The Parity Multisig Wallet Remains Locked, and Over $280 million Worth of Ether is Still Inaccessible

According to the current Ethereum price, over $280 million USD has been locked up after an unidentified user ‘accidentally deleted’ the code necessary to access the digital wallets hosted by the company Parity Technologies.

Was the Issue an Accident - or a Hack?

The issue was supposedly an accident. The programmer - a self-described ‘novice’ - used the online alias ‘devops199’ to take control of a library of code that was used to enable multi-signature protection for cryptocurrency storage - which requires multiple keys to withdraw funds.

The programmer then executed a ‘kill’ function that deleted this vital bit of code. As a result, the accounts were permanently frozen, and over $280 million Ether has been rendered inaccessible.

What will happen to the frozen funds is currently still unknown. But there has been a lot of speculation as to whether the issue really was an accident at all. Many sources are claiming that they believe the actions to have been malicious and that it was actually a hack.

Who Has Been Affected by the Freeze?

The vulnerability has affected all multi-signature digital wallets launched through Parity since 20th July - the day that Parity last updated its product to recover from the attack that enabled hackers to steal over $30 million of Ether from certain wallets.

Multi-signature wallets are smart contracts that have been specially designed to manage cryptocurrencies and crypto assets by multiple wallet owners. It has more features than a regular wallet, and allows users to set daily withdrawal limits, vote for withdrawals, and vote for ownership changes.

As multi-signature wallets are primarily used by startups or large groups (to prevent any one member or employee from running off with the funds), they usually contain large sums of money. Multi-signature wallets are also a popular way to store cryptocurrencies raised in Initial Coin Offerings (ICOs).

Also, due to the recent surge in the popularity of cryptocurrencies, more people are holding significant amounts of crypto assets than ever before. Storing cryptocurrencies in a multi-signature wallet enhances security, as it means that even if one of the owners’ accounts is hacked or compromised, they can retain full control of their money.

Popular cryptocurrency blogs have reported that Parity wallets make up 20% of the Ethereum network.

Can the Funds Be Recovered?

Some users have suggested that a hard fork is the only way to fix the problem. This is because Ethereum smart contracts are immutable, and no relief measures were included in the code.

Martin Holst Swende, the head of security at the Ethereum Foundation, has mentioned that in order to release the frozen funds, a hard fork is required. In a recent publication, he stated:

“There’s unfortunately no way to recreate the code without a hard fork. Any solution which makes the locked funds accessible requires a hard fork.”

However, this is a controversial upgrading mechanism that a significant proportion of the community is opposed to.

Parity has also issued a statement warning users not to create multi-signature wallets:

"We are advising users not to deploy any further multi-sig wallets until the issue has been resolved , and to not send any ether to wallets that have been deployed and are in use already. "

Parity’s reputation might just have been damaged beyond the point of repair. After the last scandal that resulted in the loss of over $30 million Ether in July, they were slowly beginning to recover.

But now it’s pretty clear that the reputation of Parity has sunk lower than ever before. It’s been less than 6 months since the last hack. Another security breach seemed almost unthinkable - especially in such a short period of time.

It was a complete shock to everyone, and many affected users found themselves at a loss when news of the security breach was leaked.

Looking to the Future

Parity has not yet issued an update on the recovery of the wallets affected.

It has announced that 573 wallets have been affected and their total balance is unknown. Whilst the funds remain untouched, they are still inaccessible. It is likely that there is still a long road ahead before these funds can be fully recovered.

Yet despite everything, the price of Ethereum holds steady. In fact, since the incident occurred on the 6th November, Ethereum has actually increased in price.

eToro’s Senior Analyst, Mati Greespan, has since commented on the issue. He stated:

"There was a sudden drop of $10 in the price of ether when the news broke but it quickly recovered as users realized that it was Parity that got hacked and not the ethereum blockchain.

If anything, the locked tokens have served to increase the price. Less supply equals more demand, and with the scheduled upgrades in the blockchain's protocol, more users are rushing to store their digital assets in ether tokens."

It looks like it will take more than a single security breach to put the brakes on what is currently the world’s second largest cryptocurrency.