QuadrigaCX, the largest bitcoin exchange in Canada, has lost $190 million worth of crypto after it lost access to its cold storage wallets.

An affidavit filed on January 31 with the Supreme Court of Nova Scotia revealed that $190 million in Bitcoin, Bitcoin Cash, Bitcoin Cash SV, Bitcoin Gold, Litecoin, and Ethereum were lost.

How Did the Bitcoin Exchange Lose All of its Crypto Funds?

The affidavit, first obtained by CoinDesk, was filed by Jennifer Robertson, the widow of QuadrigaCX founder and CEO Gerald Cotten.

According to a death certificate included in the affidavit, Cotten passed away in India after suffering from Crohn’s disease. The death of Gerald Cotten was disclosed by the exchange in early January.

Jennifer Robertson stated that Cotten was solely in control of storing user funds in cold storage wallets. In crypto, cold storage refers to a wallet that is not connected to the internet and stored offline.

Usually, major digital asset exchanges like Binance and Coinbase store a large portion of their funds in cold storage to prevent hacking attacks and security breaches.

However, there is often an infrastructure in place in the form of a multi-signature system to ensure that the exchange can still withdraw funds under the most unlikely circumstances.

In the case of QuadrigaCX, the founder and CEO was solely responsible for overseeing the funds, and since he passed away, no one could access the funds that he previously maintained.

“The normal procedure was that [QuadrigaCX founder and CEO Gerald Cotten] would move the majority of the coins to cold storage as a way to protect the coins from hacking or other virtual theft,” the affidavit read.

Robertson has hired a consultant to attempt to decrypt the laptop utilized by Cotten to potentially gain access to the private keys to the cold storage wallets that kept QuadricaCX’s user funds.

The consultant has not found success in obtaining access to the laptop, and to date, the exchange has not been able to recover any of the funds that were lost.

What Happens if the Exchange Can’t Recover the Funds?

On February 1, CCN.com reported that QuadrigaCX has struggled in recovering funds stored in crypto wallets as well as cash stored by a third party.

“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful,” the company said.

Currently, the exchange has requested a stay of proceedings that protects the firm from potential class-action lawsuits that may be filed by investors on the platform.

If the company fails to recover user funds, Robertson said in the affidavit that the firm would consider selling the business to reimburse users with the acquisition capital. The exchange has received several offers already.

“[QuadrigaCX] urgently needs a stay of proceedings which will allow Quadriga and its contractors additional time to find whatever stores of cryptocurrency may be available and also to negotiate the bank drafts available to Quadriga,” the affidavit read.

QuadrigaCX faced an unfortunate series of events that left the company with a limited selection of decisions to make to protect its investors.

But, the system employed by the exchange allowed one executive in the company to exercise total control over user funds led to the loss of hundreds of millions of dollars, and it could have been prevented with a well-structured internal management system.

As CoinShares chief strategy officer Meltem Demirors said, it is important for large-scale crypto exchanges to have proper continuity planning in place.

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