Categories: Bitcoin Business

Cryptocurrency chief executive takes password key — and $280m Bitcoin fortune — to his grave

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Peter Van Valkenburgh, Coin Center director of research, comments on Gerald Cotten, the Canadian behind cryptocurrency exchange Quadriga CX, whose death left C$190 million ($145 million) in Bitcoin and other digital assets protected by his passwor...

After losing his life in India from issues stemming from Crohn’s disease at the age of just 30, cryptocurrency executive Gerald Cotten could be taking tens of millions of pounds worth of Bitcoin with him to the grave.

As the chief executive of QuadrigaCX, Canada’s biggest cryptocurrency exchange, Cotten was responsible for thousands of Bitcoin, a cryptocurrency worth $4769 per coin, in the company’s “digital wallets”.

But after Cotten’s death on December 9, his family and colleagues realised that the strict security measures he had adopted to guard his cryptocurrency stash left them with no way to access the company’s coffers.

The result? Nearly $283 million worth of cryptocurrency has gone missing forever, as the complex string of passwords required to gain access were known only to Cotten. An encrypted laptop became the nerve centre of the company’s exchange business and the company, and its many creditors and investors, are unable to gain access to his funds.

It is not the first instance of a death wiping out a cryptocurrency fortune. In 2013, early Bitcoin advocate Matthew Moody died when a two-seater plane he was flying in crashed in Chico, California. His father, Michael Moody, has since spent years trying to reclaim the Bitcoin fortune, with each digital coin worth thousands of dollars. But the digital wallets have been locked as the passwords to release them died with Michael.

One of the earliest cryptocurrency wallets holds a digital fortune. The wallet allegedly belonging to Bitcoin’s mysterious creator, Satoshi Nakamoto — who has not been heard of since 2011 — holds about 1.1 million Bitcoin. Today, these digital coins could be worth up to $5.5 billion. But since nobody has access to Nakamoto’s private keys, they remain impossible to access.

The death of Cotten has put a renewed spotlight on the question of inheritance of Bitcoin. If users die or lose their encryption keys for accessing their Bitcoin, how do they prevent the digital assets from being lost forever?

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“Five years ago we had a similar issue,” says Erik Wilgenhof Plante, a director and head of legal at UK cryptocurrency exchange BeQuant.

“A customer passed away and his next of kin asked could he somehow be given access to his Bitcoins. Of course, if you do not have the private key then the Bitcoin is lost.”

There are many reasons to keep Bitcoin hidden away on encrypted systems. With its soaring value last year, a few Bitcoins could be worth a small fortune with the value of a single coin hitting $US20,000 ($28,300) in December 2017.

“There are risks of kidnapping,” Wilgenhof Plante says. “It could be quite easy to kidnap a person and get access to the private keys.”

It has proved to be a real risk. In December 2017, an executive at UK-based Bitcoin exchange Exmo was kidnapped in Kiev and only released after paying a $US1 million ransom.

The best way to guard against the loss of your digital fortune after your death is to use a “multisignature” key.

A multisignature key means several different portions of the private key, which guards the cryptocurrency, must be assembled in order to reveal the final code to release the currency.

A single key is useless, but the presence of every one, or the majority of keys, unlocks the digital wallet.

Other options available to cryptocurrency pioneers include a “dead man’s switch” system, which requires the customer to regularly check in to prove they are still alive. If they stop triggering the system, then their virtual assets are transferred to colleagues or their family.

And, as inevitable as death, there are taxes.

“HMRC found cryptocurrency is property for inheritance tax purposes,” says Natasha Stourton, a trusts expert at the law firm Withers.

“That brings up various issues of valuation, and even finding the cryptocurrency.”

Of course, some might use the very nature of cryptocurrencies — that they are anonymous and hard to trace — to keep them out of sight from the taxman. Iqbal Gandham, managing director of trading platform eToro, said that issues with transferring assets after death are not just problems troubling the pioneers of cryptocurrency.

“Somebody out there needs to know how much you own and who you want to give it to. You need to include crypto into that jigsaw puzzle with a lawyer,” he said.

But if Bitcoin investors don’t pass on details of their holdings to their lawyers, then their businesses can be left with a situation like Quadriga.

The company’s website has been left blank except for a message informing customers that the company has filed an application for creditor protection in Canada’s Nova Scotia supreme court to address “significant financial issues”.

The Daily Telegraph

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