Cryptocurrency has been a groundbreaking financial development that allowed individuals to reclaim control of their finances from banks. As the popularity of Bitcoin surges, and more people start using cryptocurrencies, there are going to be incidents that result in loss. Theft, misplaced crypto, and cryptocurrencies sent to the wrong wallet address are unfortunate, albeit realistic issues that crypto users and investors face.

Every year, billions in cryptocurrency are lost, stolen, or misplaced. So, if it’s happening so often, what is being done to mitigate it? Can lost crypto be recovered? Can you get your crypto back if it has been stolen?

In the first half of January 2024, $20,694,000 in Bitcoin was stolen. In 2023, total losses due to Bitcoin theft totaled $1,748,295,081. Obviously, there is a lot at stake. Cryptocurrency may be accessible to a broader audience, including people who may not be in a financial position to obtain other types of financial assets, but that doesn’t mean it is secure. The stakes are high, and crooks are always looking for a way in.

If you own cryptocurrency, there are a few things that you need to know – and what to do if your Bitcoin or other cryptocurrencies are in jeopardy.

How can Bitcoin be lost or stolen?

There are several ways that cryptocurrency can be lost or stolen. While it is true that the blockchain does offer some protection, it is not nearly enough. What’s more, the crypto ledgers render all transactions final. This means that they are not refundable for any reason. There is no one to appeal to, it’s just your loss.

Knowing the common ways that crypto can be lost or stolen can help you take preventative measures and hold on to your crypto so that you can avoid losing it. Just know that sometimes, you can’t avoid it, especially when theft is involved. Sometimes you simply cannot stop the thief.

Lost Bitcoin – Human error is often to blame for Bitcoin loss. When a person loses their cryptocurrency, it is usually because they have done something wrong or made a mistake. Two of the most common reasons for crypto loss are:

    • Sent crypto to the wrong address – The protocols for crypto and Bitcoin trading are not reversible. Once you begin a transaction, it cannot be reversed or canceled. So, if the crypto is sent to the wrong wallet address or the wrong user, that action cannot be undone. The sender suffers a loss that can’t be rectified while the recipient gets an unexpected surprise. It doesn’t seem fair, but that is why it is so important when sending Bitcoin to check, double-check, and triple-check the wallet address to make sure it is correct.
    • Crypto not stored properly – Crypto storage is another common way that crypto is lost. This often occurs on a crypto exchange. Over time bad actors can steal crypto from the exchange when the owner is holding it there. That’s why it is important to stick with a reputable exchange for crypto storage. A reputable exchange will have more safeguards in place to discourage hackers and cyber-attacks
    • Zombie coins – These cryptocurrencies have addresses that are seemingly dormant. They have not had any activity for a very long time, often years. However, there is a possibility that they could still be accessed. But no one knows how to do it.

Stolen Bitcoin – There are quite a few ways that Bitcoins or other cryptocurrencies can be stolen. Many of the schemes are modified financial schemes committed in real-time. Some of the more common methods of crypto theft are:

    • Hacking the exchange – The blockchain is pretty solid and not easily hacked, but the exchange itself can be very vulnerable. It is not uncommon for exchanges to be hacked. A cold wallet (offline hardware storage) is the safest way to protect your digital assets. A hot wallet (online storage) may give you more control, but it is still more prone to hacks.
    • Exit scam – The scammer approaches individuals about investing to raise money during an Initial Coin Offering (ICO). When they get the funds, they simply vanish, along with the investors’ crypto. There are several types of scams related to this, like the “rug pull” scam. Best bet, stick with trading established, verified currencies and avoid ICOs.
    • Phishing – The scammer sends a legitimate-looking email, usually with an attachment or link. The target opens the email and clicks the link or opens the attachment. This can either load malware on the device or take the target to a spoof site that captures their information, giving them access to accounts and more. If you receive an email from someone you don’t know, don’t open it. If you receive an email from a business you know, don’t click any links in the email, and don’t open any attachments. Go to the business’s website or take other steps to verify the authenticity of the communication.
    • Social engineering schemes – The crooks use social media to attempt to establish “relationships” with their targets to gain their trust. Then they send links through the messaging system. They may also do this by posing as law enforcement or officials of a government agency. They send the target to a fake website that steals their information, or they trick them into giving them the recovery codes for their wallet. Never, ever, ever give your crypto recovery phrase to anyone, and do not install apps that aren’t from reliable, trusted sources. If you don’t know the person sending you an email, do not follow any links or open any attachments. And remember, scammers can pose as people you know, so verify their identity before trusting the link or attachment.
    • Private key or password theft – Once malware is installed on a device or computer, it can gain access to email, notes, accounts, and even scan keystrokes. If you have your private key to your crypto wallet on there, the malware will almost certainly find it. Malware can come from email attachments, sketchy websites, and even private messages. Don’t open messages from people you don’t know. As for your key, keeping a physical copy is certainly an option, but if you properly lock and encrypt it, you can minimize your risk even if it is kept online.
    • Hacking devices – Mobile device hacking, including phone hacking, is on the rise and thieves are stealing millions. Having two-factor authentication on all devices may not be convenient, but having all your crypto stolen is even less convenient. It is also a good idea to install good, reliable anti-virus software.

What happens if your Crypto is stolen?

If your Bitcoin or other crypto is stolen and it was stored on a cryptocurrency exchange that was breached or a hot wallet that was hacked, you can likely take legal action. While hunting down stolen bitcoin is not easy and often fruitless, technology is rapidly advancing and there may be ways to pursue stolen bitcoin that weren’t available just a couple of years ago. 

Are stolen Bitcoins traceable?

It may be possible to trace or track stolen Bitcoin, but it can prove difficult if not impossible. You can monitor the blockchain, but cryptocurrency is by nature anonymous, making it very hard. Also, the thief will often move quickly to mix the crypto and then trade it for cash on an exchange. Once that happens, any trace of it is gone.

Can scammed Bitcoin be recovered?

If you’ve been the victim of a cryptocurrency scam, there are several routes you can take:

    • File a complaint with the appropriate federal agency (FTC, SEC, or CFTC)
    • File a lawsuit against the scammers
    • Report the scam to the crypto exchange
    • Arbitrate and/or sue the exchange
    • Hire an attorney who specializes in crypto scams

A cryptocurrency attorney can help you with any of these and file the complaints for you as well as follow up and pursue the case. There may be instances where the exchange is responsible for other entities. Your attorney will have that information and be able to go after all responsible parties to help you recover your crypto.

If the scam crosses national borders, it is best to get an attorney involved. They can help you file complaints and reports with appropriate and relevant law enforcement agencies. They will also help you manage the case by communicating with the various legal entities. If your case goes to court, your attorney will be there to handle it all for you.

Can you recover lost Bitcoin?

Typically, Bitcoin is considered to be unrecoverable due to the security of the blockchain. While it makes it very difficult to counterfeit, it also makes all transactions permanent. They cannot be reversed. That means once someone has your cryptocurrency in their possession, they have them for good. 

However, some fairly new technology allows people to recover digital assets, including Bitcoin – primarily if a person has lost their password. This makes some lost Bitcoin recoverable.

While certain lost Bitcoins cannot be recovered, such as a hard drive that was disposed of or corrupted, some can. For example, a forgotten password is not a total loss if your private keys were encrypted, or if you had private keys but your hard drive failed.

There are data recovery companies that can help with lost Bitcoin recovery, but many wallets that are opened during the recovery process are empty. So, if you aren’t certain that you have substantial crypto in your wallet, it might not be worth the expense to break into it.

If you have a stuck transaction because the fee you set for the transaction is wrong, some wallets support a feature called “replace-by-fee” (RBF). It lets you replace a transaction that is stuck and issue a corrected one.

If you have lost access to your cold storage wallet due to damage or hardware failure, you may be able to use a recovery seed if your wallet supports it.

If you made a mistake and your crypto went to the wrong wallet address, it is impossible to reverse the transaction. The only thing that you can do is reach out to the owner of the wallet and see if they would refund the transaction. If they do, you will get your crypto back. If not, you may see if there are legal avenues you can take.

Lost or Stolen Bitcoin? A New York Cryptocurrency Attorney May be Able to Help

Has your Bitcoin been lost or stolen? Have you been the victim of a cryptocurrency scam? The legal team at The Litvak Law Firm can help. Call today at 718-989-2908 to schedule a consultation and speak with a crypto lawyer about your case.

We will review the specifics of your case and discuss your options with you. We will make a plan and get to work protecting your digital assets and recovering them when possible. Don’t just accept the loss. Don’t let the bad guys get away with your money. Call today and take action.