6 ‘fat-finger’ mistakes that hit crypto holders in the wallet
Fat-finger errors in crypto have led to costly losses and mix-ups. Learn how these mistakes occur and what lessons the crypto industry has drawn from them.
In the world of cryptocurrency, “fat-finger errors” have become infamous for their costly and often irreversible consequences. These mistakes, where users input incorrect information by accident like an extra zero or a wrong wallet address—have not only led to enormous financial losses but also serve as cautionary tales for both crypto investors and institutions. Despite the highly sophisticated technology driving blockchain and decentralized finance (DeFi), fat-finger errors prove that even in this futuristic industry, simple human mistakes can have significant repercussions.
The Meaning and Impact of Fat-Finger Errors
Fat-finger errors occur when users make typographical mistakes while handling cryptocurrency transactions. These errors often involve accidentally sending large amounts of cryptocurrency or paying excessive fees due to a misplaced keystroke. Unlike in traditional finance, where errors may be reversed or corrected, blockchain transactions are immediate and irreversible. The anonymity of cryptocurrency only exacerbates the problem, as it becomes virtually impossible to trace and recover funds sent to the wrong wallet address.
One notorious incident took place in September 2021 when decentralized finance platform DeversiFi mistakenly paid a staggering $23.7 million in gas fees for a single transaction. The user had intended to pay a nominal fee, but a technical error caused an astronomical payment. Thankfully, the miner who received the fee returned the full amount, less 50 ETH (worth around $190,000 at the time), which was accepted as a reward by DeversiFi.
Fat-Finger Mix-Ups in the Crypto World
Fat-finger errors aren't new to the financial world, but in the crypto space, they often carry irreversible consequences. One example of how detrimental these mistakes can be occurred in May 2021 when Crypto.com accidentally sent 10.47 million Australian dollars ($6.86 million) to an Australian couple instead of issuing a 100 AUD refund. The couple used the funds to purchase luxury homes, only to face theft charges when the error was discovered during an internal audit several months later.
A Fat-Finger Error that Went Viral
In October 2021, Compound Finance—a protocol allowing users to lend their crypto holdings—experienced a bug that led to the distribution of $90 million worth of COMP tokens to its users. The error arose from a miscalculation in the protocol's code update. Founder Robert Leshner publicly pleaded for users to return the tokens, even threatening to report non-compliant users to the U.S. tax authorities. Unfortunately for Compound Finance, some users opted to sell their windfall rather than return it.
Fat-finger errors are not exclusive to cryptocurrencies. In 2018, Samsung Securities made a costly fat-finger mistake when it accidentally issued 1,000 shares to employees instead of the intended 1,000 Korean won per share. This error distributed 2.83 billion shares, worth an astonishing 112.6 trillion won (around $150 billion). Although most of the shares were recovered, the incident caused a sharp drop in Samsung Securities’ stock price and sparked legal disputes.
How the Crypto Industry is Learning
As more cases of fat-finger errors emerge, the cryptocurrency industry is taking note of the need for enhanced security measures and safeguards. For instance, some exchanges and DeFi platforms are developing systems to flag potentially incorrect transactions before they are finalized.
This cautious approach stems from cases such as BlockFi's notorious fat-finger error in May 2021, where the platform mistakenly issued Bitcoin (BTC) instead of the Gemini Dollar (GUSD) as part of a promotion. Some customers received as much as 700 BTC (worth $34 million at the time), and while most of the transactions were reversed, some users sold the accidental windfall before BlockFi could recover the funds. This led to significant reputational damage for the company, which declared bankruptcy in November 2022.
Suspicious Fat-Finger Errors: A Possible Laundering Mechanism?
While fat-finger errors are often attributed to human mistakes, there have been suspicions that some are orchestrated as part of sophisticated money-laundering schemes. In some cases, users intentionally overpay gas fees with the collaboration of miners or validators to transfer funds under the radar. This method gained attention when an unknown user paid $90,000 in gas fees for a $2,200 transaction in August 2023, raising red flags among blockchain analysts.
Avoiding Fat-Finger Errors in Crypto Transactions
While blockchain technology continues to evolve, one undeniable truth remains: human error is inevitable. However, there are steps that users and platforms can take to mitigate the risk of fat-finger mistakes. For individual users, double-checking wallet addresses and transaction amounts before confirming any transfers is a crucial step. Additionally, many platforms are implementing enhanced user interfaces that include pop-up warnings and confirmation steps to catch potential errors before transactions are executed.
For institutions, incorporating automated error-detection systems and conducting regular audits can help prevent large-scale financial blunders. As demonstrated by the DeversiFi incident, even technical errors in smart contract code can have disastrous consequences, but swift action and transparency in resolving these issues can prevent further damage.
Reference
https://cointelegraph.com/news/fat-finger-mistakes-crypto-holders-wallet?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound
