Lost Bitcoin at QuadrigaCX
The Hardforking team and I are very devoted to Bitcoin. We stayed out of the ICO frenzy, turning down easy money in preference for building a Bitcoin media brand and consultancy. We are passionate about Bitcoin and know that we need to show others what it is all about for Bitcoin to succeed in our lifetimes.
ICO embarrassment aside, being a Bitcoiner comes with difficulties as the constant laughable fraud that is happening in the world of Crypto exchanges just seems to grow, and being a site that educates people new to Bitcoin is becoming more of a crisis PR role.
The latest embarrassment is the comical situation with Canadas largest exchange, QuadrigaCX. The story goes that CEO Gerald Cotten, had suddenly died in India from Cronhs disease and roughly $150 million in cryptocurrency went to the grave with him. Cronhs or irritable bowel syndrome is a life long affliction but is not generally considered life-threatening.
For $150 million to be lost, CEO Cotton will have to have been the sole holder of the private keys to the currency held by the exchange. I don’t think there are many businesses where one person holds such power. If this is the case at Quadriga then surely the rest of its owners will be held to account. Imagine going to your bank and being told your money is gone as the manager just died, and they can’t find the keys to the safe that was in the sole possession of the now supposedly dead manager. That is what is happening here.
Once again the libertarian view that Crypto should not have regulation just does not wash with me. Bitcoin is a protocol and I fully agree regulation should not hinder its advance. The comical situation with the price gambling/speculation on these laughable exchanges is a totally different matter and it has to be regulated. I am now embarrassed to be part of an industry that is just getting constant bad press. We know how to fix it! We must clean this up while waiting on the correct regulation to come into effect.
The current situation
QuadrigaCX says it owes roughly 115,000 people some $190 million in both, fiat and crypto.
The QuadrigaCX team, say they do not know how to access the exchange’s funds or even where they are located! The exchange has or had, 26,500 bitcoin ($92.3 million USD), 11,000 Bitcoin Cash ($1.3 million), 11,000 Bitcoin Cash SV ($707,000), 35,000 Bitcoin gold ($352,000), nearly 200,000 Llitecoin ($6.5 million) and about 430,000 Ether ($46 million), totaling $147 million, according to an affidavit.
Unbelievably, it appears that Cotton ran the business from one encrypted laptop and an expert has so far been unable to access the information stored on it. The laptop, under court order, is being given to the professional services firm EY.
Compounding the problems for the exchange and its customers is the fact, that the $50 million in fiat it holds, is tied up in other issues relating to payment processors and difficulty in finding banking partners.
What should be happening
We have written extensively on the bad practices of exchanges and how regulation needs to address the many issues. The crypto community should be assisting with self-regulation. Helping to ensure bad actors are identified before these disasters happen is not prevalent enough. It is easy to highlight what went wrong after the fact, but it is also easy to identify these bad actors now and have them clean up their act, so we can grow the adoption of Bitcoin.
Blockstream have come out with another amazing tool called Proof Of Reserve. This is a solution to much of the issues with Exchanges and their liquidity.
Put in as simple terms as possible, Proof of Reserves allows an exchange to prove how many bitcoin they could spend, without needing to generate a “live” transaction or exposing themselves to the risks of moving funds.”
This will help to build trust in both the industry and for their users. I would say, if an exchange cannot prove their funds, don’t use them! This tool can allow the community to have ‘best practices’ and every exchange could use it to show what they have every few months. The exchanges not voluntarily doing this would then quickly be in the spotlight of the community and the wider public.
Things need to change and the community needs to be far more involved in self-regulation.