JP Thieriot, CEO, Uphold.

Canada’s largest crypto exchange filed for bankruptcy last week with liabilities $210m and assets of $30 million.

A notice on their website said the company has been unable to recover the private keys of its considerable holdings of cryptocurrencies. They were apparently ‘lost’ after the death of the 30-year old founder and CEO Gerald Cotton (above) on a trip to India after complications set in from Crohn’s disease. The bankruptcy claimed 26,500 BTC, 20,000 LTC and 430,000 Ethereum, among others holdings. It would be the fourth-largest known crypto hack.

“The laptop computer from which Gerry carried out the companies’ business is encrypted and I do not know the password or recovery key. Despite repeated and diligent searches, I have not been able to find them written down anywhere,” his wife said in the bankruptcy filing.

The company had 115,000 active users. But due to the circumstances of the unrecoverable fund, online rumours have suggested he faked his death.

Since the announcement, blockchain-watchers have set out to find out what ‘really’ happened.

JP Thieriot, CEO of Uphold talking to IBS Intelligence said: “While it’s certainly suspicious that an exchange would allow one man to hold $190 million, we can’t be certain that this was not the case. With all due sensitivity to the situation, an exchange’s cold storage being vulnerable in this way is bound to invite speculation of malfeasance. A fact pattern including $22m in frozen funds by the CIBC is also not encouraging.

“Although we can’t say for sure whether users will be able to get their money back, it’s not promising to have to rely on somehow gaining access to the account by means other than using a private key. This brings to light the issue of private keys in general, and it’s one of the major reasons we added inheritability to our platform – to allow relatives to access private keys in circumstances like these.

“Unfortunately, schemes like this are not new to this space, and continue to tarnish the reputation of exchanges and discourage new investors. If we want to make the leap to the mass market, we have to take steps to prevent issues like these from becoming commonplace.

“Universal Protocol has alluded to the systemic problem by offering recoverability of private keys, though we never contemplated an event of this scale. While this may be potentially bullish for BTC, the bigger focus is on how these events impact the industry in the long run as we collectively aim for mass adoption.”

Immediate questions have arisen. Kraken CEO Jesse Powell first cast vague doubts about the reserves.

QuadrigaCX questions from KrakkenOthers have noted that money continues to flow in and out of its Litecoin wallets associated with QuadrigaCX. This story can only get stranger.

by Bill Boyle
IBS Intelligence Senior Editor