What Happens if a Wallet Provider Shuts Down?

You go to log in to your cryptocurrency wallet, and the unthinkable has happened—the wallet no longer exists. What do you do? And before you claim this would never happen, know that it already has, and many people have lost everything.

If a wallet provider shuts down, not only should you receive some advance notice, but even if you don’t, your seed phrase should be enough to access your wallet from any hardware wallet—thus reiterating the importance of seed phrases. Read on to learn more about what happens when a wallet provider shuts down.

1. There Should Be Notice

If your wallet provider is reputable and a legal cryptocurrency wallet, there should be some warning before they shut down. While laws vary from country to country, in general, a reputable company will send you a notice with 15-30 days to withdraw/move your money from their platform.

Additionally, reputable companies will often provide ways for you to claim your money for several days after the cessation of operations. Again, timelines vary based on the country of operation, but in many places in the US, 6 months must be given for consumers to claim any funds belonging to them before a company ceases operation.

2. Use Your Seed Phrase

It does happen that wallets go under without notice, and if they aren’t registered with any particular government agency, there may be no warning other than when you try to log in again. In these cases, you’ll need your recovery seed phrase, which you should be able to use to recover your balance on any wallet platform.

This is one of the main reasons it is necessary to ensure you write your seed phrase down correctly and that you don’t lose it or forget it. As we have mentioned many times before, we highly recommend having at least two copies of your seed phrase, hidden in separate and secure places to ensure you have a backup in case the unthinkable happens.

3. Pursue Legal Action

Unfortunately, there are some cases where legal action may be required. One of these, let’s call it option A, in which the wallet company was not legally registered and did not actually connect to a blockchain—rather, it was a scam just stealing people’s money. In these cases, users will try to access their wallet only to find that it is gone, and their seed phrase will not work for recovery, even when they are certain it is the correct phrase.

This is sometimes called a rug pull scheme, where the scammer builds a platform and may even make many legit-looking aspects before taking everything and running from the law. Sadly, this has happened too many times for us to count, with one of the most famous being the Squid Game Token, which only lasted a few days before the creator(s) ran with everything.

Option B is when a wallet company goes bankrupt, and then instead of allowing users to claim their funds, they spend them to cover some of their losses and expenses. This is also not legal, though some companies may try to convince you as such. Additionally, some of the companies in option B overlap with option A, and without legal registration, there may be no easy way to claim your funds.

In either case, you should seek legal representation. Luckily, in most countries, consumer protections for matters having to do with banking and investing are ironclad. There are even things companies are prohibited from saying when they advertise to you as a potential consumer. Generally, when a wallet operator goes under in either of these two cases, there are many individuals left without access to their funds. Often, there will be one lawyer for all dependents, or a class action lawsuit for everyone who used the provider.

Don’t get too excited however, as in many of these cases, such as in the case of the Squid Games Token, it can be hard to track down the creators of these platforms to force them to stand trial. Meaning, even with filing and attaining a lawyer, you still may end up with nothing. (Though please file a fraud report in the case the perpetrator is eventually found).

4. Be Prepared to Lose Everything

We don’t like discussing this, but it must be done. While a wallet provider going under is not always the end of the world, if the wallet was a platform-specific wallet and went under because the platform went under, then you need to be prepared to lose everything.

This is one of the many reasons we recommend proceeding with caution when it comes to investing in unknown projects and blockchains—because unlike most traditional stock investing, you truly can end up with nothing at the end of the day. So if you find yourself unable to log into your wallet, one of the first things you should do is a quick Google search as to why. If you see the company is gone entirely, you may just be out of luck.

5. When in Doubt, Reach Out

We know it is difficult to stay calm when facing a situation which may mean the loss of your entire investment portfolio, but know that just because you can’t log in doesn’t mean the worst. Take a deep breath, and first try to check your email for any information about a coming closure or the platform being offline. If there is nothing there, then turn to Google. If that also yields nothing, try customer service. Often, when a company goes under, they still keep employees for a few days for administrative cleanup.

If you send a message and never hear back, then it may be time to panic. We recommend reaching out to any friends with the same wallet to see if the issue is widespread. If you don’t have any friends, social media platforms may be able to help. And when all else fails, file a fraud report and call a lawyer for a consultation.