Crypto CEO Dies Holding The Only Passwords That Can Unlock Millions In Customer Coins

Gerald Cotten’s sudden death left C$190 million ($145 million) in Bitcoin and other digital assets protected by his passwords unretrievable. Without the digital keys, clients lose access to digital coins and funds.

 

Digital-asset exchange Quadriga CX has a $200 million problem with no obvious solution — just the latest cautionary tale in the unregulated world of cryptocurrencies.

The online startup can’t retrieve about C$190 million ($145 million) in Bitcoin, Litecoin, Ether and other digital tokens held for its customers, according to court documents filed Jan. 31 in Halifax, Nova Scotia. Nor can Vancouver, B.C.-based Quadriga CX pay the C$70 million in cash they’re owed.

Access to Quadriga CX’s digital “wallets” — an application that stores the keys to send and receive cryptocurrencies — appears to have been lost with the passing of Quadriga CX Chief Executive Officer Gerald Cotten, who died Dec. 9 in India from complications of Crohn’s disease. He was 30.

Cotten was always conscious about security — the laptop, email addresses and messaging system he used to run the 5-year-old business were encrypted, according to an affidavit from his widow, Jennifer Robertson. He took sole responsibility for the handling of funds and coins and the banking and accounting side of the business and, to avoid being hacked, moved the “majority” of digital coins into cold storage.

His security measures are understandable. Virtual currency exchanges suffered at least five major attacks last year.

The problem is, Robertson said, that she can’t find his passwords or any business records for the company. Experts brought in to try to hack into Cotten’s other computers and mobile phone met with only “limited success” and attempts to circumvent an encrypted USB key have been foiled, his widow, who lives in a suburb of Halifax, said in the court filing.

“After Gerry’s death, Quadriga’s inventory of cryptocurrency has become unavailable and some of it may be lost,” Robertson said. The company’s access to currency has been “severely compromised” and the firm has been unable to negotiate bank drafts provided by different payment processors.

Quadriga CX’s directors posted a notice on the firm’s website Jan. 31 that it was asking the Nova Scotia court for creditor protection while they address “significant financial issues” affecting their ability to serve customers. On Tuesday, the court granted Quadriga a 30-day stay in a bid to stop any lawsuits from proceeding against the company, The Canadian Press reported. The firm was also granted protection from creditors.

“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us,” the firm said. “Unfortunately, these efforts have not been successful.”

As is often the case with crypto, the episode has raised speculation on Reddit’s online forums, where posters are wondering aloud if the business was a scam, calling for class-action lawsuits and even concocting conspiracy theories that call into question whether the CEO is even deceased. The latest online speculation suggests that Quadriga CX funds have been moving — even though the firm claims they can’t get access.

Cotten filed a will 12 days before his death listing substantial assets, according to court documents.

He left all his assets to his wife and made her the executor to his estate, the documents show.

The will outlines numerous assets he held, including several properties in Nova Scotia and in Kelowna, B.C., a 2017 Lexus, an airplane, a Jeanneau 51 yacht and his pet chihuahuas, Nitro and Gully.


Author: Doug Alexander

Winklevoss Twins Win Patent for Securely Storing Digital Assets

The Winklevoss twins have won a patent for securely storing digital assets which adds to a long list of nine successful patents won by the billionaire twins, per information published on the website of the U.S. Patent Office.

The new patent, labeled 10,068,228 sets out a plan for cold storage of digital assets by building a computer network, made up of isolated computers used to host secure storage wallets for cryptocurrencies and cryptocurrency exchange-traded products (ETPs).

According to the filed document with the Patent Office, the computers will be physically separated from one another, but will be connected to the blockchain when moving assets and carrying out transactions on the network. As a result, they will effectively function as cold storage devices permitting user access only with the use of unique cryptographic keys.

New storage accounts on the network will have a separate cryptographic key, divided into several parts with each fragment saved onto an external storage device such as a USB drive, physically engraved onto paper, laminated cards and more.

An excerpt from the patent document abstract states that the “reference identifier” may be associated with each “digital asset account.”

“A respective reference identifier may be associated with each digital asset account. At least one of the one or more private keys corresponding to each digital asset account may be divided into a plurality of private key segments and written to a card along with the respective reference identifier to create sets of collated cards, wherein each set comprises cards corresponding to different private keys.”

The storage of the cryptographic keys starts at production. According to the document, they may be stored on both physical and electronic mediums, but at least, one set of the keys must be kept on an electronic storage device such as a USB drive. The document further states that, when keys are not created onsite at the storage location, they must be delivered in person or via fax to the storage location. Owners must also present three separate forms of identification when creating and accessing their accounts.

The application reads in part:

“In embodiments, private keys for a multi-signature account may be distributed to a plurality of users who are required to authorize a transaction together. In embodiments, private keys for a multi-signature account may be stored as backups, e.g., in secure storage, which may be difficult to access, and may be used in the event that more readily available keys are lost.”

Several industry heavyweights have been clamoring for a reliable custody solution. Earlier this year, Goldman Sachs announced it was considering launching a crypto custody service. Famed crypto investor Mike Novogratz also weighed in on the matter, while speaking to Ran Neu-Ner on CNBC’s ‘Cryptotrader,’ where he suggested that a custody service from a trusted source could result in a price recovery of digital assets.

“I think the next move up is going to need custody from a trusting source. […] If I’m in the state of Wisconsin, I’m not going to risk my job on a company called BitGo.”


Source
Author:  Jimmy Aki
Image Credit