In a strange twist of events, one man’s death has cost thousands of customers their cryptocurrency. When Gerald Cotton, the CEO of Quadriga, died in December, a huge stash of cryptocurrencies was left completely untouchable and irretrievable by the executives at Quadriga.
The estimates vary between $110 and $145 million, but it has become clear that the Bitcoin and other cryptocurrencies are unlikely to be recovered. Mr. Cotton was travelling in India and died of complications from Crohn’s Disease. This occurred in December, but only now is the dire situation for approximately 115,000 depositors coming to light.
These funds were stored in cold wallets (offline wallets that could not be reached by hackers), but Cotton did not share the passwords to the wallets before his death. Jennifer Robertson, Cotton’s widow, has said she attempted to search for the key to Cotton’s encrypted laptop, but has thus far been unable to make progress. Technological experts and hackers have been contracted to recover some of the funds, but the outlook is grim at this point in time.
Quadriga’s Downfall
Quadriga is Canada’s largest cryptocurrency trading exchange, and has just filed for credit protection in the Supreme Court of Nova Scotia (a province of Canada) on January 31st. Court Documents show massive liquidity issues within the firm as they struggle to address claims of customers.
Ironically for an industry so hellbent on moving towards decentralization, Quadriga has allowed itself to be brought down by staying too centralized. Cases such as this, as well as the large booms and busts in the price of Bitcoin, have given regulators rise for concern. There are rumours of the potential for this to be a scam, based on recently released research showing that some funds have been accessed since Cotton’s death. These are as yet unproven, but prior to Cotton’s death, there were several accusations around the management of funds and whether Quadriga was using new deposits to cover customer obligations. The method and flow of funds was shown to be different from other exchanges like Bittrex and Coinbase. At the same time, this could be a simple case of negligence rather than acting in bad faith.
A Lesson For Crypto Users
Operational security and good “crypto hygiene” entails making sure none of your currency is kept in a centralized wallet like Quadriga’s. Although it may be easier to trade by keeping it in those wallets, it can also be very costly for several reasons. First, wallets that large act as “honey pots” for hackers. It will never be profitable for them to go after the funds of small investors, but when there are millions of dollars up for grabs, that is motivation enough.
So not only are you trusting a company’s security, but you are also placing a bet on its integrity.
The crypto-space is full of dubious characters and strange occurances, and leaving all your money with them can be very risky. The government doesn’t know how to handle this new segment of the financial services segment yet, and you can’t be sure that the deposits are insured in the same way that regular fiat deposits are.
So instead of leaving your money in an exchange’s online wallet, you might take several other routes. Using hardware wallets mobile/desktop wallets like Jaxx or Exodus that give you full control of your cryptocurrency is the first step. Yes, this puts more responsibility on you, but it would also help avoid situations like the above story. If anything, this might be a good reminder to always write down your password, just in case.