The Quadriga story is starting to look like a historic crypto-catastrophe. The story has always sounded odd: the unexpected death of Gerald Cotten, the CEO of popular Canadian exchange QuadrigaCX, had left more than $140 million of the exchange's users' funds inaccessible, since he was the only one in the company able to access the money. The recent news that offline cryptocurrency storage systems that were supposed to be holding the money have been empty since April makes it sound even more suspicious.
In case you're not up to speed: QuadrigaCX claims that Cotten died while traveling in India in December. In late January, the company said in a court filing that Cotten had maintained "sole responsibility" for handling QuadrigaCX's so-called cold wallets (as opposed to hot wallets, which are connected to the internet), and that since his death no one at QuadrigaCX has been able to access them. Early in February, the Nova Scotia Supreme Court appointed consulting firm Ernst and Young (EY) as a "monitor" in charge of trying to locate Quadriga's lost money.
A bad situation turned worse for QuadrigaCX's users on February 12, when EY revealed that the exchange had accidentally sent nearly half a million dollars worth of additional Bitcoin to a cold wallet that it couldn't access. Since then, EY has been trying, without much success, to recover money from the company's wallets as well as from 10 third party payment processors that it believes are holding money on behalf of QuadrigaCX. In its latest report, filed March 1, EY asserted that several cold wallets it has identified as QuadrigaCX's have in fact been empty for months. In other words, the funds it supposedly couldn't access may never have existed in the first place (though EY did not say whether there may be other wallets).
Independent journalist Amy Castor has been maintaining a helpful timeline of all the twists and turns of this story, which includes a number of mysterious characters besides Cotten.
Now that the mystery has captured the wider world's attention, it's starting to feel reminiscent a previous catastrophe that damaged the public's perception of the industry enough to severely set it back in its growth. Sure, the industry recovered, and has come a long way since 2014, when the most important exchange at the time, Mt. Gox, collapsed and lost nearly half a million dollars. But how can it be taken seriously when a popular exchange can still just up and lose $100 million of its users' funds and have little hope of ever recovering the money? Like in the case of the Mt. Gox collapse, when all is said and done, the QuadrigaCX fiasco will have left its own unique mark on the industry.
Guessing at the shape of Facebook's blockchain dream: A new report from the New York Times has revealed new details about Facebook's secretive blockchain project that suggest it may be close to bearing fruit. But we still have a lot more questions than answers.
Bloomberg reported in December that Facebook has been developing a so-called stablecoin—a digital currency whose value is pegged to a traditional currency, often the US dollar. The Times report seems to confirm this; five people familiar with the project said the first product was likely to be a stablecoin. Apparently, Facebook could guarantee the currency's value by backing it with dollars, euros, and other national currencies held in Facebook bank accounts. According to the Times, the company has already been in talks with exchanges about listing a coin for consumers.
The earlier report from Bloomberg suggested that Facebook's coin would be available to users of its messaging service WhatsApp, who would be able to send it to contacts. The Times notes that Facebook is overhauling its messaging infrastructure to connect WhatsApp, Facebook Messenger, and Instagram. In theory, that would make a digital coin accessible to the 2.7 billion people who use at least one of those three apps each month.
We have so many questions, though. Will the coin really run on a blockchain? If so, how much control will Facebook have over the ledger? How will it make money off it, and prevent criminals from using it? And how will it handle user privacy? The Times suggests the company is considering system designs that don't rely on the energy-intensive mining process that Bitcoin and similar currencies use. What will it use as an alternative? At least one thing is clear: a dominant technology company launching a fiat-currency-backed digital coin doesn't sound much like the decentralized future that many blockchain enthusiasts have in mind.
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Loose Change
Fill your pockets with these newsy tidbits.
- Controversial stablecoin Tether will launch a new version of the token for the Tron blockchain. (CoinDesk)
- Hackers have apparently turned the website for the Bangladeshi embassy in Egypt into a crypto-mining operation. (Cyberscoop)
- Meanwhile, according to new data from IBM, cybercriminals dramatically shifted their focus from ransomware to cryptojacking in 2018. (Fortune)
- Cryptocurrency startup Circle, which was valued last year at $3 billion, is looking to raise $250 million more. (The Information $)
