Abu Dhabi, UAESaturday 20 July 2019

Crypto exchange can't repay C$190 million to clients as founder dies with password

Canadian company has applied for creditor protection in the Nova Scotia Supreme Court

A technician monitors cryptocurrency mining rigs at a facility in Quebec, Canada. Bloomberg
A technician monitors cryptocurrency mining rigs at a facility in Quebec, Canada. Bloomberg

Beleaguered Canadian crypto exchange QuadrigaCX, which was one of the biggest in North America until last month, owes C$190 million (Dh530.4m) in digital currencies to its customers and the company is clueless about the whereabouts of most of the funds, according to reports.

QuadrigaCX, which had almost 115,000 users registered on the exchange up until last month, first encountered trouble in December 2018 after its 30-year-old founder, Gerald Cotten, unexpectedly passed away in India, New York-based news site CoinDesk reported. According to court documents obtained by the site, an affidavit filed by Cotten's widow Jennifer Robertson in the Nova Scotia Supreme Court on January 31 states that only Cotten knew the passwords to "cold storage" where most of the company’s crypto-assets are kept.

Cold storage is an offline digital wallet that is not connected to the internet thus shielding the wallet from unlawful breaches, hacks and other susceptibilities that an internet-connected system is usually vulnerable to.

Ms Robertson said that some of the funds were being stored on other exchanges by her husband but there is no concrete evidence to support this claim.

QuadrigaCX, which announced the death of Cotten in January - nearly a month later - has also applied for creditor protection in the Nova Scotia Supreme Court to allow the troubled company to address its financial issues. The next hearing is scheduled on February 5.

“The Court is being asked to appoint a monitor, Ernst & Young, as an independent third party to oversee these proceedings,” said the statement QuadrigaCX put on its website for its customers.

“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful.”

QuadrigaCX has admitted that there are "significant" financial issues that have affected the company’s ability to serve its customers.

QuadrigaCX is also seeking experts to help access Cotten’s laptop, which is highly encrypted.

Security of cryptocurrencies has long been a concern for investors as more than $1.1 billion was lost to crypto-thefts in the first six months of 2018, according to cyber-security company Carbon Black in Massachusetts.

The cryptocurrency market is huge, with around 12,000 exchange marketplaces where crypto-assets like Bitcoin, Ethereum and other digital coins are traded - a veritable smorgasbord for hackers to choose from. Account details, known as private keys in cryptocurrency parlance, can be hacked if not secured properly and the funds held in those accounts can be stolen.

Updated: February 6, 2019 12:54 PM