Would you deposit $145 million into a bank run out of the back of an unmarked van with a lone driver?

If you traded cryptocurrencies with Quadriga, that is exactly what you did!

We shouldn’t be surprised anymore when something in the cryptocurrency world goes wrong. So when news broke this week that $145 million worth of cryptocurrency is lost by an exchange, I was not shocked at all. However, as more details were disclosed by various news reports, I became more interested and concerned. I hope you are too.

I just can’t get over some the details about Quadriga, Canada’s largest cryptocurrency exchange. The short of it is: Quadriga’s CEO Gerald Cotten, 30 years old, became sick and died while traveling in India. Somehow his tragic death led to the inability for the exchange to recover all the crypto it was holding on behalf of users. (Really???)

Here are the 4 main reasons why that happened. They are as ridiculous. $145 million, 100,000+ users, remember:

1.Cotten ran the entire exchange by himself.

Cotten appeared to be the $145 million dollar man, who exerted sole control over the entire exchange with over 100,000 users and over $145 million in holdings. I can admire his ability to do so, but I also question everything about how Quadriga operated if he was in fact in sole control of the exchange. I wonder if all the users would have trusted the exchange if it is known that all starts and dies with Cotten alone.

2. Cotten used a single encrypted laptop (laptop!) to run the exchange

Redundancy is the hallmark of good IT practices. Whenever crucial information or financial holdings are at stake, redundancy, backup, and recovery procedures should exist to mitigate the risk of loss. To operate an entire exchange on a single laptop, albeit encrypted, is reckless and irresponsible.

3. Cotten appeared to have not written recovery/backup information anywhere else, according to his widow.

If you or I create a cryptocurrency wallet, we would be prompted multiple times to write down the address, password and seeds, whatever it is that we need to recover our account should we somehow lose access. Someone who is operating an exchange should of course know the procedures and the risks of not following them. It is very surprising that no paper backup access can be found.

4. Quardriga/Cotten did not have any backup whatsoever.

Granted, a 30-year-old person doesn’t normally die suddenly and quickly. However, that is not beyond the realm of imagination. One faces daily perils even in a civilized society. But how Quadriga operated went beyond “the secret dies with him.” It is not clear from what we know so far if Cotten could have recovered the accounts if he stayed alive but the laptop was lost/destroyed. Normal sensibility would reason that someone who is handling $145 million in user funds would be able to recover that amount of funds if a piece of technology is lost or destroyed; but normal sensibility would also reason that a husband would ensure that his wife know how to access his vast amount of wealth if he should die suddenly. And that was not the case. There appears to be no backup system at all.

As I internalize all of this craziness, I can’t help but wonder: was Cotten one of the dumbest business owner, or is there a more sinister side of the story? To me, fraud would be a better explanation than what’s been given so far. Only time can possibly unravel the real story here, but we might also never know for sure.

What is sure is that if we are talking about any other industry with this amount of money at stake, there are laws, regulations, and rules designed to prevent this from happening. As much as crypto enthusiasts hate regulation, this is just another example where some amount of oversight and regulation is necessary to prevent catastrophic losses.

I have been working a research paper outlining the proper way to offer, issue, and trade cryptocurrencies and assets under current regulations as this news broke. I think it is high time for the community to come together and advocate regulation that we can live with instead of having them imposed on the market.

I challenge you, if a man has been taking $145 million retail banking deposits in the back of his van and somehow lost it all, what would happen next???