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fliptop [soylentnews.org] writes:

A buzzy startup offering financial infrastructure to crypto companies has found itself bankrupt primarily because it can’t gain access to a physical crypto wallet with $38.9 million in it. The company also did not write down recovery phrases, locking itself out of the wallet forever in something it has called “The Wallet Event” [404media.co] to a bankruptcy judge:

Prime Trust pitches itself as a crypto fintech company designed to help other startups [primetrust.com] offer crypto retirement plans, know-your-customer interfaces, ensure liquidity, and a host of other services. It says it can help companies build crypto exchanges, payment platforms, and create stablecoins for its clients. The company has not had a good few months [coindesk.com]. In June, the state of Nevada filed to seize control of the company because it was near insolvency. It was then ordered to cease all operations [forbes.com] by a federal judge because it allegedly used customers’ money to cover withdrawal requests from other companies.

The company filed for bankruptcy, and, according to a filing by its interim CEO [courtlistener.com], which you really should read in full, the company offers an “all-in-one solution for customers that remains unmatched in the marketplace.” A large problem, among more run-of-the-mill crypto economy problems such as “lack of operational and spending oversight” and “regulatory issues,” is the fact that it lost access to a physical wallet it was keeping a tens of millions of dollars in, and cannot get back into it.

“In March of 2018, the Company created cold-storage wallets for purposes of maintaining cryptocurrency assets that included ETH, BTC, and ERC-20 compliant cryptocurrencies,” the company wrote in its filing. It called one of these wallets the “98f Wallet,” because its address ended in “98f.”

“To enhance security, the Company set up the 98f Wallet so that those who can ‘sign’ (i.e., approve) transactions would need to be in physical possession of hand-held Trezor or Ledger hardware devices,” the filing says.

The filing then states that, if the wallet is lost, most users create “seed phrases” that serve as backup codes that allow people to get into the wallet virtually: “Many users store seed phrases on hard copies of handwritten paper, images, and pictures. If a user loses both the hardware device and the seed phrases, it is virtually impossible for that user to regain access to the digital wallet.”

You can probably see where this is going.

Originally spotted on Schneier on Security [schneier.com].

Original Submission