Remember the fable of stone soup? A traveler comes to a town famous for the miserliness of its inhabitants. He tells them he has the secret of making soup from a stone. They are very excited about this money-saving possibility and gather around him as he places a stone in a vat of boiling water. He mentions that the one thing that makes stone soup even more delicious is an onion. Someone happily contributes one. And then he says perhaps if he had some carrots, and maybe a few chunks of beef. Before too long, everyone in the town has added an ingredient, he removes the stone, and they realize they’ve re-created the recipe for stew.
That is where we are with cryptocurrency. When it first began, the attraction was its freedom from regulation and oversight. That is unlike a bank account, which cannot be opened until you show proof of your identity and address and which is monitored so, for example, if you want to withdraw more than $10,000 in cash, the bank will file a report with the government to alert the authorities to possible money laundering or terrorism. The idea of money that is not issued by or traceable by any government had some appeal to many people, possibly some engaging in criminal activity but also some who just saw government oversight as intrusive or oppressive. Instead of the guarantees that come with an American dollar or a British pound or a Euro, cryptocurrency promised privacy, security, and freedom from any government oversight.
That was the stone in the stone soup of cryptocurrency as it grew from a few techies who could master the calculations required for “mining” digital money. But then, just as watery soup was not palatable without some meat and vegetables, crypto holders began to miss some of the protections of the government-issued currency. The very protections of crypto began to backfire.
Stefan Thomas lost $265 million in bitcoin because he forgot his password. The system only allowed ten tries and there are no “reset your password” or “Who was your first grade teacher?” security questions to retrieve it. He was not alone. The New York Times reported: