Fireblocks in Trouble Over Loss of More than $70 Million in Ethereum

News / 23.06.2021

Fireblocks, a crypto custody firm, is facing a lawsuit from Stakehound over the lost access to more than $70 million worth of Ethereum, according to Calcalist.

Stakehound reportedly entrusted the company in question with the safekeeping of wallets’ private keys totaling 38,178 ETH. Clearly, the Israeli-based company did not do a good job in securing them.

Who is at Fault?

From the Tel Aviv District Court lawsuit, Fireblocks lost the private keys due to an employee’s human error. However, the lawsuit also stated that the private keys were not simply lost as Fireblocks, and as earlier agreed on, did not transfer relevant keys to Coincover.

Fireblocks uses multiparty computers to store and backup, private keys in Coincover, a private key management company. Coincover, however, was not able to verify the private keys due to a confidentiality contract. As a result, the company should preserve a copy in Fireblocks to recover the keys.

According to StakeHound, Fireblocks did not back up the private keys needed to open a digital wallet and deleted the keys for no clear reason. Fireblocks, on the other hand, have held onto it that they have not done anything wrong. According to them, the private keys were generated by the client and kept outside the platform. 

Shaulov, Fireblocks’ CEO, said it was supposed to be a temporary measure when StakeHound sent some of these keys to Fireblocks. Then, 14 days after its agreement, StakeHound would build a backup.

The Private Keys Were Not Backed Up

But Fireblocks found out in a recent catastrophe recovery exercise that they are no longer kept by the computer that carries the key. StakeHound was informed, and they all realized that they did not have backups. 

According to an official announcement from the firm, the research team of Fireblock partnered with a Stakehound application to produce a set of BLS Key Shares in December 2020 for the credentials associated with the ETH 2.0 staking project.

The company did not keep the backup with a third-party service provider, states Fireblocks. Fireblocks also noted that key BLS shares were not part of their MPC wallet structure. The corporation claimed that there was no influence on production keys.

What Fireblocks Has Been Up to

Fireblocks lawsuit comes about three months after Coatue, Ribbit, Stripes, SVB Capital, and BNY Mellon raised $133 million in the C-Round for the company.

In June earlier, Fireblocks incorporated the institutional network of Cryptocurrency Payment Platform, Crypto.com. Crypto.com COO Eric Anziani stated that integration would enhance its institutional volume and increase its “global-wide” presence.

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.