Cryptocurrency exchanges have been in existence for less than 10 years. Just as they have generated wealth for their founders, investors and participants they have also been mired with fraud, hacks and theft causing losses of billions of dollars. The most prominent example is the $400 million worth of bitcoin stolen from the now bankrupt exchange Mt.Gox.
The most recent example of a crypto exchange collapsing is Canada-based QuadrigaCX which has curiously lost access to $150 million of crypto belonging to its customers. QuadrigaCX CEO Gerald Cotten, passed away in India on December 8, 2018. With $ 150 Million of fortune lost with Cotten’s unfortunate yet mysterious passing, QuadrigaCX is doomed for years, cursed by its customers and investigated by Ernst & Young, at present.
Cotten’s Death a Hoax? It is logical to assume that Cotten’s death was an exit scam. 150 missing millions, and the only authorized hand to sanction finances, fled to India, faked his death and resolved to live unidentified, is a theory speculated by many, but stays an assumption without proof. Adding more to the relevance of “unfortunate transfers of $ 150 Million”, Fortis Escorts Hospital in Jaipur, released a death certificate of Cotten, as reported by Chepicap. Satoshi invented Bitcoin and Cotten dies in mysterious circumstances, are few cautioning realities that maintains the seductive power of Crypto and Blockchain, but still, the tech has an ambitious future with only few ICO funerals away.
The Story of $ 150 Million ghosted in Cold Wallets: QuadrigaCX popularity was only buoyant for a few years and with Cotten’s death, the shockwaves brought attention to this crypto trading platform. The case gained boisterous media attention when 4550 ETH was transferred to different wallets in large amounts and during the same course, the same value was transferred into a non-empty wallet (Binance address) which was not controlled by QuadrigaCX. The crypto trading platform with an assumed intention of converting crypto into fiat transferred large amounts of Ether to Binance, Poloniex, Bitfinex and Kraken. Later, these large December transfers were speculated to be done in order to raise operational cash which soon became a matter of sincere investigation.
Not only this, QuadrigaCX kept faith in cold wallets (offline wallets that cannot be traced by hackers and requires password) which means that only a fraction of coins was kept in hot wallets (online wallets). Since Cotten was the only one to have access to these cold wallets, tracing and retrieving them becomes a tiring ambition even for a hacker with the highest rank.
Cotten’s wife Jennifer Robertson quoted on the cold comfort situation as: “The normal procedure was that [QuadrigaCX founder and CEO Gerald Cotten] would move the majority of the coins to cold storage as a way to protect the coins from hacking or other virtual theft.” according to Coindesk.
Questionable Timeline of QuadrigaCX:
March 2016: Gerald Cotten is appointed as the sole CEO after CFO Natasha Tsai resigns.
June 2017: As a claim of smart contract error, QuadrigaCX reveals loss of $ 14 Million worth of Ethereum.
January 2018: Financial Difficulties start making headlines.
March 2018: Customers of QuadrigaCX reveals they are experiencing “unidentified delays” in withdrawing funds which later in April was testified by QuadrigaCX; reasons were directed at ongoing disputes with Canadian Banks.
October 2018: Globe and Mail report that QuadrigaCX has been facing difficulties in accessing nearly $ 16.3 Million of funds since January 2018.
November 2018: Cotten files a will in favour of his wife Jennifer Robertson, declared as the benefactor and executor of his estate.
December 2018: Cotten dies in India.
January 2019: QuadrigaCX goes offline. Jennifer Robertson, reveals to Novia Scotia Supreme Court that her late husband was the sole owner of cold wallet passwords which had an amount nearing to $140 Million.
February 2019: Indian Government submits Death Certificate of Cotten. Apex Court of Canada appoints Ernst & Young to investigate fund loss.
Coinbase CEO Brian Armstrong who deployed his team to conduct an internal analysis of the QuadrigaCX case said: “Gerald Cotten reportedly died in early December 2018. But complaints about withdrawal issues on Quadriga escalated in mid 2018.” “So maybe after about a month of debate [Dec – Jan], management decided to cut losses and release a statement claiming that access to money was lost with CEO’s death?” as quoted by CCN.
Ernst & Young, at present, is investigating the case and has already revealed three reports in the case. In the most recent report, EnY states: “To date, the Applicants have been unable to identify a reason why Quadriga may have stopped using the Identified Bitcoin Cold Wallets for deposits in April 2018, however, the Monitor and Management will continue to review the Quadriga database to obtain further information.”
Knowing all the parameters, reports, allegations, speculations and revelations, it will be easy to conclude that Mr Cotten’s death is more than just an “unfortunate disease cause demise”, while QuadrigaCX did a smart crash course to nullify all losses by posing loss of access.