Crypto exchange founder dies with sole password, leaving $190 million locked up

stock photo of bitcoins and U.S. dollar bills
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The death of a crypto exchange founder has rendered the exchange unable to repay $190 million to its clients.

When QuadrigaCX founder Gerald Cotten passed away in December 2018, the exchange lost access to the funds required to pay back its customers the $190 million it owes them.

QuadrigaCX lost access to these funds because the password required to access them wasn’t known to anyone except Cotten himself.

As a result, the Canadian crypto exchange has filed for “creditor protection” in an attempt to avoid bankruptcy, according to CoinDesk.

Apparently the password-protected funds are kept in “cold storage” and the only funds available to QuadrigaCX are stored in a “hot wallet.” The exact amounts of money stored in either the cold storage or hot wallet are currently unknown, although it seems that the bulk of the money needed to repay Quadriga’s customers is being held in cold storage.

Cotten’s widow, Jennifer Robertson shed a little light on how the funds were normally handled, via a sworn affidavit filed last month with the Nova Scotia Supreme Court. In the affidavit, Robertson said that Cotten “would move the majority of the coins to cold storage as a way to protect the coins from hacking or other virtual theft.”

While Robertson does not have business records for QuadrigaCX, she did get Cotten’s laptop. Unfortunately, she has been unable to access the contents of the encrypted laptop, as no one has the password or recovery key for it. Attempts to decrypt the laptop have not been successful.

115,000 customers (with balances) could be affected by QuadrigaCX’s inability to pay the $190 million. Not to mention the roughly $50 million in fiat the exchange also owes. According to that same affidavit, the exchange is supposed to have $147 million in total.

Quadriga’s customers have reported being unable to withdraw their funds from the exchange for months and have complained about this and about receiving little information about the status of their accounts and about the fact that Quadriga’s website went down for maintenance last week.

Selling off Quadriga’s operating platform has been mentioned as an option for the exchange, as doing so may allow it to help pay its customers back.

Selling off the operating platform may not help matters much if the troubled crypto exchange is unable to secure a court hearing on February 5 that confirms a “stay of proceedings.” Such a stay could stop lawsuits against the exchange from going forward and would be expected to prevent “further damages” to Quadriga’s customers, according to Robertson’s affidavit.

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