The One About Losing $2.8 Million Dollars in Bitcoin Part 1

Back in 2012, a few friends of mine wanted to buy Bitcoin. At the time, this was not an easy task. We had a relationship with one miner who would meet us at a local gas station for an in-person transaction. This is actually how it went down back then. You would meet some dude at a Minute Mart and make the deal over dollar chili dogs and fountain soda.

Unfortunately, he had recently moved away and was not able to sell us as much as we wanted. We hadn’t used Mt. Gox yet. Websites like Coinapult were just getting started. Our best option was to send an international wire transfer to an exchange based out of Poland. I can’t remember the name, but I think it was through BTC-e, which was later shut down for being part of an international money laundering scheme.

We pooled together about $550 amongst friends and I went to the local PNC Bank in State College, PA to make the transfer. I had never done a wire transfer before, let alone an international wire transfer. I was 19 and a sophomore in college, most likely dressed in a tie-dye t-shirt and heavily worn jeans.

The bank teller did not want to make the transaction and immediately called a manager. The manager was like “you are definitely getting scammed.”

And I’m like “No, I’m buying Bitcoins and you should make it so I can get them from PNC instead of this company in Poland.”

After some fuss he let the transaction happen and I waited a few days for the funds to clear. Sure enough, they made it to the exchange and 55 Bitcoin was sent to an address I had given them.

I remember staring at the Bitcoin-qt GUI on my 2011 Macbook Pro (every college student at the time had one).

Balance: 55.00000000 BTC. 6 confirmations.

I remember thinking how crazy it was. I owned the private key. I literally had $550 on my computer. It was mine and under my control. $550 was more money than I paid in rent. It was almost certainly higher than the current balance of my bank account too.

I thought to myself how I better protect it. I decided to encrypt my wallet to make sure no one could steal the Bitcoin if my computer was hacked. I also knew because it was locally hosted, I would have to use a strong password to protect from brute force attacks. I did it and kept the password burned into my brain, probably because I was too lazy to find a piece of paper to write it down.

(I think you can guess where this is going)

The next day, I met up with my friends to divvy out their portions. I opened my laptop pasted in my friend’s Bitcoin address. The program prompted me to enter my passcode to unlock the wallet for sending.

Incorrect password.

Incorrect password.

Incorrect password.

Okay… that was not good. I had forgotten the password.

No worries though, I had the private key so I could create a dictionary attack and unlock it later. This was actually my first thought. I never even worried I forgot the password and immediately figured I would eventually unlock it. I thought of it as a CD, because I figured the price would go up and I was broke and it was inevitable I would spend it if I had access.

By now you may have realized that I didn’t actually lose $2.8M. That just happens to be how much the Bitcoin is worth today. I lost $550 in 2012.

I apologized to my friends and made a plan to pay them all back and eventually did. We also found a new way to buy Bitcoin using a company called Coinapult. You would go to the red phone at Walmart or CVS and complete a MoneyGram. Then you would take that money and transfer it into Mt. Gox to buy Bitcoin. There was no “connect your bank account to Coinbase” option back then.

Now that I was square with all my friends, it was time to start trying to crack the wallet. Stay tuned for part 2.