QuadrigaCX: A Timeline of Events
Quadriga CX, a Canadian cryptocurrency exchange founded in 2013 has managed to steal the crypto headlines over the past few weeks over the presumed death of its founder, Gerald Cotten while abroad in India. While the loss of a leader is a tragic incident in any industry or organization, what made Cotten’s death much more problematic is he was the sole individual with access to the exchange’s private keys. Various sources have reported the company currently has $190 million USD sitting on the exchange, much to the dismay of over 100,000 enraged customers with no way to access their funds.
From an operational security perspective, this story is a nightmare. Top cryptocurrency exchanges around the world will typically have multiple employees with high security clearances who must work as a collective unit to access or transfer funds from the exchange’s cold wallets. In an affidavit filed in the Supreme Court of Nova Scotia in late January, Cotten’s wife Jennifer Robertson noted no evidence of a password being written, mentioned, or left on Cotten’s laptop. Many crypto enthusiasts around the ecosystem believe the exchange’s declining financial health (primarily due to the bear market that has been ongoing for the past year) prior to Cotten’s death transform this incident from a tragedy to a potential scam attempt. Coinmarketcap notes the last updated daily volume of Quadriga CX was just in excess of $100,000.
Per cryptocurrency researcher CryptoMedication (twitter.com/proofofresearch), an in-depth analysis of the exchange’s Bitcoin wallets showed there were no identifiable cold wallet reserves, the exchange was using deposits from their customers to pay other customers once a withdrawal was requested, and the exchange may still have access to funds. While browsing through the exchange’s hot wallets, CryptoMedication also noticed a large portion of the total holdings were either moved to other exchanges (including Binance and HitBTC) or liquidated.
Without going too deep into Gerald Cotten’s death, it is worth noting the odds of an individual traveling from Canada to India with an improperly controlled case of Crohn’s disease is rather low. Additionally, India is a country notorious for creating all kinds of fake legal certificates (birth, death, marriage) without any background check for the right price. Fortis Escorts, a private hospital in the city of Jaipur, shared with Coindesk that Cotton was admitted into the hospital on January 8th, and passed away due to cardiac arrest one day later.
Per reporting from the Nova Scotia Supreme Court, a judge has given the company’s Board of Directors 30 days (March 7th) to recover the inaccessible funds and reimburse customers. If the exchange’s private keys are not found within that period, the company’s lawyers will persue other methods to remove the debts, including the sale of the company.
As this story is still ongoing, there are sure to be additional findings revealed in the coming weeks. Per the QuadrigaCX website, “A motion for the appointment of representative counsel for the affected users of QuadrigaCX will be heard in the Supreme Court of Nova Scotia at 9:30 on Thursday, February 14th”.
Lessons to take away
This is a very painful story to witness. Obviously we have the tragic death of the founder. But then we have all these errors that has happened along the way, that could mean that the money of so many people will be lost. We can hope that all of the users money will eventually be reimbursed. But all too often these situations still happens quite often in the crypto world, and it feels like it’s another blow to the slowly maturing new industry that forces it to take a step back.
Our advice as always to all readers is to make sure your money is kept safe, and only store money on an exchange that you are willing to lose as per often these unfortunate situations happens. Best as always is to store your cryptocurrencies on a hardware wallet, check out some good options here.