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Did Crypto-currency or Bad Governance Beat These Investors?

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Buyers using the QuadrigaCX exchange to invest in crypto-currencies are waking up to the possibility that their money may be gone forever. What happened, you ask?

The system, like all crypto-currency systems presumably, was encrypted, but in the case of QuadrigaCX, only one man knew the password, and he’s dead.

Gerry Cotten, founder of QuadrigaCX took the password used to access customers’ $145 million in digital assets with him to the grave.

Without the password, it appears there is little the company can do to access customers’ assets. Coin Telegraph reports:

The exchange only has CA$375,000 ($286,000) in cash, while it owes CA$260 million ($198,435,000) to its users.

The exchange kept most its assets in offline storage systems called cold wallets, which are secured by digital security keys in order to protect them from hacking and theft. Cotten was solely responsible for the wallets and corresponding keys, which the company has been trying to find after his passing.

A filing from Ernst & Young reportedly states, “Quadriga was unable to access the cold wallets and/or discovered that the cold wallets contained minimal cryptocurrency units.” ‘Big Four’ auditing firm Ernst & Young has been appointed as an independent third party to monitor the proceedings.

Per The Globe and Mail, Cotten mostly worked form his computer at home, which is encrypted. Cotten’s wife, Jennifer Robertson, reportedly stated in an affidavit, “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.” Robertson purportedly went so far as to hire a cybersecurity expert to “hack into Gerry’s computers” to no avail.

It would be easy to blame the encryption technology for the problems facing QuadrigaCX users, but the real issue is one that has been around much longer than crypto-currencies, or even computers, bad governance.

Putting all the access to customer assets in the hands of one person is a major fiduciary failure on the part of QuadrigaCX.

Investors should perform due diligence when joining any platform, be it crypto-currency or a traditional brokerage. Make sure you understand where your money is going.

Originally posted on Your Survival Guy. 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.