the stress and fear of losing the assets their families need as an inheritance or to support a retirement plan. We all know the feeling of frustration and impatience when you’re locked out of your phone, email account, or bank account. Now imagine that, but without the ability to retrieve or reset your password.

We must help crypto users ensure they do not lose access to their funds. Crypto adoption could reach a
billion users by 2030. If the industry does not take action to modernize its security infrastructure, it risks eroding trust in crypto service providers and deterring new users.

Exchange and wallet providers must implement robust recovery systems so that users can get their funds back in the event of a loss. Our own research found that more than a quarter (28%) of consumers cite the risk of losing account access as a key barrier to increasing adoption. This means companies need to invest in recovery technology and critical backup solutions to prevent worse scenarios.

Market volatility in 2024 has highlighted both the opportunities and challenges facing the crypto sector. While the influx of new investors is a positive sign for market growth, it has also exacerbated security issues that companies need to proactively address.

In this way, they can ensure that the promise of cryptocurrencies is not overshadowed by fear of loss, eliminating a problem that caused so much stress and anxiety to some of crypto’s early adopters.