The security of funds stored on cryptocurrency exchanges have been of serious concern in the industry for some time now. Since the collapse of Mt Gox in 2013, there have been several other breaches and eventualities that have led to users losing assets that are kept in crypto.
The assumed loss of funds by users after the death of Gerald Cotten, CEO of Quadriga, has left another stain on the cryptocurrency industry. Various opinions have emerged that try to explain the possibilities surrounding this development and likely areas where things may not have been handled properly.
Another Twist In Investigations
While the industry attempts to figure out the intricacies around Quadriga saga, it has been discovered that the designated cold wallets where the funds were supposed to be stored had been empty long before the death of Cotten, as reported on Bloomberg. This raises even more questions, at the same initiating a discuss as to the most appropriate administrative methods for third party platform that host cryptocurrency wallets.
No matter the extent of post mortem analysis and investigations, the fact remains that there has been a disconnect along the line, and the missing link needs to be properly addressed in order to avoid a repeat of the unfortunate situation.
Exchanges Need To Protect Customers
According to Michael Vogel, founder at Netcoins, storing Bitcoins and cryptocurrencies with a third party implies a forfeiture of the decentralized benefit of any user. However, he believes that exchanges need to step up on their responsibility to users.
No Bitcoin company wants to end up like Mt Gox or Quadriga, however common sense tells us that Bitcoin exchanges need to take practical steps to protect customers. At the most basic level, one person shouldn’t be the central point of success / failure, and large balances of coins shouldn’t be stored in the same place.
Vogel notes that 2018 was a record year of security breaches at Bitcoin exchanges. Although the Quadriga fallout isn’t officially due to a hack, the learning outcomes for customers are very similar to that of the infamous Mt Gox collapse of 2013.
He explains that Bitcoin is very different from traditional banking systems (and rightly so). As a result, when storing Bitcoins with a third party, like an exchange, users essentially forfeit the decentralized benefit of Bitcoin itself.
A Multisig Wallet Could Serve
The CEO of Satowallet, Samuel Benedict also retains a similar opinion with Vogel. Benedict tells Coinstituency that there are a number of ways by which users funds can be protected against unwanted situations.
He notes that the situation at Quadriga could have been avoided in a number of ways, one of which is to adopt the use of multi-signature system. This system allows multiple users or organizations to hold private keys to the wallet, and when majority of the keys are combined , the funds can be accessed. “At Satowallet we apply a cold storage method as an extra layer of security for users funds, and we split the private keys”, says Benedict.
Certain Unclear Developments
Losing one’s funds in an ecosystem that prides itself on a high level of security can be disappointing. However, losing it on a system that is expected to know better for such situation could be even more frustrating.
The common challenges faced by exchanges have mostly been as a result of hacks and malicious attacks. But the situation at Quadriga which suggests loss as a result of inaccessibility has been taken by many with a pinch of salt. This could be the reason why further investigation is ongoing to really ascertain the reason behind such carelessness.
The discovery of the company’s wallets to have held no funds long before the death of Cotten introduces a whole new angle to the inquisition. More explanation will indeed be needed to clarify the true nature of things and any hope of recovering users’ funds. In the event that the funds involved are not recovered, a level of closure may sooth the emotions of their owners.
Iyke Aru is a seasoned author and educator in the blockchain and cryptocurrency industry. He has been in the business of crypto content writing for many years with thousands of his articles across several platforms on the internet. Iyke is based in Nigeria where he stands out as one of the most informed and credible figures in the cryptocurrency industry. Outside blockchain and crypto, you will most likely catch Iyke playing or discussing football with friends and family.