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5 Lessons Learned From Canadian Crypto Exchange QuadrigaCX

Feb 5, 2019 Canadian CompaniesInsights 0

 

Probably you have used a crypto exchange already and like many of us, have activated 2FA (two-factor authentication) and left the coins in the exchange thinking nothing is going to happen to them. Please give it a second thought and use the story of the largest Canadian Crypto Exchange as a lesson not to be repeated:

QuadrigaCX was one of the first Crypto Exchanges in Canada to acquire a large user base and move in average 1000 BTC in last 24hr volume alone in the CDN/BTC pair during 2017. Back in early 2018, it had majority of the market share in terms of trading volume and users, and their nearest competitors Coinsquare, BitBuy, Coinberry were just starting. It has now been revealed that the CEO was the sole bearer of private keys to the exchange’s cold storage wallets.

Last December 9th, the Co-founder and CEO of QuadrigaCX Mr. Gerald Cotten passed away due to complications with Crohn’s disease while travelling in India where he was opening an orphanage to provide a home and safe refuge for children in need. It was also announced that Mr. Aaron Matthews, currently Head of Operations was recommended by Gerry’s Estate Executor (Jenniffer Robertson) to assume the role of President and CEO.

Just two months prior to this event, in October, the exchange had $28M Cdn frozen by CIBC, one of the top five major Canadian banks. This sent a clear signal to the Canadian market (and other Crypto Exchanges) about Bank’s power and the distaste towards crypto assets. QuadrigaCX issued an email to his affected clients as early as August 21-2018 informing them of the issue which has taken to court in a rather lengthy process. The matter was then seemingly resolved in court, literally a week before Cotten’s death, where the court ordered the funds to be immediately released to Jose Reyes and the Quadriga account unfrozen. Quadriga then stated that all pending customer withdrawals will be fulfilled by the end of the week, but that never happened.

This now brings us back to where we are today, and as you’d expect the customers of Quadriga are not pleased – with some losing hundreds of thousands of dollars. Many are now speculating on the legitimacy of the claims and digging deeper for more information because the story of Cotten’s death sounds so far-fetched. How is it that one man was entrusted with all the customer funds, totaling nearly $250 million? Well, an article on CoinDesk from 2015 indicates the contrary. In an interview with Gerald Cotten himself, he stated that Quadriga uses multi-signature cold storage to secure the exchange’s Bitcoin holdings, which would make sense for any exchange this size. A 2 of 3 multi-sig configuration would be most useful here, wherein the case access to one of the keys are lost, the other 2 can be used to access the cryptocurrency. If Cotten’s keys died with him, why can’t the customer funds be retrieved with the other 2 keys?

The story is not over, but the future for QuadrigaCX does not look any certain yet it provides us with a few very valuable lessons:

  1. Never leave any money or digital assets in custody of an exchange to which you don’t hold the private keys
  2.  If you don’t have/know the Private Keys for your crypto, it is not your Crypto.
  3. Implement a Multi-Signature process in case of you passing away, your family or your business can still have access to Crypto.
  4. Watch out from other exchanges and Cdn. Banks which obviously are anti-crypto.
  5. Explore other alternatives to exchange Fiat to Crypto like this peer to peer exchange

The whole operation and future of QuadrigaCX is now in hands of the courts in the 2 legal battles: One to unfreeze the $28M Cdn funds, and the second to return the digital assets held in cold storage but that Gerald was the only person with access to them. I do hope for the best outcome, but I am realistic that it will take a few years to solve. So let’s use the lessons above as we continue in the Cryptocurrency journey forward.

Here is an update on QuadrigaCX company operations

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Jacques Y

Jacques is a founding partner and CEO of CryptoCanucks.com with a background in marketing and finance. He has a well-rounded foundation of knowledge in Investing, trading, and researching both Forex and the Cryptocurrency markets. He likes to stay active playing basketball, swimming and walking his dog while pursuing his entrepreneurial lifestyle.

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