[header date=”14 March 2019″]Quadriga shows what can happen when you count on an exchange. If you store your crypto independently, you can still take precautions.[/header]
No quick fix for Quadriga
Supposedly, you can’t take anything with you when you die. Unfortunately though, for customers of QuadrigaCX, a Canadian cryptocurrency exchange, that’s not quite true. Sometimes, you can die with a priceless secret in tow.
When Gerald Cotten, Quadriga’s 30-year-old CEO, unexpectedly died from complications of Crohn’s disease this December, he took with him the passwords to unlock more than $140 million of cryptocurrency. Now, the exchange’s users are left in a bind.
The only person who knew the passwords to unlock their funds is dead. And because of the nature of cryptocurrencies, there’s virtually no way to recover the funds. Unless Cotten left an undiscovered trove of logins, his very-much-alive customers are permanently a lot poorer. (Unless, of course you’re among those speculating that Cotten’s death was an elaborate ruse, and he disappeared with the money.)
Perhaps nobody has it worse than Tong Zou, one Quadriga user who chose a particularly inauspicious time to transfer his life savings. Zou hoped to use cryptocurrency to save on exorbitant international transaction fees. He wasn’t even trying to make money off crypto trading, but now he’s out $422,000.
The misfortune of Quadriga’s customers illustrates the greatest shortcoming of cryptocurrencies: If you forget or lose the password to your wallet—known as a “private key”—you’re completely out of luck. Private keys can’t be changed or reset, so no amount of guessing, or crying, will get your digital coins back.
The same is true if you entrust your cryptocurrency to an exchange and they fail to establish safeguards for their wallets. Ultimately, there’s no customer service representative for bitcoin itself. Although crypto enthusiasts tout that as a feature, it sure seems like a bug.
Quadriga’s deficiencies are a frightful reminder that bitcoin demands almost complete self-reliance. And that might be the most impractical aspect of cryptocurrency in the first place.
Cryptocurrency enthusiasts exhort one another to store their digital wealth independently (i.e., not on an exchange) but in the wider world, we’re mostly dependent on trusted intermediaries and institutions to help protect and insure us. Maybe that’s not such a bad thing.
Because of the nature of public-key cryptography, there isn’t a quick fix to the private key dilemma. If you want to “be your own bank,” then you accept all the risks that entails. Today, the best thing you can do to mitigate your risk is keep copies of your private key in a few secure locations—and in multiple formats.
For example, if you spill coffee on your computer, you don’t want your bitcoin to fizzle away in a caffeinated catastrophe. Keeping a hardcopy backup, printed on a piece of paper and stored in a safe, is one way to avoid disaster. But of course, papers—like computers—can catch fire or get lost. So even if you have one hardcopy, you might want to keep another in different location.
Further, if one of your backups is compromised, you better move your funds to a new wallet immediately. The entire exercise is maddening, and it’s enough to make one wonder whether crypto makes sense at all.
On the heels of the Quadriga fiasco, blockchain skeptic David Gerard wryly joked, “Remember that time your bank manager died, and suddenly all your money was gone?” All I can say is this: Thank goodness my checking account isn’t based on a blockchain.
[supplemental headline=”De-jargonizer: Paper wallet”]
A “paper wallet” is a printed document which contains your public and private keys—your receiving and sending addresses respectively. Sometimes, these documents also include your keys in the form of QR codes.
[mailto filter=”Jargon” subject=”De-jargonize this…”]Heard a new crypto term? We can tell you what it means.[/mailto]
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Please send news, tips, and coffee-laden laptops to privatekey@qz.com. Today’s Private Key was written by Matthew De Silva, and edited by Oliver Staley. Adopt the pace of nature; her secret is patience.