In what can only be described as a bizarre and unfortunate event, Geral Cotten, CEO of the Canadian cryptocurrency Exchange QuadrigaCX died suddenly on a trip to India. The news would not be interesting if it were not for a very particular twist: Mr. Cotten was the only one with the private keys of the cold wallet containing the tokens managed by the Exchange.
According to the affidavit filed by his widow, Ms. Jennifer Robertson, Cotten died suddenly, so no one knows the private key that allows access to the cold wallet of the exchange, which had
- 26,488 BTC;
- 11,278 BCH;
- 11,149 BSV;
- 35,320 BTG;
- 199,888 LTC and
- 429,966 ETH.
Lost funds amount to about $190 million. Cotten was the sole manager of the funds and was in charge of transferring the cryptocurrencies from a cold wallet to a hot wallet manually. The reason for this “one-man operation” was for security reasons: Cotten wanted to protect the funds from being hacked, preventing possible inside jobs.
The Exchange published an official message to its users, suspending all services and operations. In this message, they explain that all attempts to recover the keys or obtain a backup of said wallet have been unsuccessful.
The problem of loss of private keys is a situation naturally connected to the extreme security of Bitcoin. Nobody can recover the private keys since the user is the one who controls his own tokens, which implies that in case of loss, it is almost impossible for a third person to access a wallet without knowing said keys forcefully.
A report by the cybersecurity firm ChainAnalysis published in June 2018 revealed that lost keys and methods of access to wallets with crypto coins had reduced Bitcoin’s total market cap by at least 13 percent.
“Between 2.3 and 3.7 million bitcoin are lost, reducing market capitalization by between 13% and 22%. A further 35% could reduce market capitalization if illiquid investor holdings are removed from the cap.”
The QuadrigaCX team has not made any significant statements. However, it is known that due to the legal actions taken by some creditors, the team is making the decision to sell part of its funds and the company to meet its obligations.
CZ, CEO of Binance reacted to the news, explaining that this could have been solved with many methods, adding that if the CEO of any exchange is the sole manager of the private keys, basically all the funds face a potential risk
That's sad. There are many solutions to split private keys or signing to achieve 3/5, 5/7 etc. Never neglect security.
Also, never have CEO carry private keys. Bad on many levels.
— CZ Binance (@cz_binance) February 2, 2019
I hope your health is good, we don't want to lose our coins. Please exercise regularly, eat a lot of vegetables and don't argue with wife, that can shorten a man's life drastically.
— johnyqi (@JohnyQi) February 2, 2019