Buyers using the QuadrigaCX exchange to invest in crypto-currencies are waking up to the possibility that their money may be gone forever. What happened, you ask?
The system, like all crypto-currency systems presumably, was encrypted, but in the case of QuadrigaCX, only one man knew the password, and he’s dead.
Gerry Cotten, founder of QuadrigaCX took the password used to access customers’ $145 million in digital assets with him to the grave.
Without the password, it appears there is little the company can do to access customers’ assets. Coin Telegraph reports:
The exchange only has CA$375,000 ($286,000) in cash, while it owes CA$260 million ($198,435,000) to its users.
The exchange kept most its assets in offline storage systems called cold wallets, which are secured by digital security keys in order to protect them from hacking and theft. Cotten was solely responsible for the wallets and corresponding keys, which the company has been trying to find after his passing.
A filing from Ernst & Young reportedly states, “Quadriga was unable to access the cold wallets and/or discovered that the cold wallets contained minimal cryptocurrency units.” ‘Big Four’ auditing firm Ernst & Young has been appointed as an independent third party to monitor the proceedings.
Per The Globe and Mail, Cotten mostly worked form his computer at home, which is encrypted. Cotten’s wife, Jennifer Robertson, reportedly stated in an affidavit, “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.” Robertson purportedly went so far as to hire a cybersecurity expert to “hack into Gerry’s computers” to no avail.
It would be easy to blame the encryption technology for the problems facing QuadrigaCX users, but the real issue is one that has been around much longer than crypto-currencies, or even computers, bad governance.
Putting all the access to customer assets in the hands of one person is a major fiduciary failure on the part of QuadrigaCX.
Investors should perform due diligence when joining any platform, be it crypto-currency or a traditional brokerage. Make sure you understand where your money is going.