Photo: Jonathan Raa / NurPhoto via AFP
A case in which a man lost access to $11,000 of cryptocurrency has prompted a warning that some people might not realise the limits around access.
The man complained to the Insurance and Financial Ombudsman scheme.
He had created a cryptocurrency wallet and shortly afterwards was targeted by scammers who instructed him to open it and transfer the cryptocurrency to them.
When his bank alerted him to the scam, he stopped the transfers with $11,000 remaining in the digital wallet.
When he tried to access it later he was unable to do so. He was asked to use a back-up file but could not find it.
He told IFSO the platform should reimburse him. He said he was not adequately informed about the need to back-up the wallet and there were no clear warnings or prompts about the risks, he said.
Insurance and Financial Services Ombudsman Karen Stevens said crypto platforms had an obligation under the Consumer Guarantees Act to exercise reasonable care and skill.
The IFSO scheme looked at the information and prompts shown during the wallet set-up process, additional information available through links on the setup screens, the platform’s actions the issue was reported, and the platform’s terms of use.
She said, during set-up, the app displayed screens explaining that the wallet should be backed up, the back-up was the only way to recover funds if access was lost, and the platform could not access or restore wallets on behalf of customers.
The set-up screens also included links to further information explaining how wallet back-ups worked and the consequences of not completing one.
“We found no evidence that the platform failed to exercise reasonable care and skill. The information about backing up the wallet was presented during set-up, and additional explanations were readily available.
“We also noted that the platform took reasonable steps to assist [the man] once the issue was identified, but recovery was not possible without a back-up file. The platform’s terms clearly stated that customers are responsible for backing up their wallets and safeguarding access.”
The complaint was not upheld.
Alex Sims, a professor in the department of commercial law at the University of Auckland and an associate at the UCL centre for blockchain technologies, said people probably did not realise the limits on accessing cryptocurrencies and education was needed.
‘Although it does depend on the platform being used as many cryptocurrency platforms will hold and control the cryptocurrency, but this platform didn’t do this.”
Stevens said cryptocurrency platforms were different from traditional banking services and it was vital that people paid close attention to the set-up instructions.
Internationally, there have been cases where people have accidentally lost access to their crypto wallets, and lots millions of dollars.
A Welsh man said he unintentionally dumped 7500 bitcoin units in a landfill.
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