If you do not hold your private keys, you do not own your coins. It is as simple as that. Therefore, trusting any exchange to keep your funds for you at any given time is a bad idea. This is a risk traders take every day, and usually they expose themselves to exchanges that get hacked or scammers that just take their deposits. To avoid this, the CEO of QuadrigaCX – the biggest cryptocurrency exchange in Canada – used cold storage for the coins under his custody, and encrypted his files on his computer, disc on key and email. The security provisions were so air-tight that when he died, users were cut off from about $145 million USD in Bitcoin, Ether and Litecoin. Gerald Cotten – QuadrigaCX’s CEO – left no instructions for anyone to take over in case something happened to him.
Circumstances of Death and Conspiracies
It is difficult to believe that Cotten did not have a fail-safe mechanism in place. The 30-year-old suffered from Crohn’s disease. Complications from Crohn’s disease are rarely ever lethal, but according to Bloomberg, Cotten died in India from complications of this medical condition. This is what probably prompted Reddit users to speculate about his death, with some suggesting that he faked it and that the whole issue with the funds is all a scam. Cotten should have left instructions behind for those who are now in charge of managing the aftermath of his unfortunate death, not necessarily due to his medical condition, but because anything can happen at any time and these systems require redundancy.
Now, QuadrigaCX is engaged in a battle to:
- Recover the funds by hacking into Gerald Cotten’s computer.
- Find a bank that will allow it to receive fiat funds.
- Seeking creditor protection.
In the meantime, it is important to understand that exchanges are not part of Bitcoin, but rather serve as a bridge between cryptocurrencies and the fiat world. Regulators do not understand the game enough to demand redundancy insofar as the safety of deposits or fund custodianship are involved. Therefore, even regulated exchanges are bound to make horrible mistakes. None of them are transparent enough for everyone to independently verify what they are doing or how they are set up, outside senior management.
Don’t Trust, Verify!
Bitcoin users should reduce exposure to any exchange to the minimum or acknowledge that they risk losing their funds if a security-minded custodian dies without leaving anyone else in charge of coins in cold storage. For the users who were effectively cut off from their funds by this unfortunate event, there will probably not be any restitution that resembles what they lost. Nevertheless, this should serve as a lesson for everyone. Make sure you hold your funds in a secure wallet like a hardware wallet for example and build some redundancy for yourself as well. What happened to the CEO of QuadrigaCX can happen to anyone, so leave clear instructions about what to do with your funds if something unfortunate happens to you too.