The Cheat Sheet

Quadriga’s locked $140 million and the future of cryptos

Jinoy Jose P | Updated on February 06, 2019

A modern financial allegory? Where’s Quadriga? Where’s the money?

Hold your horses. Yes, you’re right. What’s unfolding could be used years later as an allegory to drive in a point or two about the way digital currencies operate and the need for more transparency and reform in their operations. For now, cut to the chase, and if you haven’t had your slice of international news lately, there is a cryptocurrency exchange called Quadriga in Canada, which is arguably the biggest in the super-cold country.

What’s wrong with this? (I’m sure ‘being right’ doesn’t make news!)

Well, just this week, Quadriga informed government authorities that it wants creditor protection because it has lost nearly $140 million (more than ₹980 crore) in cryptocurrency (digital) coins.

Where’s the money, honey?

As you know, cryptocurrencies are digital money, which also means they are basically a series of numbers with some value, agreed upon by those who want to use or trade them. Now, these secret numbers are generally saved in a digital vault (folder) with a secret password. In Quadriga’s case, it seems it has lost the password to the vault because just a few weeks ago, its founder Gerald Cotten met with a fatal illness while travelling in India. The 30-year-old had the “sole responsibility for handling the funds and coins”, the BBC reported.

Oh dear!

Quadriga’s team says they weren’t able to find or secure the cryptocurrency reserves. In fact, on January 31, in a statement to the Supreme Court in Nova Scotia (one of three maritime provinces of Canada), Cotten’s widow Jennifer Robertson said she was not able to access the contents in her husband’s business laptop, especially the vault that contains the $140 million from Quadriga’ crypto investors.

Scary! I’ve always felt crypto business was a little tricky!

Can’t blame you; cryptos are not for the meek but for the geek, I’d say. That said, to be fair on Quadriga, the company hired an ‘investigator’ (read a hacker) to get access to Cotten’s vault, but the effort has not been very fruitful. Quadriga says the currencies were kept in a “cold wallet” and this storage stays offline in order to avoid hacking attempts. It was Cotten who had the sole password to the offline vault. They were able to recover a few of the coins but most of them stand lost. In total, the company owes around $250 million to its investors, of which, some $70 million is in fiat money, and it is not in a position to clear this liability.

Sorry state of affairs, I’d say.

Indeed. What’s worse is there is no shortage of conspiracy theories around Cotten’s death. Even though CoinDesk, a news portal dedicated for blockchain and crypto news, got hold of what they claimed was Cotten’s death certificate from government officials in India, a clutch of users on Reddit — the social media platform where geeks and their friends roam — and Twitter found gaps in Cotten’s death story. They are challenging the legitimacy of his death, saying a death certificate doesn’t mean anything as there is no physical proof for the death of the young digital entrepreneur.

Sad! That’s a lot of negative publicity for digital currencies, I tell you.

Indeed. Considering that digital currencies in general, including poster boy Bitcoin and its recent clones, have been going through a tough time since the beginning of 2018, after rallying to obscene highs in the previous few months, the Quadriga episode could raise more doubts over the way cryptocurrencies are managed across the globe.

Looks like it’s all doom for cryptos as things stand now.

Well, that’s more like jumping the gun. As an alternative asset class, cryptos still hold a lot of promise. A recent report from an Australian panel of experts says Bitcoin could rise again over 80 per cent in value in 2019, after a nearly 70 per cent crash in 2018. And, according to Bloomberg, among those placing faith on cryptos is Dubai’s Sheikh Saeed bin Ahmed Al Maktoum, who’s funding cryptocurrency fund manager Invao. So, stay logged in.

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Published on February 06, 2019

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