The single key, and QuadrigaCX

Graduate · enrolled learners

This lesson opens with QuadrigaCX, 2019.

What happened

QuadrigaCX was Canada's largest cryptocurrency exchange. In December 2018 its founder, Gerald Cotten, died, and the company stated he had been the only person with the keys to its cold wallets, so about 190 million Canadian dollars of customer assets was declared inaccessible. The Ontario Securities Commission investigated and concluded the exchange had in truth been operated as a fraud: customer funds had been traded on other platforms and lost, and the cold wallets were largely empty well before Cotten died, so the story of a lost key was partly a cover for a hole that already existed. But the arrangement the public was told, and that customers believed, is itself the lesson: an exchange that lets one person hold the only key has built a structure where a single death makes customer funds unrecoverable, and the fraud was only able to hide behind that structure because the structure was plausible.

The decision point

The QuadrigaCX story worked as a cover precisely because a single key holder is a recognizable and common failure, and an institution's first custody decision is to make sure it never applies to them. A single key is not a small operational risk; it is a structure in which the death, departure, incapacity, or coercion of one person, or the simple loss of one device or phrase, makes the assets gone. Institutional custody exists to remove the single point of failure: no one person can move the assets alone, and no one person's absence can freeze them. That is the property to design for, and the test of any custody arrangement is the blunt question QuadrigaCX poses, what happens to the assets if the one person who can reach them is gone tomorrow. If the answer is that they are lost, the arrangement is QuadrigaCX regardless of who runs it.

Recorded loss

$145,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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