$180 Million Password Taken To The Grave

115,000 customers of the of Canadian digital platform Quadriga are believed to be owed C$250 million, but C$180 ($137.21 million) in cryptocurrencies have been frozen after the platform’s founder, who was the only person with the password to the platform’s stored funds, died in December 2018.

What Is Quadriga?

QuadrigaCX is a Canadian cryptocurrency exchange/platform, which allows the trading of Bitcoin, Litecoin and Ethereum.  QuadrigaCX, was founded by Gerald Cotten and was Canada's largest cryptocurrency exchange until 2019 and has 363,000 registered users.

Cold Storage

As part of QuadrigaCX’s security measures, ‘Cold Storage’ was used for most of the Bitcoins within their system. Unfortunately for Quadriga, it is this part of the system, where the bulk of their funds are stored that is ultimately protected by one main password that was known only to the late founder, Gerald Cotton.

Dead

Mr Cotton died aged 30 from complications related to Crohn’s disease while he was volunteering at an orphanage in India.

Widow Under Pressure

With so much money owed to customers, Mr Cotton’s widow, Jennifer Robertson is reported to have found herself under pressure to find the password.  It has been reported that Robertson, who was not involved in Cotten’s business while he was alive and does not have business records for QuadrigaCX, has conducted repeated searches for the password.

Although Robertson has Mr Cotten’s laptop, she has (so far) been unable to access the contents because it is encrypted, and no one has the password or recovery key for it. Additional attempts to decrypt the laptop have also been unsuccessful.

It has also been reported that Robertson has consulted an expert to help recover details from Cotten’s other computer and cell phones, although the expert’s attempts have been reported to have had only ‘limited’ success to date.

QuadrigaCX has now filed for “creditor protection” in an attempt to avoid bankruptcy.

Customers Unable to Withdraw Funds

In the meantime, customers have reported online that they have been unable to withdraw their funds from the platform for months, that they have only received limited information, and that the website was also recently taken down for maintenance.

What Does This Mean For Your Business?

This story highlights some of the risks associated with cryptocurrencies, and a how a lack of regulation and a market that’s still in its relatively early stages can leave investors in unusual, worrying situations such as this one. In many other types of financial business where there is that level of funding involved, it would also be highly unlikely that a single password known only to one person would play such an important role. Some would say that it’s ironic that passwords are often considered now to be much less secure than other security tools, and yet this password-controlled system has confounded even the experts so far.  What is also ironic is that the ‘cold storage’ of funds, in this case, was introduced as a security measure to protect customer funds but has ended up being so secure customers have no access to those funds.

Looking at the size of QuadrigaCX and the number of customers it has, cryptocurrencies clearly still provide a useful and valuable opportunity for trading and investment. They have, however, had a turbulent life to date, making the news for many negative reasons.  For example, just for bitcoin, regulations and restrictions in some countries (e.g. China), hacks, its volatility, a negative image from its use by international criminals and from its use in scams, a lack of knowledge about how to use it, and the fact that the high price of just one bitcoin made it (even more) niche, meant that it became a commodity and a fast-buck opportunity rather than an actual, useful currency, and the over-consumption and over-inflated value of bitcoin lead to its spectacular fall in value.  There have also been well-publicised falls in value for crypto-currencies like Ethereum’s ‘eher’ and Ripple’, and Tether found itself being investigated by the U.S. Department of Justice over possible manipulation of bitcoin prices at the end of 2017.

All this said, many governments and banks would still like a 'piece of the action' of cryptocurrencies, and many market analysts see a future for them as a part of a wider ecosystem.