Crypto Exchange Can't Unlock Their Vault, $190m At Risk

The head of Canadian Bitcoin exchange QuadrigaCX died without telling anyone how to unlock the security system protecting the exchange's deposits of Bitcoin, worth $190 million. Now, they may be lost forever.
John Loeffler

When the founder of a major Canadian Bitcoin exchange died last year, he may have taken the secret of how to unlock the security system that protects the exchange's Bitcoin reserves with him. Now, according to a recent court filing, the company fears that their users' Bitcoins may be lost for good.

$190m In User Account Balances Inaccessible

As first reported by CoinDesk, Jennifer Robertson, widow of Gerald Cotten, founder of the QuadrigaCX cryptocurrency exchange, filed a sworn affidavit with the Nova Scotia Supreme Court last week, revealing that the company is unable to open up a security system that is preventing users from accessing the contents of their Bitcoin wallets, which are valued at around $190 million USD. Worse still, the company fears these Bitcoins may be lost forever.

The system preventing access is Quadriga’s so-called “cold storage” system, an offline safety mechanism that prevents a user's cryptocurrency wallet from being exposed to hackers during transactions, but which also prevents a user from withdrawing Bitcoins from that wallet while it is locked inside. Only after the company unlocks the system and moves Bitcoins out of cold storage and into a less secure “hot wallet” on the exchange are users able to spend, trade, withdraw, or transfer their Bitcoins.

According to Robertson, “only a minimal amount of coins” were in this hot wallet at the time of Cotten’s death, meaning the rest is locked up in Quadriga’s cold storage system, which has so far proven to be impenetrable. Robertson maintains that Cotten had exclusive control over this system, saying he had “sole responsibility for handling the funds and coins.”

“Quadriga’s inventory of cryptocurrency has become unavailable and some of it may be lost,” she added.

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Recovery Efforts Underway, But Almost Guaranteed to Fail

Its possible that the key to unlocking QuadrigaCX's cold storage system could be contained within the company's business documents, which may have a description and record of its systems. Robertson says that she has no business information for Cotten’s company or its affiliates and that all she has is the laptop that likely contains the information they need to unlock Quadriga's cold storage system.


Unfortunately, Cotten's laptop is encrypted, and Robertson says neither she nor anyone else at QuadrigaCX knows the password to unlock the system or the recovery key used to decrypt the hard drive in an emergency. They fear that this knowledge died with Cotten.

A recovery specialist has is trying to gain access to the laptop but prospects for success are dim. Standard encryption is practically impossible to break using our current technology, so there is little hope that they will succeed in recovering anything from the laptop.

Cotten's death was announced on the company website early this month, saying that he died of complications from Crohn’s disease in Jaipur, India in December 2018. A death certificate has been filed in the case and the company has petitioned the court for protection from their creditors.


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