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How QuadrigaCX Lost it All

If you think your day is going bad, spare a thought for Canada’s biggest crypto exchange, QuadrigaCX, and its users left in absolute despair…

Due to the unexpected death of QuadrigaCX Founder and CEO Gerald Cotten, the exchange can no longer access its reserves because ONLY Cotten had the passwords and private keys to access the funds stored in offline wallets, with only a limited amount accessible on hot/online wallets.

“The laptop computer from which Gerry carried out the companies’ business is encrypted and I do not know the password or recovery key. Despite repeated and diligent searches, I have not been able to find them written down anywhere.”

It gets worse: an affidavit was filed on January 31st, 2019 revealing that the total amount of LOCKED cryptocurrencies amounts to about $190 million, with the funds of users seemingly lost forever…

Foul Play?

Some in the community are doubtful the Canadian exchange even had the amount stated in the affidavit, with suspicions of fractional reserve operations and paying users’ withdrawals with other users’ deposits.

CaptureCEO Sudden Death, $190 Million in Cryptocurrencies LOST By Canada’s Biggest Bitcoin Exchange5

Source: https://twitter.com/ProofofResearch/status/1092114817341632513

The affidavit filed by the widow of the late Gerry Cotten goes on to explain… 

“I have retained an expert, Chris McBryan, Insp (retired), who I understand to be highly qualified in this area, to assist in recovering any information about the Companies and the Quadriga business records.

To date, the expert has had some limited success in recovering a few coins and some information from Gerry’s cell phones and other computer, but not yet from the main computer he used to conduct business. Efforts to recover the business records are ongoing.” – QuadrigaCX Affidavit, Page 11

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Angry Users Owed Millions

CEO Cotten passed away on a trip to India after suffering Crohn’s disease, leaving many speculating as to why just one person was in charge of millions of dollars with zero countermeasures to protect users from this exact situation.

Source: QuadrigaCX Affidavit, Page 10

Exchanges will usually implement a multi-signature system, enabling other trusted members of the company to have access to its reserves in the worst circumstances. It’s still unclear why this wasn’t practiced by Cotten and his team, however, as time goes by more details on this may come to light…

With millions owed to users and tensions running high, the QuadrigaCX homepage has been replaced with a message explaining that the exchange has applied for “creditor protection in accordance with the Companies’ Creditors Arrangement Act (CCAA).”

CaptureCEO Sudden Death, $190 Million in Cryptocurrencies LOST By Canada’s Biggest Bitcoin Exchange5

Source: https://www.quadrigacx.com/

What Happens Next, and Yet Another Bitter Lesson About Crypto Exchanges

It looks unlikely that users will get access to their funds, although it remains in question whether or not the locked funds actually belonged to the exchange in the first place.

QuadrigaCX “intends to explore all options available” to reimburse its affected users. One of the options on the table is to sell the operating platform of the exchange.

Source: QuadrigaCX Affidavit, Page 14

So recently after the Cryptopia attack, this is another example of why “Proof of Keys” was an important event for users and why we MUST always be financially independent, not just with digital assets, but with all third-party institutions that offer financial services.

This is not investment advice; please always do thorough research and only invest what you are willing to lose, especially in times of uncertainty.

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