Neglecting basic security rules in the crypto world can lead to disastrous consequences. A prime example is the recent Phantom Wallet case, where users lost access to their funds after the company reset the wallets.
After the recent update, users on X reported losing access to their iOS Phantom wallets. According to Phantom, some iOS users experienced app resets. The company responded by hastily releasing a new iOS app update to prevent this issue from affecting any more users.
For experienced crypto holders, an app reset might not be a significant concern. However, some Phantom users reported losing funds due to the reset, as many did not store their seed phrases and currently have no access to their funds. Some have reported losses of hundreds of thousands of dollars, with others losing as much as $1 million.
The Phantom team apologized for the inconvenience and encouraged affected users to contact their support team. However, they are unlikely to be able to provide assistance, as Phantom is a non-custodial wallet that does not store or have access to seed phrases.
Affected users may lose their funds permanently unless Phantom decides to reimburse them using their own resources. At the time of writing, no such announcement had been made.
A seed phrase is a series of words generated by your cryptocurrency wallet that serves as a password to access your funds. Typically consisting of 12 to 24 words from a predefined list, it is used to generate all private keys associated with your wallet’s addresses. It is crucial to store it securely and privately, as losing or compromising it can lead to the permanent loss of access to your funds.
Non-custodial wallets like Phantom and Metamask show users their seed phrases before the wallet is created, but they do not store them. If your phone with the wallet installed is lost, stolen, or damaged, you cannot restore access without the seed phrase.
Unfortunately, less experienced crypto users might skip saving the seed phrase, not realizing its importance. Interestingly, Phantom on iOS only displays a popup window asking, "Written the Secret Recovery Phrase down?” If users press “yes,” the wallet is then created without further verification.
While the quick wallet creation is convenient for experienced users, it is not always suitable for newcomers who could easily skip over a prompt this important.
In contrast, other wallets like Metamask include an additional step: requiring users to fill in the seed phrase. Even if users don’t fill it in, a notification reminds them persistently to secure their wallet, encouraging them to save the seed phrase securely and fill it in to complete the wallet creation process.
While this step may seem annoying to those who understand the significance of securing the seed phrase, it is crucial for beginners who might believe there is a way to recover it.
While cryptocurrency provides significant autonomy in managing funds and removes third-party intermediaries, it also places substantial responsibility on the user. Put simply, if you are not diligent with your seed phrase, there is no one to blame but yourself if something goes wrong with your wallet.