It has become a fact of the modern age that trading and holding crypto-currency can be a risky business. If traders store their holdings on exchanges, those risks are amplified because their investments are susceptible to security breaches.
But now a much bigger problem related to exchanges has emerged.
Earlier this week it was reported that Gerry Cotten, the founder of Canada’s largest crypto exchange Quadriga, had passed away and had left no information regarding the cryptographic keys needed to access the investor accounts. The digital coins that are stored there could be worth up to US$190 million.
According to the BBC, Cotten died in December but the firm has only just filed for creditor protection after failing to locate or secure its crypto-currency reserves, which the 30-year-old CEO apparently had sole responsibility for.
According to the BCC, Quadriga has said that Cotten died unexpectedly due to complications with Crohn’s disease while traveling in India.
An affidavit filed in the Supreme Court of Nova Scotia last week by Cotton’s widow confirmed that the company holds $190 million on behalf of its customers around the world, the majority of which was held in offline “cold storage” to mitigate the risk of exchange hacks. These are the accounts that can only be accessed by the missing cryptographic keys.
A Halifax judge granted Quadriga a 30-day stay on Tuesday while the exchange continues to search for a way to access the lost crypto. This has temporarily shielded the company from lawsuits from clients, some of whom apparently have millions with Quadriga that are inaccessible.
It has been estimated that about 115,000 Quadriga account holders have personal accounts with the firm in the form of both cash and crypto-currency.
Gerald Cotten’s widow, Jennifer Robertson, claims to have her late husband’s laptop and USB sticks that were used to run the business, but says without the cryptographic keys she has no access to the devices or the locked funds.
Predictably, rumors have since emerged that the whole thing could have been an elaborate exit scam and while a large number of crypto sector news sites are running “show me the body” type stories, there is also a growing body of investigative work that claims Quadriga had always been deceptive about what actual crypto cold wallets it had and what was stored there.
According to a lengthy, detailed and apparently highly-technical Zerononsence Blog report – that describes itself as an “in-depth analysis” on Quadriga – there are a number of significant question marks regarding the Canadian exchange’s trading practices and storage facilities.
The two key Zerononsence report findings say it “appears that there are no identifiable cold wallet reserves for Quadriga” and it “does not appear that Quadriga has lost access to their Bitcoin holdings.”
By analyzing trading patterns and wallet addresses – of which many, says the report, were deemed spurious – the researchers have bluntly concluded that the exchange “has not been truthful with regards to their inability to access the funds needed to honor customer withdrawal requests.”
Quadriga did not announce the death of its CEO until January 14 when it announced that “it is with a heavy heart that we announce the sudden passing of Gerald Cotten, co-founder and CEO of Quadriga. A visionary leader who transformed the lives of those around him, Gerry died due to complications with Crohn’s disease on December 9, 2018, while traveling in India, where he was opening an orphanage to provide a home and safe refuge for children in need.”
As the web forum continue to babble about the provenance of Cotton’s Indian death certificate and if and why his body was cremated so quickly, what is clear is this was another big between-the-eyes blow for the nascent crypto industry, which is still trying to find its feet after a year of market slides and scandals.
After all, it is very hard to think of any other industry that could claim to lose almost $200 million of its investor’s money because it mislaid some keys.