Of the existing 18.5 million Bitcoin, around 20 percent — currently worth around $140 billion — appear to be in lost or otherwise stranded wallets, according to the cryptocurrency data firm Chainalysis.
Decentralized nature of most blockchains means there is no central authority that can be contacted to recover the funds. Normally it's a good thing and is one of the security promises, but since "to err is human" the internet is full of stories about people losing millions of dollars. So is there a way to recover lost funds without compromising security? My colleagues from Facebook proposed a very interesting solution based on smart contracts. In simple words, user makes a claim that contains addresses of the lost account, address_c
, and the account which should receive the funds, address_r
in case they are successfully reclaimed. In case no transaction from address_c
is signed in a reasonable time-frame, say a year, the claim is successful and funds are transferred from address_c
to address_r
. But if someone sings a transaction from address_c
, it's treated as a challenge and an evidence that the key was not lost. In such case, claimer is punished by losing all fees paid for the claim and address_c
receives them as a payment for inconveniences.
There are numerous possible modifications that can be applied to the protocol in order to change affect its security or latency properties, including but not limited to:
limit addresses from which claims are allowed. This way, only whitelisted accounts, say relatives or trusted friends can submit claims;
limit time. The limit can be applied to the time allocated for dispute the claim. This can be combined with exponential backoff to limit the number of allowed claims within a certain time window;
claim count limit. This can control either an absolute or time-windowed maximum number of claims allowed from an address.
This mechanism has been successfully implemented as a proof of concept smart contract in the Diem (formerly known as Libra) blockchain:
Hopefully similar ideas will find their way into more mainstream blockchains.