Not your keys, still your coins: Why Digital Asset Recovery is a better solution

You might have heard the sad story of Stefan Thomas, the Bitcoin early adopter with 7,002 Bitcoins from 2011 on an encrypted thumb drive—and no password. There are many similar cases, and they’ve become a kind of holy grail for well-resourced, white-hat hacker teams who are prepared to throw millions of dollars and years of research at the problem. Truth be told, these teams probably have bigger jobs on their sites than cracking a few Bitcoin wallets. But be it from a careless loss or a theft, BSV blockchain has a far simpler solution. That solution is the Digital Asset Recovery (DAR) process, which doesn’t require extreme hacking or fancy technology to work.

Thomas’ 7,002 Bitcoins story appeared in the New York Times in 2021 and again in WIRED more recently. It was left over from a job payment in 2011 when Bitcoins were worth less than a dollar each. However, the only remaining copy of that wallet lives on an old IronKey S200 encrypted USB stick, and Thomas has lost the password that decrypts its contents.

In 2023, a Seattle-based startup named Unciphered claims it’s devised an exotic hardware-hacking technique that can extract the decrypted contents of an IronKey S200 (and demonstrated it to WIRED’s writer). This was no brute-force attack—as well as the Unciphered team’s expert knowledge; it involved CT scanners, laser micro-surgery, several chemicals and delicate polishing, electron microscopes, and 3D modeling.

Unciphered said it could solve Stefen Thomas’ 7,002-Bitcoin problem. But there are those other stories that don’t involve encrypted thumb drives or physical access to anything, as well as multiple thefts. Bitcoin lore also has James Howells, who (as of 2022) was still combing through a Welsh garbage dump for his lost hard drive containing a similarly-sized Bitcoin stash. His latest strategy mentions something about AI and robots.

The BSV blockchain and DAR have the answer to both these problems without needing labs full of high-end equipment or years of garbage dump searches. It’s a more human solution and involves Bitcoin miners and legal orders—”technologies” that already exist today.

‘The money of the future’ and ‘not your keys, not your coins’—two incompatible phrases

Throughout Bitcoin/blockchain’s history, media stories detailing lost Bitcoins due to misplaced wallets, passwords, and hard drives have cropped up almost as often as items about exchange hacks and altcoin Ponzi rug-pulls. Some of those tales will bring a tear to your eye, especially if you’ve experienced something similar on a smaller scale (even this writer “owns” a non-life-changing amount of unsplit BTC in an inaccessible wallet).

It’s a frustrating experience, for sure. Amounts that seemed small enough to disregard a decade ago have since become dollar-valuable. They sit there in their wallet address, viewable on blockchain explorers as frustrating souvenirs of something that’s (technically and legally) your property, but completely untouchable.

At least you only have your own carelessness to blame for hard drives and passwords lost years ago. And if it was only a small change that eventually increased in speculative value, it’s possible to convince yourself you haven’t really “lost” anything. But another problem is theft—thieves have also relieved Bitcoin holders of millions of fiat dollars worth of Bitcoin value in hacks and ransom demands. Many of those owners bought their coins at high prices and can put a very real dollar value on their losses.

It’s challenging to tout Bitcoin as “the money of the future” if a hacker or swindler can steal millions from you in an instant, and you have little chance of ever getting it back.

“But Bitcoin is an electronic cash system, Satoshi said so,” people argue. “If someone steals your hip wallet or a briefcase full of cash from your hands, your chances of getting that money back are equally slim.”

They have a point there. However, there’s only so much cash you can fit into a briefcase or steal from someone at once—when your money’s all digital, a thief could take your entire life savings (or worse, your company’s).

Even the physical cash someone steals from your pocket remains your legal property, even if its physical nature makes it difficult to recover. Theoretically, if the thief is actually caught, you can claim your briefcase full of cash back. The game changes in the blockchain-digital world, where records are public and permanent. There are ways to recover your lost coins whether the thief is caught or not… or even identified.

Digital Asset Recovery (DAR) is Bitcoin’s answer

Unciphered’s hardware-based hack of an old IronKey drive similar to Thomas’ took years of expertise, months of work, and millions of dollars worth of equipment to achieve. It was undoubtedly an impressive feat, with its own implications if their process indeed proves successful and marketable (there’s a whole other worm-canning factory of material to consider).

BSV blockchain’s simpler solution is human intervention, processes, and incentives. The Digital Asset Recovery technique, as described by the BSV Blockchain Association, involves the aggrieved party initiating a legal process to establish ownership of the lost coins in question.

Once that’s done, a court or other legally entrusted authority with enforcement powers could issue an order to “freeze” the assets in question. A Notary, acting in a similar fashion to a court bailiff, then translates the legal documents into a machine-readable format and broadcasts it to BSV blockchain’s transaction processors (miners) using something called the “Blacklist Manager tool.” Any Bitcoin unspent transaction outputs (UTXOs) are now unspendable, at least until their lawful owner regains access to them.

This is the part where ears begin to prick up. How do you notify all the miners? Can you, with court intervention, freeze blockchain assets and have them returned to their rightful owners?

The answer to the first question is the “Alert Key.” This was built into Bitcoin’s original protocol code by Satoshi Nakamoto, but deprecated and eventually removed by subsequent protocol-keepers years after Satoshi left the project. Put simply, it allows for a message to be broadcast to all miners simultaneously, with instructions on what to do. Since the BSV blockchain restored Satoshi’s original protocol rules, the miner Alert Key is coming back—and the Blacklist Manager tool deals specifically with it.

The second question is thornier, at least among Bitcoin’s cypherpunk set. But the answer is, yes, you can. And before anyone suggests this interferes with blockchain’s oft-claimed “censorship resistance” and uses it as an argument to steer clear of BSV blockchain; we should remind you that this potential exists on any blockchain. If you think miners on whatever blockchain you love most can’t, or shouldn’t, freeze UTXOs following a court order, you’ll probably have to defend that position in court.

The BSV Blockchain Association made this short instructional video to explain how DAR works:

Miners’ incentives to cooperate with these legal orders are just as human as the law itself. Courts look very unfavorably upon established businesses that defy their orders, as would plaintiffs. Miners that don’t comply with a UTXO freeze order could also find blocks they solve “orphaned” from the blockchain (i.e., not counted), meaning they wouldn’t collect any subsidies or rewards for processing a block. The latter argument also applies to mining operations outside the jurisdiction that issued the legal order.

Moreover, the ability to use legal processes to recover lost or stolen assets is very familiar to non-technological individuals and businesses—the exact kind Bitcoin will eventually need to win over if early adopters want widespread use (and the riches that could come with it). In fact, it’s not just familiar. It’s expected. The CEO of a publicly-listed enterprise, after just losing a hundred million dollars worth of Bitcoin, is never going to shrug and say, “Eh, not my keys, not my coins. Code is law.”

The tale of Stefan Thomas’ IronKey reminds us: Bitcoin and technology are human

One irony of Stefan Thomas’ story, at least according to WIRED, is that Unciphered’s team managed to crack the technology that locked away his Bitcoins, but not the wallet owner’s willingness to accept their help. “We cracked the IronKey. Now we have to crack Stefan. This is turning out to be the hardest part,” said the company’s director of operations, Nick Federoff.

In fact, Thomas has shown “an unusual lack of urgency” in gaining access to his lost coins, as WIRED put it, despite the media attention his lost coins have gained. According to their report, he not only turned down Unciphered’s approach but has slow-walked other potential lock-pickers as well. Perhaps he’s genuinely not in any hurry, or perhaps he’s made enough money elsewhere to not care, the article speculated.

“When you’re dealing with people, that’s always the most complex part. Code doesn’t change unless you tell it to. Circuitry doesn’t either. But humans are incredibly unpredictable creatures,” said Federoff.

These words remind us that, in the end, Bitcoin is a human creation and a system based on human activity. Upon realizing this, the old cypherpunk mantra “code is law” starts to fall apart. There would be no code without humans, and Bitcoin wouldn’t have any value if humans didn’t bestow it. Humans feel an emotional loss if something is taken from them unfairly—whether by another human or a cold and unfeeling machine.

Why, then, shouldn’t humans also be able to intervene to enforce human-established property ownership laws?

Watch: Digital Asset Recovery – Freezing and Seizing Lost and Stolen Assets

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