Cardano founder Charles Hoskinson has introduced a new idea to make wallet recovery safer without compromising user privacy.
In a post shared on June 26, 2026, Hoskinson revealed that he is experimenting with a Cardano smart contract to help users recover lost wallets securely.
The proposed system would allow users to recover ADA and Cardano Native Tokens (CNTs) stored in a dedicated pool by proving they own a wallet’s 24-word recovery phrase through a zero-knowledge proof (ZKP). Importantly, users would not need to reveal the phrase itself during the process.
A Recovery System Built Around Privacy
Hoskinson’s proposal revolves around the use of zero-knowledge technology. Specifically, users would simply prove that they know the recovery phrase that controls the wallet instead of exposing sensitive wallet information.
This would keep private information hidden from both the blockchain and outside parties. With this proposed setup, funds would remain locked inside a smart contract or special recovery pool. Once the contract confirms the proof, it will automatically release the assets to the rightful owner.
Such a system could support ethical recovery efforts by helping users regain access to lost or stolen funds but reduce the need to trust third parties. The goal is to make self-custody easier and safer without giving up the security that cryptocurrencies are known for.
To move the project forward, Hoskinson said he plans to work with several well-known members of the Cardano ecosystem. These include Pi Lanningham, CTO at Sundae Labs, Sebastien Guillemot, a major contributor to both Cardano and Midnight, and the wider Midnight team.
The proposed recovery system also builds on several existing Cardano features, including its UTxO model, Plutus smart contracts, and growing support for zero-knowledge applications. These technologies could help make self-custody more practical but maintain security standards.
The SecondFi Incident
Hoskinson’s announcement comes at a time when wallet security has become a major topic within the Cardano community. Notably, the recent SecondFi security incident brought attention to the risks associated with wallet recovery.
SecondFi, a Cardano-based self-custodial platform, suffered a security breach from its key-generating software that led to losses initially reported at $2.4 million. The issue affected certain wallet addresses linked to the neofinance platform.
SecondFi has advised users not to import their recovery phrases into other wallets because the threat activates when users sign transactions, not during the restoration process itself. The platform is currently preparing a verification and claims procedure for affected users.
Meanwhile, recent Cardano wallet updates have continued to focus on restoration performance, Mithril snapshots, and security improvements.
However, some older versions of SecondFi still use 15-word recovery phrases, which may limit how easily those wallets can work with a recovery system designed specifically for 24-word phrases.
Crypto Industry Searching for Better Recovery Solutions
Across the cryptocurrency industry, managing recovery phrases remains one of the biggest challenges facing users. Notably, standard 12-word and 24-word BIP39 seed phrases provide a reliable way to restore wallets, but they also create a single point of failure.
If users lose both their device and recovery phrase, they usually lose access to their funds permanently. Many security breaches also come from phishing attacks, malware, and social engineering schemes.
As a result, developers continue to explore ZK-based recovery systems. Similar ideas have appeared in discussions about quantum-resistant recovery methods and privacy-focused blockchain networks. However, developers still need to address issues involving legacy wallets and implementation security.
The industry is also testing other approaches, including social recovery systems, multi-party computation (MPC), biometric and hardware-based authentication, and hybrid custodial models. Some projects, such as Chia, have introduced features like clawbacks and vaults to reduce the impact of theft.
