US$190 million lost after crypto founder dies with only password

An affidavit filed by Jennifer Robertson in the Nova Scotia Supreme Court, Canada, the widow of QuadrigaCX founder Gerald Cotten, shows he had sole access to the exchange’s cold storage accounts. Most of the US$190 million worth of cryptocurrency it held was in the storage.

Cotten, then aged 30, had died suddenly in India in December 2018.

Experts sketpical about the ‘sole password’ story

The exchange’s website had recently gone offline and the company had filed for creditor prediction, saying it needed to rectify its “liquidity issues”. In court filings, Robertson said the company owes its users some $250 million CAS (US$190 million) and had kept some of its customers’ coins in a physical device known as a cold wallet that cannot be accessed through the internet. Attempts by experts hired by Robertson to hack into Cotten’s account have apparently failed.

An inventory of the exchange shows around 26,500 bitcoin (worth US$92.3 million), 11,000 bitcoin cash (US$1.3 million) as well as stores of Ether, bitcoin cash SV, bitcoin gold and bitcoin spinoff Litecoin. Only a “minimal amount of coins” were stored in the company’s more easily accessible ‘hot wallet’, per the filing.

QuadrigaCX’s story has been described as “bizarre”

Some cryptocurrency experts have cast doubt over the company’s version of events, noting that currency has been moving in wallets connected to QuadrigaCX’s hot wallets. Jesse Powell, CEO of cryptocurrency exchange Kraken, said the company’s version of events was a “bizarre and, frankly, unbelievable story”.

It cannot be determined definitively, however, whether the company is behind the movement of funds and it is possible the wallets belong to customers or are not controlled by the company.

Cornell Professor Emin Gün Sirer pointed out on Twitter that QuadrigaCX had previously claimed to be using multi-signature protection for its cold wallet, which would have allowed multiple users or organisations to combine to get the keys to the wallet. In another tweet, he suggested Cotten may be “faking his own death in India”.

A cautionary tale for underregulated cryptocurrency exchanges?

If the exchange really did store its currency in a single-password cold wallet, the chances of users recovering their funds appear remote.

Dean Skurka, Vice-President at Canadian virtual currency platform, told CBC that the whole episode “really highlights the need for the government to take action and regulate cryptocurrency exchanges”.

The company had previously run into trouble with the banking sector. Candian Imperial Bank of Commerce, one of the country’s ‘Big Five’ banks, had frozen US$26 million worth of its assets after detecting irregularities in its payment processing.

Header image credit: Coastal Elite

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