Its very easy these days to transfer cryptocurrency to accounts which will accept the payment, but you will never see the funds. That’s right, they just go poof! It happened to me last week, it was a very small amount as I was just testing a theory, but indeed, I lost the coins even though I can see the transaction in the block chain. As a matter of fact, it looks like it ended up on someone else’s LTC wallet even though the coin shows as “unspent”.
This happened as I transferred my LTC to my Bitcoin (BTC) account from within HitBTC, a popular crypto trading platform. There is also a much more simple platform called Coinbase which seems to be more stable. Having come from a development background, I thought this “erroneous transfer” would be impossible to do, or at the least, not allowed. Yet the system did allow me to make the transfer, without any email confirmation. After waiting for days to see the transfer, it never appeared, it’s just stuck in the block chain.
I did research on how to recover my coins, and apparently it is possible in some cases, but you will always need the private key of the wallet you made the transfer to. When trading from within online platforms, they own the private keys to the wallets and in turn, you will never see them. HitBTC claims they will try and recover the coins, but they don’t promise anything and it takes about 2 months for them to respond to an email. My support ticket is in, I will update this post if anything happens, hopefully someone else can learn something here.
Losing my coins motivated me to research ways in which this can be prevented. I mean, there has to be a way to not only prevent this, but to allow for transfer of cryptocurrency from disparate systems, without the possibility of loss. This search led me to the Inter Ledger Protocol (ILP). If this protocol were in place at HitBTC or any other platform for that matter, this would not have occurred. The concept is pretty simple, and is being adopted across accredited financial institutions.
The central functions of the interledger protocol are addressing hosts and securing payments across different ledgers.
Each host sending and receiving interledger payments has an interledger module that uses the addresses in the interledger header to transmit interledger payments toward their destinations. Interledger modules share common rules for interpreting addresses. The modules (especially in connectors) also have procedures for making routing decisions and other functions.
The interledger protocol uses transfer holds to ensure that senders’ funds are either delivered to the destination account or returned to the sender’s account. This mechanism is described in greater detail in the Overview and the Interledger Whitepaper. – The Inter Ledger Protocol (ILP)
Knowing now that i can lose my coins by just making a simple transaction which should not be allowed, i decided to invest in crypto which does have this protocol implemented. I chose just one for now, Ripple’s XRP. Not only will you not lose your coins, the ILP will be able to pay anyone no matter what currency you and they use, crypto or fiat.
Conclusion, BE CAREFUL when transferring crypto, read blogs before you make transfers between trading accounts as this can be dangerous as they own the private keys, and if you can, invest in cryptocurrency which has implemented the Interledger Protocol.