It was only a matter of time before the troubled and highly controversial QuadrigaCX cryptocurrency exchange would declare bankruptcy, and that day has come. According to a news report published by the Canadian Broadcasting Corporation, a Nova Scotia court has ordered that QuadrigaCX should enter bankruptcy proceedings despite its recent efforts to stay afloat by means of financial restructuring. As the situation currently stands, more than 115,000 individuals are owed funds in cryptocurrency and fiat cash holdings.
Now that QuadrigaCX is formally following the process of the federal Bankruptcy and Insolvency Act, the accounting firm ordered by the court to monitor the company will now become a trustee entity that can investigate what went wrong before and after the death of Gerald Cotten, the 30-year-old founder of the exchange, who passed away last year from complications related to Crohn's disease. At the time of his death, Cotten was in the middle of a soul-searching trip to India; however, the fact that he drafted a will just before his departure arose quite a bit of suspicion among account holders who are now owed millions of dollars in cryptocurrency.
Although QuadrigaCX had run into difficulties and irregularities before the death of its founder, the real trouble began when company executives realized that Cotten was the only person who knew the password of a MacBook where $190 million worth of digital currency were kept in "cold storage" wallets disconnected from the internet. To a certain extent, cold storage is an offline method of keeping private cryptographic keys private. The simplest cold storage solution would be writing down both private and public keys on a piece of paper that is physically locked away, this would be an analog method; the digital equivalent of cold storage could be a desktop, laptop or even USB drives that never connect to the internet.
The problem with QuadrigaCX is that account holders had no idea that their funds were being kept in a cold storage MacBook that no one except Cotten had access to. Ernst & Young, the new trustee in the case, has determined that some of the deposit funds were used by Cotten and some associates for personal purposes.