What Happened to QuadrigaCX $190 Million Exit Scam & How to Avoid It
QuadrigaCX was Canada’s biggest cryptocurrency exchange. It was started by Gerald Cotten all the way back in 2013; long before crypto became mainstream. And now over $190 million of investors’ funds are missing.
Like many other crypto exchanges, QuadrigaCX was wary of getting hacked by criminals. To protect its platform and users’ funds, it used a cold wallet to store crypto assets. Nothing strange there; cold storage is standard procedure for most (if not all) exchanges.
What is strange is the following. Gerald Cotten was the only person who could access QuadrigaCX’s cold wallet. Nobody else at the company had the power and responsibility to handle company (and user) funds.
This became a problem as Cotten died on December 9 2018 while traveling in India. Since nobody else can access the wallet, all of QuadrigaCX’s assets are now officially gone.
According to Cotten’s widow, Jennifer Robertson, the wallet contents include over 24,488 Bitcoin, 11,378 Bitcoin Cash, and 429,966 Ethereum coins. All told, the value of all the crypto assets held in the wallet was well over $190 million.
How it happened
If you’re like most of us, you might find it hard to believe that $190 million were lost so easily. You wouldn’t be alone. Many of QuadrigaCX’s users reacted with shock, disbelief, and horror when they discovered they may have lost their money forever.
However, the truth is that what happened isn’t that strange. Cold wallets – physical forms of storage disconnected from the Internet – cannot be restored if lost.
For example, let’s say your cold wallet is a passcode written down on a piece of paper. If someone sees and remembers your code, they’ll be able to access your wallet and your funds. Once they do, you won’t be able to do much (if anything).
Digital cold wallets aren’t necessarily safer. For example, a USB drive can be burned, damaged, lost, or corrupted by magnetic fields. Should this happen, any stored funds will have been lost instantly.
For all these reasons, large companies that rely on cold storage have processes to restore lost access. Unfortunately, QuadrigaCX didn’t have any processes like these – and as a result, they lost all of their users’ money.
The silver lining here is that we can all learn a lesson from QuadrigaCX. Cold wallets aren’t necessarily superior because they’re disconnected from the Internet. If you’re like most people, you may be better off using a multisig online wallet – like the one in CoinCola.
Multisig Bitcoin Wallet
A multi-signature wallet is a wallet that you need more than one key to open. A wallet like this can’t be opened with just one key; a user needs several keys, all of them correct, to gain access.
Wallets like these are vastly more secure than regular crypto wallets. They can also be recoverable (unlike QuadrigaCX’s cold wallet). For example, CoinCola’s multisig wallets are linked to user accounts – so after a verification process, users can recover lost access easily.
Which option is right for you?
Cold storage is useful. However, it can also result in the complete and total loss of all your funds. Since we’re a company, we have a number of safeguards to prevent this from happening – but as a user, you may not have access to the same.
To this end, it may be better to use a good multisig wallet instead of a cold one. That’s what many of CoinCola’s users do, to the tune of over 100,000 on-platform transactions per month.