The Quadriga Bitcoin saga

Brendan Burgess

Brendan Burgess

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A very good programme on BBC Radio 4 about Bitcoin

The Crypto Factor – The Winners and Losers in Virtual Investment

The whole premise of Bitcoin was that there should be no regulation. But now that investors have lost their money held by Quadriga, they are looking for someone to sue to get their money back.

Summary
Canada's largest exchange was run by two people.
One turned out to be using a false name. He was a convicted fraudster.
The guy in charge died suddenly on his honeymoon in India, aged 25(?). The company did not announce his death until the following month.
He was the only one who knew the passwords for the cold wallet and so initially they thought that all the Bitcoin were in cold wallets and were lost forever.
Then EY were appointed Guardians and they found the passwords, but the cold wallets were all empty, so they were lost forever anyway - unless the guy is resurrected.
Since the appointment of EY, some Bitcoin were inadvertently transferred from their hot wallet to the cold wallet.

Wikipedia has more information.
https://en.wikipedia.org/wiki/Quadriga_Fintech_Solutions



Brendan
 
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Bitcoin is made up money and anyone who sinks their funds into it in any meaningful way might as well go down the bookies and put it on a horse at Cheltenham. It reminds me of all the "genuises" who "made a fortune" in property during the Celtic Tiger because they were so clever and the rest of were fools that we did not follow down their path. I've no sympathy for anyone who loses their shirt on Bitcoin.
 
Brendan Burgess said:
The whole premise of Bitcoin was that there should be no regulation. But now that investors have lost their money held by Quadriga, they are looking for someone to sue to get their money back.
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The whole premise of Bitcoin is decentralised money and so at the point of origin, the likes of QuadrigaCX would have been anathema to the original proponents of cryptocurrency. It's not decentralised when a centralised exchange is implicated.

Of course, this is still an issue right now for the industry - as the vast majority of people need to use one in order to trade crypto. There are some decentralised exchanges in existence (i.e. exchanges which facilitate peer to peer transactions and don't involve a central authority). However, there's still work to be done to make them more accessible, secure and user-friendly. One of the worlds largest exchanges - Binance - is scheduled to launch one in the coming weeks.

@Brendan - you had the privilege of attending one of Andreas Antonopoulos' events last year. This snippet from him is very relevant to this particular discussion. At the beginning of the year, Antonopoulos and other thought leaders in the crypto space were involved in a public awareness campaign - 'Not your keys, not your Bitcoin'. Whilst the majority of people may need centralised exchanges to buy and sell crypto, they don't have to put their crypto at risk beyond the length of time it takes to trade.

Those investors that are out of pocket at QuadrigaCX wouldn't be had they stored their own crypto.

Peanuts20 said:
Bitcoin is made up money and anyone who sinks their funds into it in any meaningful way might as well go down the bookies and put it on a horse at Cheltenham. It reminds me of all the "genuises" who "made a fortune" in property during the Celtic Tiger because they were so clever and the rest of were fools that we did not follow down their path. I've no sympathy for anyone who loses their shirt on Bitcoin.
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When you say, it's 'made up money', all money is made up. It remains valuable so long as someone sees value in it. You seem to be suggesting that Bitcoin (and by implication, cryptocurrency generally) will just vanish and be worth zero some day soon. Whilst there's a possibility that Bitcoin may lose favour to another cryptocurrency, crypto generally isn't going anywhere - it's here to stay.

As for FIAT currency, well take a look at this one -> https://twitter.com/Xentagz/status/1105386714577686529
 
tecate said:
Those investors that are out of pocket at QuadrigaCX wouldn't be had they stored their own crypto.
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Thanks tecate. I had wondered about that. I had thought that the whole point was that you kept your own Bitcoin yourself rather than in a "bank", but I thought that maybe I had got it wrong.

Brendan
 
Brendan Burgess said:
I had thought that the whole point was that you kept your own Bitcoin yourself rather than in a "bank", but I thought that maybe I had got it wrong.
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To not do so is to miss one of the great advantages of crypto. However, we've all been conditioned to leave funds in the hands of a third party. It is a hell of a responsibility to take control of it yourself. People have to be really disciplined as if they go about it the wrong way, they will have their crypto stolen from them. If that happens, there is nothing anyone can do for them.

This is something that's a stumbling block to adoption for sure. The industry needs to make it much easier and much more intuitive to store and use cryptocurrency. Otherwise, I think that there will need to be a range of options - self custody for those that can stomach it and third party custody.

Where there is third party custody, most in crypto understand that regulation is needed - so long as it's sane regulation (that doesn't stymie innovation). The QuadrigaCX saga is bad for the industry - but it is always likely to happen without proper regulation in place. Various aspects of the industry are being held back - due to a lack of regulation or regulatory uncertainty.

There can sometimes be a silver lining. Mt Gox remains the most infamous of cryptocurrency exchange hacks. It is the reason that Japan has far more progressive regulation than most other countries. They had the experience before anyone else and had to spend the time to understand crypto and regulate it so that another Mt Gox couldn't happen. Hopefully, the Canadian regulator will act in response to the QuadrigaCX shambles.
 
tecate said:
However, we've all been conditioned to leave funds in the hands of a third party.
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Yeah, and I'd imagine many people using such a service are doing so because they're not technically savvy enough to be comfortable with cryptography / key management to do so themselves.
 
Leo said:
Yeah, and I'd imagine many people using such a service are doing so because they're not technically savvy enough to be comfortable with cryptography / key management to do so themselves.
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Definitely.

It remains a major challenge for the industry to overcome. That's going to take time. In the meantime, a series of regulatory checks and balances for centralised exchanges can go a long way to making a QuadrigaCX scenario much less likely.
 
tecate said:
To not do so is to miss one of the great advantages of crypto. However, we've all been conditioned to leave funds in the hands of a third party. It is a hell of a responsibility to take control of it yourself. People have to be really disciplined as if they go about it the wrong way, they will have their crypto stolen from them. If that happens, there is nothing anyone can do for them.

This is something that's a stumbling block to adoption for sure. The industry needs to make it much easier and much more intuitive to store and use cryptocurrency. Otherwise, I think that there will need to be a range of options - self custody for those that can stomach it and third party custody.

Where there is third party custody, most in crypto understand that regulation is needed - so long as it's sane regulation (that doesn't stymie innovation). The QuadrigaCX saga is bad for the industry - but it is always likely to happen without proper regulation in place. Various aspects of the industry are being held back - due to a lack of regulation or regulatory uncertainty.

There can sometimes be a silver lining. Mt Gox remains the most infamous of cryptocurrency exchange hacks. It is the reason that Japan has far more progressive regulation than most other countries. They had the experience before anyone else and had to spend the time to understand crypto and regulate it so that another Mt Gox couldn't happen. Hopefully, the Canadian regulator will act in response to the QuadrigaCX shambles.
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I have no idea about crypto or block chain or storage of crypto but found your posts to be very interesting. The storage of it sounds like cash, except online. Keep cash in your house, you risk someone breaking in and robbing it. And it's likely to be gone. Keep it in a bank and it is safe from being robbed...unless the bank is hacked. But if that happened with a bank, you will most probably get your money back. If it happened with crypto, you've lost your money. Or if some forgets the password or dies, your money is locked away forever!!

On regulation, is that not what the crypto founding fathers were trying to stay away from? Having regulated currency. But it is now needed because your money isn't safe otherwise? Wasn't block chain supposed to prevent all this?
 
SBarrett said:
I have no idea about crypto or block chain or storage of crypto but found your posts to be very interesting. The storage of it sounds like cash, except online. Keep cash in your house, you risk someone breaking in and robbing it. And it's likely to be gone. Keep it in a bank and it is safe from being robbed...unless the bank is hacked.
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For sure. And there are multiple issues in that respect. Some of them can be improved upon overtime to make it easier for people to achieve this. In the meantime, for sure - this is one thing that you pay for/get with a third party.
However, a bank can go bust (and there may or may not be a workable bank guarantee in place depending on jurisdiction). The state can come in and raid your funds. People often think this will never happen but it happens all the time - in some jurisdiction or other (and almost happened in ours...albeit that the state decided to raid our pensions instead).

SBarrett said:
On regulation, is that not what the crypto founding fathers were trying to stay away from? Having regulated currency. But it is now needed because your money isn't safe otherwise?
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What I see emerging here are two tracks. People have the option - they can store their own or they can use third party custody. Nothing has changed with regard to the former. Wall Street is getting involved in crypto - so its being brought in to the conventional world. The original cypherpunks don't care for this - but there's nothing stopping crypto being used in either way.
 
tecate said:
Wall Street is getting involved in crypto - so its being brought in to the conventional world.
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Hi Tecate

Can you give examples of this?

I presume every bank or fund manager must look at cryptos.

But I don't think any major institution has gone any further with the likes of Bitcoin, other than look at it.

If someone believed in Bitcoin, but wanted institutional protection, they would be better off buying an ETF.

But I thought that some institutions had backed away from doing anything because of the security issues.

Brendan
 
Brendan Burgess said:
Can you give examples of this?
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Fidelity Investments - they're getting involved with crypto custody. Institutional Investors don't go on to cryptocurrency exchanges like the rest of us. Hence, why Fidelity are getting into crypto custody - to cater for the institutions.

Goldman Sachs are backing crypto payments firm, Circle. ...which is involved in OTC trading and has launched its own stablecoin.

The owners of the New York Stock Exchange - Intercontinental Group - have spawned a subsidiary company - Bakkt - that will offer physically settled Bitcoin futures. Bakkt are collaborating with Microsoft and Starbucks on this project (and Starbucks involvement has implications for wider use).

Nasdaq is playing its part in building out the crypto eco-system and also has plans to launch Bitcoin futures.

JPM Coin is in the works from Jamie Dimon's JP Morgan. This is the guy who on a couple of occasions last year said that crypto was rubbish. Here he is investing in it (even if its a centralised coin, its a move from rubbishing crypto generally to investing in it).

Goldman Sachs has backed crypto custodian, Bitgo.

Tagomi - Brokerage formed by former Goldman Sachs Exec. - brings electronic trading to crypto.

Autonomous Ventures - Crypto/Blockchain Hedge Fund.

Morgan Stanley - Crypto an institutional investment class.

: 66% of investment comes from institutions in 2018 (Grayscale is the worlds largest crypto asset manager).

The first ever public pensions funded via crypto - Morgan Creek Digital.

Brendan Burgess said:
I thought that some institutions had backed away from doing anything because of the security issues.
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Yes, there are headaches for institutional investors in terms of the storage of digital assets - which is why they won't bite without crypto custody solutions being in place, backed by established names.
Regulation is still not fully nailed down - so there are concerns there too.

@SBarrett: This is on point re. your query as to whether crypto is going off course from what the original proponents of it wanted.
 
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It was similar with Mount Gox, once the bitcoins were taken from the wallets from Mount Gox, they were gone. A lot of people felt bad about missing out on BTC a while back, but if a lot of them had done so a few years ago, they would have done so at Mount Gox. It wasn't deliberate by the founder at mount Gox, he and the company lacked the skills to secure against hackers. Never trust a crypto exchange not built on a good domain :D
 
domainer222 said:
It was similar with Mount Gox, once the bitcoins were taken from the wallets from Mount Gox, they were gone. A lot of people felt bad about missing out on BTC a while back, but if a lot of them had done so a few years ago, they would have done so at Mount Gox.
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It's the very same principal. If clients had held their own crypto rather than store it on a centralised exchange, then they wouldnt have been out of pocket.

domainer222 said:
It wasn't deliberate by the founder at mount Gox, he and the company lacked the skills to secure against hackers. Never trust a crypto exchange not built on a good domain :D
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Former Mt Gox CEO Karpeles was acquitted of embezzlement earlier this month.

However, he was found guilty of manipulating records - inflating holdings by $34 million and on the back of that, investing in other ventures.
 
Yes @tecate most unfortunate, he hit the panic button. But he was not the main fraudster. Very ironic to see BTC becoming more and more centralized the bigger the mining gets.
 
domainer222 said:
Very ironic to see BTC becoming more and more centralized the bigger the mining gets.
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Consensus involves more than just miners. It's miners, merchants, exchanges, web-wallets and end users. If miners were to fork away contentiously, they'll be mining blocks without transactions in them....ergo mining centralisation is not the concern it's made out to be.
 
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