By Richard Stobbe

For those who want blockchain-enabled cryptocurrencies to be deployed in mature, mainstream industry sectors (energy, insurance, financial services), it doesn’t help to have headlines like “How crypto exchange QuadrigaCX lost access to $190 million of customers’ money” (from Global News), or “Crypto CEO Dies Holding Only Passwords That Can Unlock Millions in Customer Coins” (that one from Bloomberg).

But let’s face it: those headlines appear to capture the essence of the current cloud of uncertainty that shrouds QuadrigaCX, a well-known Vancouver-based cryptocurrency exchange.

The company recently filed for creditor protection in a Nova Scotia court, after the reported sudden death of founder and CEO Gerald Cotten.  From reports of the company’s court filings, Mr. Cotten died with the recovery codes to the offline “cold storage” vaults containing access to customers’ cryptocurrency assets.

On February 5, 2019, the Nova Scotia court granted bankruptcy protection under the CCAA (Companies’ Creditors Arrangement Act) and appointed Ernst & Young as monitors to investigate the accessibility of any funds to reimburse the approximately 115,000 customers. A 30-day stay of proceedings was ordered, effectively shielding the company from further lawsuits as this investigation continues.

If no-one knows the access codes aside from the deceased founder, then the offline accounts, which reportedly hold millions of dollars worth of crypto assets, may be irretrievably lost.

What does this mean for the adoption of cryptocurrencies or other tokens that are powered by the same blockchain technologies that underpin BitCoin?

Cryptocurrency had a spotty reputation to begin with, and the current speculation and various internet-fuelled conspiracy theories surrounding QuadrigaCX do not give a person confidence.  You mean, I can take a risk by buying cryptocurrency hoping it’s going to rise in value, and then face the added risk that even if the value does increase, the multimillion dollar asset might suddenly disappear because one person held all the passwords? Apparently, yes.

Can one also lose millions in highly regulated industries by buying stocks or investing with Ponzi schemes?  Undoubtedly, yes. Somehow, the loss of traditional dollars does not shake investor confidence the way the collapse of QuadrigaCX might shake consumer confidence in BitCoin.

Maybe that’s because the history of crypto is a blip when compared to fiat currency. And maybe it’s because banks and others who handle consumer investments are subject to complex regulation, insurance requirements, registration requirements, securities commissions, financial superintendents, regulatory reporting and compliance obligations, and a system of censure in the case of a breach of those regulations.  After all, the QuadrigaCX exchange was not so much an investment vehicle; it was more akin to a bank.  When banks fail, confidence is understandably shaken.

The real cautionary tale may be that a mature and measured approach to cryptocurrency regulation may help instill confidence in the sector, and this may help pave the way for the strategic use of distributed-ledger technologies that are associated with cryptocurrency coins and tokens.

Calgary – 07:00 MST