$190 Million in Cryptocurrency Missing Due to Lost Password

Cryptocurrency is rarely out of the news, but the recent case involving Canadian currency exchange QuadrigaCX is a real show

Cryptocurrency is rarely out of the news, but the recent case involving Canadian currency exchange QuadrigaCX is a real show stopper. With the sudden death of its founder, Gerald Cotton, customers are owed an estimated $190 million due to a missing password only he knew.

A huge amount of cryptocurrency is believed to be stored on a device that is now inaccessible, leaving customers in the dark as to what has happened to their funds.

We also spoke to Mike Patryn, an original co-founder of QuadrigaCX, and asked for his opinion on the story.

What is QuadrigaCX, and Who Was Gerald Cotton?

To try to unpick the story of the missing cryptocurrency, we need to first step back and take a look at the main players involved. The company at the center of the scandal is QuadrigaCX, a Canadian cryptocurrency exchange founded in 2013.

Gerald Cotton was an original co-founder of the company, a 30 year-old with a passion for digital finance who worked in the field for over a decade. On December 9th last year, according to a post by QuadrigaCX, he passed away due to complications stemming from Crohns disease. He was in India at the time, where he was building an orphanage.

Cotton was the only person who had the password to the company’s “cold wallet”, a device that’s used to store cryptocurrency. It’s called this because it’s disconnected from the internet, for security reasons. Within that cold wallet, allegedly, sits $190 million in QuadrigaCX customers’ cryptocurrency.

Earlier Troubles for QuadrigaCX

Cotton’s death might seem like the start of the company’s problems, but truth be told, it was already on the rocks before this news.

In 2018, it had found itself at the center of controversy when the Canadian Imperial Bank of Commerce froze $21.6 million of the company’s money due to suspicious activity. A flurry of activity in a short amount of time saw 388 individuals deposit over $50 million in the space of two weeks, and the bank was unable to identify the real owners of the funds.

During the dispute, the courts took control of the contested funds. QuadrigaCX maintained it had done nothing wrong, and accused the bank of foul play.

In a later affidavit, sourced by CoinDesk, Cotton’s widow, Jennifer Robertson, claimed that the the case had had a “significant impact on Quadriga’s ability to operate”, and said that Cotton had been using his own personal funds to ensure that QuadrigaCX users were paid.

Why Can’t QuadrigaCX Access the Money?

When Cotton died, he took one of the company’s most valuable assets with him – the password to the cold wallet that stored around $190 million in customer funds. His widow, Robertson – who, at the time of her husband’s death, was not officially employed by QuadrigaCX – has reportedly tried to access the cold wallet and company documents without success. In the January 30th court filing, she states:

“The laptop computer from which Gerry carried out the Company’s business is encrypted and I do not know the password or recovery key. Despite repeated and diligent searches, I have not been able to find them written down anywhere.” – Jennifer Robertson

She also stated that Cotton took sole responsibility for the handling of funds and the banking and accounting aspect of the business, which appears to be why only he had access to the cold wallet.

In that cold wallet, according to Robertson, are the following funds:

  • Bitcoin: 24,488.59834
  • Bitcoin Cash: 11,378.79082
  • Bitcoin Cash SV: 11,149.74262
  • Bitcoin Gold: 35,230.42779
  • Litecoin: 199,888.408
  • Ethereum: 429,966.0131

The estimated value of these adds up to around $190 million.

According to Robertson, despite employing the help of experts, she has been unable to access these funds stored on the cold wallet. She also states that Cotton was very security conscious, and held email accounts that would automatically delete encrypted messages after a short period, making accessing some company data very difficult.

How Have QuadrigaCX’s Customers Reacted?

Not well. Faced with the prospect of losing access to hundreds of millions of dollars, customers have taken to dedicated Reddit threads to discuss their next move and the intricacies of the case.

Many suspect foul play, questioning the company’s motivations. Why did only one person have access to the cold wallet? Why was Cotton in India when he was in the midst of a court case with the Canadian Imperial Bank of Commerce? Why did the company wait over a month to tell customers that Cotton had passed away, and why did it continue to allow deposits during this time? Why did Cotton write his will two weeks before he died?

There are even those who don’t really believe that Cotton has died, calling into question the Indian death certificate and the circumstances around the cold wallet. There’s also the strange fact that Cotton left his two dogs $100,000 in his will, which has angered those looking at potentially huge loses.

Some experts in the cryptocurrency field have suggested that QuadrigaCX may never have actually operated certain cold wallets in the first place. Taylor Monahan, CEO of MyCrypto, took to Twitter to question the supposed Ethereum amount that the company held in its cold wallets.

We reached out to Mike Patryn, a co-founder of QuadrigaCX, and asked him some of the key questions that customers and online commentators are looking for answers on.
Firstly, we asked if it was usual practice for a cryptocurrency exchange to give access to a cold wallet to just one person, and whether he believed that Cotton would have sole responsibility for this.

“No”, Patryn told us. “[It’s] certainly not standard practice, particularly for an amount so large. If one person were to be trusted with it at Quadriga, I would expect it only to be the director/office of the company”

Next, we covered some of the theories that have surface on the internet around these cold wallets. Some commentators, such as Taylor Monohan, mentioned earlier, have questioned if these cold wallets even existed in the first place. “I don’t believe that there’s much evidence of this being the case,” Patryn told us. “The analysis does not seem to date back sufficiently.”

Lastly, we wanted to get Patryn’s insight into the conspiracy theories that have cropped up on sites like Reddit regarding the case. In particular, some accusations have arisen that the name “Mike Patryn” is actually an alias of one Omar Dhanini, a person who has previously been convicted of fraud in the US. What was Patryn’s take on these claims? Patryn simply replied, “Such rumours have existed for a very long time. Unfortunately, there isn’t much to be done about slanderous comments on social media.”

What Happens Next?

As customers urgently wait for an update, QuadrigaCX has posted an message on the front page of its website. It states that it is working to locate and secure the cryptocurrency stored in its cold wallets, but with no success to date.

It has also applied for creditor protection, with the first hearing to be held on the 5th February.

Whatever happens next, it seems that the saga is far from over, and that customers could have a long wait on their hands to get their money back.

Did you find this article helpful? Click on one of the following buttons
We're so happy you liked! Get more delivered to your inbox just like it.

We're sorry this article didn't help you today – we welcome feedback, so if there's any way you feel we could improve our content, please email us at contact@tech.co

Written by:
Jack is the Deputy Editor for Tech.co. He has over 15 years experience in publishing, having covered both consumer and business technology extensively, including both in print and online. Jack has also led on investigations on topical tech issues, from privacy to price gouging. He has a strong background in research-based content, working with organisations globally, and has also been a member of government advisory committees on tech matters.
Explore More See all news
Back to top
close Building a Website? We've tested and rated Wix as the best website builder you can choose – try it yourself for free Try Wix today