It's the stuff movies are made of: the Head of Quadriga CX (a Canadian cryptocurrency exchange) Gerald Cotten suddenly dies in India, taking with him the private key that unlocks almost $200 Million of his clients' hard-earned cash. His wife, frantically searching, can't find the backup key anywhere. Auditors are hired to crack the code that retrieves the cash of more than 115,000 fuming customers. What happens next is almost too shocking to comprehend.
Enter the FBI, Royal Canadian Mounted Police and auditors Ernst & Young. After an exhaustive collective investigation, the shocking discovery was made that all the money had been withdrawn last April and each one of the customers' digital wallets had a balance of exactly...0.000. It is important to note that all of this crypto-cash was in "cold storage" (eg external hard drive) and therefore not subject to any kind of internet vulnerabilities. By the way: you should absolutely NEVER keep your cryptos on an online exchange, rather opt for cold storage with multiple backups of your private key, we'll touch on this again in another post.
The official report from E&Y also found 14 suspicious QuadrigaCX accounts that Cotten had "created outside the normal company process," while Coindesk is credited with scouring the transaction records and finding key markers that the missing currency was moved to "hot wallets" on other exchanges. Adding salt to the wound, Quadriga kept limited books and even filed for Creditor Protection in the Nova Scotia Supreme Court.
So many questions to think about: Where were all these customers the last few years? Why were they not asking for their money? Why didn't they each have their own cold storage and private keys, as one should when dealing with cryptocurrencies? How exactly did 115,000 individuals trust one man with their cash knowing, as crypto-investors, that you should always always always have possession of your own private key?
Updates to come.