Apparently history teaches us nothing. Cryptocurrency’s past is littered with failed exchanges and bad actors. So why does it keep happening? Let’s dive into the tale of Gerald Cotten and QuadrigaCX and try to discern why we allow history to repeat itself.
The story of QuadrigaCX and Gerald Cotten has all the elements of a Hollywood thriller: a young, talented developer, an exciting new digital currency exchange, and a mysterious disappearance that left investors as furious as they were confused.
But the collapse of QuadrigaCX, once one of Canada's largest cryptocurrency exchanges, was a real-life drama that shook the crypto world to its core.
Who owns the movie rights?
In 2013 Gerald Cotten, then an ambitious 30-year-old computer science graduate, founded QuadrigaCX. The platform provided a secure and simple way for Canadians to buy and sell cryptocurrencies, including Bitcoin, Ethereum and e-Gold.
The exchange was popular and as the crypto industry grew, so did QuadrigaCX. Soon it had tens of thousands of customers and had established itself as one of Canada’s premier digital asset exchanges.
Gerald Cotten was the sole director of the company. So when he suddenly died in India from complications related to Crohn's disease, the news sent shockwaves through the cryptocurrency community, but not because of his apparent death.
The real third act twist hit a couple of weeks later, when a company spokesman revealed that Cotten had been the one and only person with access to the platform's cold wallets.
For the uninitiated, cold wallets are offline storage devices that hold users’ digital assets. And in the case of QuadrigaCX, they contained almost all their customers’ funds.
$200 million in customer funds, gone
The company stated that it was approximately $200 million in cryptocurrency. Gone. That’s when the rumours, speculation and conspiracy theories started to circulate. Gerald Cotten hadn’t actually died. He had disappeared. Why would a healthy young man suddenly die from Crohn’s disease?
To add fuel to the fire, Cotten’s widow revealed that, in the few years leading up to his passing, Cotten had got his pilot’s license and learnt how to sail the biggest yacht possible without a crew.
Some customers accused QuadrigaCX of fraud, claiming that the company had never even held the funds in the first place. Others suggested that Cotten had orchestrated a massive Ponzi scheme, using new customers' deposits to pay off old debts. And in some corners of the internet, people surmised he was living a life of luxury on a remote, tropical island.
Meanwhile, the QuadrigaCX’s management team insisted that they were working tirelessly to find a solution. They didn’t. In the end, the Nova Scotia Supreme Court appointed an official monitor to oversee the liquidation of the company's assets. Customers were told that they’d probably only receive a small fraction of their original investments.
Not your keys, not your coins
The story highlighted the lack of transparency surrounding the operations of QuadrigaCX and other centralized exchanges. It was a cautionary tale of the risks of entrusting large sums of money to a single individual or entity, especially in the largely unregulated world of crypto.
Yet last year many customers experienced a similar fate. Over and over again. Terra. FTX. Three Arrows Capital. Genesis. BlockFi. The list goes on.
The moral of the story? Self custody is the best form of security. Not your keys, not your coins.
#NotYourKeysNotYourCoins #CEX #Crypto
