Crypto exchange QuadrigaCX has a C$200 million problem with no obvious solution!
Following the death of their CEO, Gerald Cotten, early this year, the Canadian online start-up is unable to retrieve about C$190 million in cryptocurrencies held for its customers. Nor is it able to pay the C$70 million in cash owed to customers.
QuadrigaCX held the cryptocurrency in “cold” wallets, a system which stores cryptocurrencies offline to avoid hacking, such as on USB sticks or electronic hardware not connected to the internet. Cotten took sole responsibility for handling of exchange assets. Passwords and private keys to the cold wallets were stored in an encrypted laptop to which Cotten alone had access, according to an affidavit signed by his wife.
As a result, on 31 January 2019, QuadrigaCX filed for a creditor protection order under the Companies’ Creditors Arrangement Act, which was issued on 5 February 2019. The court appointed Ernst & Young (EY) as an independent third party to monitor restructuring of QuadrigaCX. On 12 February 2019, EY produced its initial report in which it reported an accidental transfer of 103 bitcoins on 6 February by QuadrigaCX to the cold wallets. There was no explanation as to why or how this transfer occurred. Consequently, rumours of a scam continue to circulate on social media site, Reddit, especially as it has now become known that QuadrigaCX was experiencing financial issues before Cotten’s death.
The QuadrigaCX fiasco has reignited suspicion of crypto exchanges and there have been calls for stricter regulation in Canada. However, what QuadrigaCX is actually an example of is poor business planning beyond the life of a young CEO. Conspiracy theories regarding the death of Cotten aside, if QuadrigaCX had planned effectively, access to the cold wallets would not have been lost.
Blockchain was intended to make tracking easy and to create trust by circumventing old institutions. Instead, as a result of the QuadrigaCX court proceedings, it has left approximately 100,000 customers preparing to fight a court battle to obtain access to their cryptocurrencies. </p>"
The Race to Represent QuadrigaCX’s Creditors May Be Decided Today
The content above was originally posted on CMS DigitalBytes - CMS lawyers sharing comment and commentary on all things tech.
