Nightmare on Crypto Street: What happened to QuadrigaCX cryptos?
Feb 8, 2019
The mystery surrounding QuadrigaCX has yet to be solved. This is the nightmare of every cryptocurrency holder. What would you do, if you wake up one day and you discover that you no longer have access to your cryptos? What if, you forgot or lost your password? This is what has happened after the death of Gerald Cotten, the CEO of Canadian crypto-exchange QuadrigaCX.
Sad but true (maybe)
As the CEO of crypto-exchange Kraken Jesse Powell said: “We have thousands of wallet addresses known to belong to @QuadrigaCoinEx and are investigating the bizarre and, frankly, unbelievable story.” This is the stuff of nightmares, and of course, the source of every internet junkie. The unbelievable event sparked various conspiracy theories.
Such speculative theories circulating on Reddit and other chat forums have claimed that the funds weren’t lost due to recent transactions in Quadriga cold wallets. However, the coin exchange itself has reported that their attempts to retrieve them have failed. In a statement, QuadrigaCX said that it was “attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit . . . Unfortunately, these efforts have not been successful.”
Cotten was the only one who had access to clients’ digital assets since he kept passwords stored in an encrypted laptop. Clients’ personal keys stored in cold wallets offline were supposedly to keep their bitcoin, litecoin and many other cryptocurrencies (C$190m, $150m) secure. They never would have imagined that their funds would end up being so secure, no one would be able to access them.
But were the funds there to begin with? Additionally, Canada’s largest, Vancouver-based coin exchange owed $50m in cash, since 92,000 people had assets with the exchange and one particular individual $50m.
Stranger than fiction?
According to analysts cited by the Wall Street Journal (WSJ) on Feb. 6, the $145 million in digital assets might not even be in QuadrigaCX encrypted cold wallet storage, but missing altogether. Various commentators and sources cited by respected media, have pointed out that the funds were not there and that the exchange was not even regulated by the British Columbia Securities Commission (BCSC), the province’s financial regulator. The BCSC knew of Quadriga since 2017, but the exchange was unregulated. A BCSC spokesman, Brian Kladko, told Reuters that there was nothing to indicate whether Quadriga traded securities or derivatives, or even operated as an exchange.
What happened?
Gerald Cotten was allegedly found dead in India, last December, at the age of 30. He was suffering from Crohn’s disease and arguably died of complications from the disease. His death triggered controversy as many have argued that he faked his death to steal his customers’ assets. The fact that he had signed his last will and testament on Nov. 27, 2018, along with evidence published by Zerononsense, suggests that the whole story is very suspicious. James Edwards, a cryptocurrency analyst found no evidence to show that the exchange controlled any of the wallets it had claimed to. In fact, Edwards said that there is no evidence to suggest that wallets which might once had large balances existed now. As Cointelegraph noted, “the largest wallet is apparently a hot wallet, which is used for transactional purposes.”
Elementus Group CEO Max Galka said it was “extremely likely that there aren’t any cold wallets.”
As Kim Nilsson, the famous Tokyo-based software engineer who solved the notorious heist of Mt Gox bitcoin exchange in 2014, said: “Given the kinds of people involved in the shadier side of cryptocurrency I wouldn’t make any assumptions or prematurely rule out any theories.”
How to stop such situations from happening again?
To avoid losing your passwords, Mike Belshe, chief executive of BitGo, a company providing digital asset custodial services, said exchanges and investors should use third-party custodians and multiple administrators: “Custodianship is all about eliminating single points of failure,” such as death, and that “you’re always going to have this type of failure” “If you don’t have independent checks and balances between the trader of the asset and the holder,” Belshe said.
For others, the problem was related to the lack of a continuity plan after an executive’s death, and that an exchange of any size needed to be prepared for situations like these. . . . would have a robust plan that would allow for key man risk.”
$150m lost, 2 chihuahuas inherited
According to documents obtained by Bloomberg, Cotten, has left to his wife, Jennifer Robertson, the only beneficiary and executor to his estate, several properties in Nova Scotia and in Kelowna, British Columbia, a Lexus, a Jeanneau 51 yacht, an airplane and his two pet chihuahuas.
In the meantime, several QuadrigaCX users started proceedings to receive their funds. At least, the exchange has some extra time before all hell breaks loose, as the court has given QuadrigaCX a 30-day stay to prevent any lawsuits during this time.