THE CURIOUS CASE OF QUADRIGA

As if there hasn’t been enough skepticism circling Cryptocurrency, the industry just took another hit with what could either be sheer bad timing or a sinister scheme that would make for a great Hollywood thriller.

Until Dec 8 of last year, Gerald William Cotten was the CEO of Quadriga, a Canadian crypto exchange based in Canada. As was reported, Cotten had died from complications that arose from a long running battle with Crohns disease while on a trip to India.

His demise had messy ramifications, as he was the sole holder of the private keys needed to access the funds and assets of exchange, which, according to sources, were estimated at a whopping 140 million USD at the time of his death. The inevitable backlash has seen investors and customers furiously demanding their money back, and the exchange scrambling for solutions, forcing it to seek bankruptcy protection from a Canadian court while they try to retrieve and secure the funds. They are, at the time of this writing, still waiting for that to happen.

This whole fiasco has raised many a brow and inquiries have flooded the crypto space ever since. Many are now questioning the security protocols used by the exchanges and in the case of Quadriga, critical of the lack of contingencies they had in place. After all, shouldn’t any exchange worth its salt have more than one person within its management structure with the access and authority to the assets of the company? Not Quadriga apparently. And this has fueled speculation that there might be more going on than meets the eye.

SUDDEN DEATH

Gerald Cotten had reportedly died in Jaipur, India during a trip where he was said to have been opening an orphanage. This was confirmed by two sources: the Government of Rajasthan’s Directorate of Economics and Statistics, who issued his death certificate and the Halifax Funeral Home of Nova Scotia, Canada, who issued his statement of death. About a week later, the hospital where he was treated released a statement detailing the medical complications that led up to his death thus lending more credence to the claim that he had indeed passed away.

The question is: Just why have there been doubts that he actually died? After all, cases of sudden, unexpected death are not unheard of and in the case of Cotten, he did have Crohns Disease, an affliction that does not usually result directly in fatality but under certain circumstances, can erupt with complications that will. Ostensibly it appears that his death was merely ‘ill timed’ and the problems it has caused are simply due to negligence and severe misfortune. But for that conclusion to be accepted, the elements of the official story have to add up.

And they don’t.

STRANGE COINCIDENCES

For starters, Cotten had drawn out a meticulous will just two weeks before his death in which he left all his assets to his wife. Not that writing out a will is unusual, but the timing in this case has to be highly suspicious especially considering that while he had secured the legacy of his private assets, he had somehow neglected that of his company’s.

Then as it turns out, the co founder of Quadriga, Michael Patryn, had previously been convicted for being part of a criminal mob involved in internet ID theft and credit card conspiracy fraud. His name was originally Omar Dhanani, and records show that he was a criminal conspirator and an all round con artist. Not quite credentials evocative of trust and transparency but if you intend to concoct a scheme to steal millions from unsuspecting investors, he’s definitely the kind of guy you want to work with. After all, nothing beats experience.

Up to this to this point the whole affair already looks terribly shady but it only gets worse.

THE CRYPTO COMMUNITY INVESTIGATES

Taylor Monahan, CEO of MyCrypto, a web based wallet for crypto holders, uncovered that Quadriga did not use cold wallets for the storage of ETH (of which they had 430,000), but rather ran it through other exchanges such as Shapeshift and Bitfinex. There is evidence to show that Quadriga was in fact trading ETH for BTC on Shapeshift, a clear breach of investors trust if they under the impression that their investments were safely stored away.

Zerononsense, a crypto research platform, has released a detailed report that shows that points towards an actual money laundering scheme and that the exchange was facilitating withdrawals for customers using deposits from other customers. The first statement in its report though, has to be the most shocking. It says:

“It appears that there are no identifiable cold wallet reserves for QuadrigaCX.”

If that is true, then the whole claim that funds cannot be accessed due to the loss of private keys is but a cover for what could be a massive scam. Zerononsense went on to conclude that;

“…QuadrigaCX has not been truthful with regards to their inability to access the funds needed to honor customer withdrawal requests.”

What then has happened to the funds? And will customers get them back?

Miller Thompson, a top Canadian law firm has been hired to represent more than 100 of Quadriga’s clients in an attempt to hold the exchange accountable and possibly retrieve the funds of its customers. However, if it’s true that the funds were never stored in cold wallets, then it’s likely that their attempts might prove to be futile.

The funds may very well be gone. And along with them, Gerald Cotten himself.

Rumors that he faked his death in order to abscond with the funds are not exactly far fetched considering where his alleged death took place. It’s not for nothing that India has for years been labelled ‘Incredible’ for it certainly is. With the right connections and for the right amount of money, one can ‘disappear from existence’ as the video below proves.

So in truly incredible fashion, anyone seeking to ‘die’ without actually being dead, can have that arranged in India and it’s therefore not impossible that Gerald Cotten might have joined a pantheon of legends who allegedly faked their own death in order to leave the public glare (his reasons of course being quite different). Unlike those legends though, no one has any information with regards to where and when his funeral took place and nor is there any photographic evidence of his body (quite possibly because it’s propped up somewhere on an exotic island and being filled with Mai Tais).

AFTERMATH/SOLUTIONS

The Quadriga debacle has inevitably led to plenty of questions being posed about the legitimacy of the crypto industry and rightfully so. Watching over 140 million dollars worth of investment disappear with little or no hope of recovery has only helped to pile on doubts about the industry especially among its most vociferous critics. However, it has to be noted that the industry is relatively new and as with any that’s finding its feet, it will go through its fair share of blips. Mt. Gox and Quadriga are examples of teething problems that can and will gradually be ironed out with a combination of regulation and innovative solutions by blockchain companies.

Companies such as Bitwill, a company that provides legacy solutions for crypto holders, are making strides in working with authorities to implement compliance protocols across the industry in order to ensure the legacy of crypto assets. Its CEO, Jay Thakor, is calling for greater strides to be made especially in the area of innovation.

“The protocols and logic for posthumous handing over of assets are outdated and do not match the requirements of the digital age. What’s needed for digital assets is updated technology and upgraded protocols that are on par in terms of sophistication and complexity.”

It is still early days for the crypto space. And if Quadriga has taught industry professionals anything, it is that there is a need for greater regulation and innovation in order for it to maintain it’s credibility.

Decentralization is a novel idea and part of the appeal of Bitcoin when it was first introduced was the fact that it removed the middleman — the banks. And while it has sparked a revolution in the financial world, both economically and technologically, it is still an outsider in this world where banks and intermediaries still hold sway over our wealth and the ways by which it gets moved around. Those institutions have one massive advantage: they’ve been around longer.

In that respect the Crypto/Blockchain industry has much catching up to do especially in terms of ensuring security of assets and proving its legitimacy. And while Quadriga hasn’t helped in that regard, it should spur the industry to move with greater momentum to implement solutions so that such a fiasco never erupts again.

Every crisis presents an opportunity and so dead or alive, Gerald Cotten and Quadriga have certainly given the crypto world impetus to challenge its naysayers and prove that it can deliver on its promise of being the future of finance.

Originally published at https://www.linkedin.com.