This is the story of Mhd Sami (Here on Sami), who lost $5000 to Freewallet, a custodian crypto wallet. This is great learning for anyone using custodian crypto products.
Update 19 Aug 2021 – Freewallet has settled Mhd Sami funds.
Background
Eating my time scrolling Twitter, a few weeks back, I noticed Coinmonks was tagged in a Twitter thread. I skimmed through the thread and saw someone asking help to get back their funds. This usually happens on twitter, so I just ignored it.
Fast forward, 2 weeks back, I saw the same person still asking help, this time, I wanted to know what’s going on. Therefore, we asked the person to send us a full summary of his case. It looks like a legit case, so we started to dig in.
So What Happened?
There are 2 main parties involved in this case.
Theta is a blockchain network that used Ethereum for its token sale (THETA) and then moved to its own blockchain last year in March.
Freewallet is a custodian wallet solution, which means that users do not hold their own keys.
Here is a step by step summary of what happened.
- Theta network switched to its own blockchain to 15–03–2019, but Freewallet didn’t integrate with the new Theta blockchain.
- Freewallet still showing old ERC-20 addresses for theta token, which is wrong and the main reason for fund loss.
- On 13 Feb, Sami bought some Theta token using Coinswitch. Here is the transaction.
- Coinswitch is an aggregator service using which you can buy cryptocurrencies. You need to provide a recipient address to receive the currency you are buying. Remember, two things are essential, you should enter an address from which you can withdraw, and address should belong to the same blockchain whose currency you are trying to buy.
- Sami entered the Theta token recipient address 0xb27b54cf8330b8f247f4f8963985a50a837dcf52 (Here on Address A) from his Freewallet.
- Other services such as Coinswtich already integrated with the new Theta blockchain. So Coinswitch sends the funds to the new theta blockchain. This is the expected behavior.
- Because Theta network is compatible with Ethereum, so the transaction went through and the fund was credited to the Address A but on Theta blockchain.
- And Sami kept waiting for his funds on his Freewallet.
The main problem
Freewallet team did not integrate with the new Theta blockchain even after a year and didn’t warn users not to deposit Theta token to an old blockchain.
The Solution
Freewallet team can recover the funds if they want, let me explain how:
- Funds are now Address A on Theta blockchain
- Because Theta blockchain is compatible with Ethereum, the Freewallet team can use Private keys of Address A and recover funds from theta blockchain using Theta web wallet.
- Or Freewallet team can give Sami private keys of his own wallet, and Sami will recover the funds.
Theta team already confirmed it.
Current situation
Sami is trying to get his funds from the last 2 months and tried with the Freewallet support team multiple times.
Even Theta team reached out to the Freewallet team, but they didn’t respond. We also sent an email earlier this week to the Freewallet team, but they didn’t respond.
Sami has registered a complaint with authorities, but local enforcement didn’t know where the company is registered.
Learnings
There are two significant learnings here:
- Not your keys, not your crypto
- Don’t trust, verify
Because Sami do not have private keys, so he can’t recover his funds. Besides, whenever you use a new crypto product or just not sure, please do a small transaction to verify things before sending a large amount.
If you read this far and want to help Sami, just tweet using Freewallet Twitter with #helpsami hashtag.
