QuadrigaCX debacle a cautionary tale for investors

The world of cryptocurrency has become appealing to investors who have increased their appetite for digital assets. By far, Bitcoin has been the most popular child born out of the emergence of blockchain technology.

The decentralized state of cryptocurrency has strengthened the confidence of investors, who see the digital asset as a safe haven investment platform. The blockchain digital ledger can only be accessed through an immutable alphanumeric code, making it breach-proof. This kind of security has attracted investors, assuring them that their money is safe.

Because of cryptocurrency’s popularity, the need to have digital currency exchanges (DCE) or crypto exchanges in place also surfaced. They would facilitate the conversion of digital currency into different assets, including fiat currencies. 

In a recent case where one of Canada’s crypto exchange platforms was declared bankrupt, the investors have been left with no one to turn to for a refund.

Founded in 2013, QuadrigaCX topped in the Canadian cryptocurrency exchange sector. The platform facilitated the handling of digital assets, the security of which was in the hands of the platform’s founder, the late Gerald Cotten. At the time of his death in December 2018, QuadrigaCX held assets worth about C$190 billion in digital tokens. 

Speculations have been raised since it was established that the exchange platform cannot refund its customers. In fact, the value of the assets in QuadrigaCX’s accounts was below the amount it owes the customers by far. In June, QuadrigaCX had $286,000 in the account, yet it owes customers up to $190 million.

Crypto security, subject to scrutiny

QuadrigaCX has left its customers in shock and surprise when they discovered that the key to their assets is with the late CEO. Ironically, as much as the cold wallet is popular for being more secure, the keys to the assets were owned by a private individual. It hammers home the idea that if you don’t own your keys, then you don’t own your bitcoin.

It creates a dilemma when investors and the company are left in a tug of war and none can get a pass. Yet, the question remains; who is responsible?

Part of the blame is on the individual investors who failed to do due diligence before they could channel funds into QuadrigaCX. It is advisable that investors be able to get the difference between an exchange platform and the wallet. For instance, tens of millions that are now missing through QuadrigaCX were in the hands of Cotten. Being in charge of the keys to the cold wallet, no one else can be able to retrieve the assets unless the passwords are obtained.

Evan Thomas, a Canadian commercial litigator emphasized that exchanges should not be used as a storage for crypto or fiat. He urges that the nature of custodial exchanges, lack of regulatory framework like in Canada’s situation, calls upon investors to pay sufficient attention to the details of how digital funds will be stored.

QuadrigaCX has left its customers in shock and surprise when they discovered that the key to their assets is with the late CEO. (Source)

Another failure on the part of the customers was the background check to ascertain the right structure of the company, its staff and the kind of business the platform is involved in. This would greatly help the investor to be sure they are not joining another scam, only to regret when it is too late. It is speculated Cotten used the assets to invest in his personal risks, whether it is true or not, the customers will have no way to recover their lost millions.

As thousands of QuadrigaCX customers continue to pursue their money, it is a wake-up call to the many who aspire to invest in the cryptocurrency world. As appetizing as the cryptocurrency investment can be, it calls for scrutiny before one takes the move to invest in the new digital goldmine.