Users report Alby wallet is emptying out their BTC wallets

Apparently, Alby wallet has the right to move any remaining balances from its wallets after 12 months of inactivity. User reports are already surfacing of Alby removing BTC balances in full.

There are already user reports that Alby wallet, a convenience app for storing BTC using the Lightning network, has emptied out wallets due to its inactivity clause. Wallets with no transactions in 12 months are subject to an inactivity fee, with the right to move the entire balance. 

Even the founder of the SlowMist investigation team was affected. Yu Xian (@evilcos) reported that his Alby balance was removed, losing a relatively small remaining amount of BTC. Despite this, the centralized ability to move funds has worried the crypto community. 

https://twitter.com/evilcos/status/1932373232969203732?ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank

Most self-custodial wallets have no inactivity clause. Alby, however, changed its terms of service in March, adding a section on inactivity fees. Alby wallet is registered as a trader based on the European Union definition, and is compliant with EU law. 

The first reports of Alby moving funds without approval came from a WeChat group, as the wallet is one of the staple apps of Asian traders and holders.

Outside the issue with legacy wallets, Alby continues to onboard more users with highly active social media marketing. The app will also move to a new data center, as recently announced, briefly pausing some of its services. 

Alby claimed user funds are still recoverable when they reached out to support. 

Alby wallet’s updated ToS allows it to empty inactive legacy wallets

Alby is also different from other wallets in that it has a subscription fee for some of its paid services. Alby also tries to manage both new and legacy wallets, with the recent confiscation rule affecting wallets created before 2023. 

“To manage these inactive accounts effectively, we reserve the right to deduct the entire remaining balance from a user’s legacy Alby Account with a shared wallet after 12 consecutive months of inactivity, defined as no completed transactions during that period,” explained Alby in its ToS.

The wallet operator has also opened a helpline for affected wallets. Alby has the ability to retain balances, as it offers a switch between Lightning network and the Bitcoin main chain. Up to 70,000 users may be affected based on the total download count. 

Michael Bumann, Lightning network and Alby wallet developer, also stated that the legacy wallets were affected only after a long transition period with multiple warnings. However, the recent transfers and inability to withdraw funds worried users whose balances disappeared.

https://twitter.com/Bumi/status/1932387016924184591?ref_src=twsrc%5Etfw” rel=”nofollow noopener” target=”_blank

The transfer rule was also meant to nudge users to create new wallets and move their funds from the legacy accounts. Alby was able to move the funds, as it initially launched custodial wallets where it controlled the keys. New wallets leave the holder in control of the private keys and hold no similar vulnerability.

Alby offers a model based on wallet-as-a-service, with a $9.90 monthly subscription. The wallet offers cloud hosting, but can also be self-hosted. 

The ability to hold BTC for a long time is key for most wallet owners, so Alby’s move goes against the main crypto ethos of holding BTC in a self-custody wallet.

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