Cryptocurrencies

Canadian cryptocurrency landscape must change after Gerald Cotten’s death

I first met Gerald Cotten in the summer of 2014. At the time, even he was unaware his nine-month-old startup, QuadrigaCX, would become Canada’s biggest platform for buying and selling cryptocurrency.

Now Cotten is dead, and his empire is crumbling. And the guy owes me $2,000.

According to his widow, Cotten, 30, ran his entire company from a laptop to which only he had access. With Cotton’s death, announced last month, he allegedly took to the grave almost $200 million in cryptocurrency, much of it belonging to more than 100,000 users across Canada, including me.

The saga, unfolding now in court, will likely spark government reaction and be remembered as a turning point for cryptocurrency in Canada. In this land that is often called a Wild West, the sheriff is coming to town.

Cotten’s death in India is suspicious. Vancouver’s Quadriga had been having cash-flow problems for months. Twelve days before Cotten’s death, the man made a detailed will, including money for his Chihuahua dogs — how did he neglect his laptop password?

Robertson’s official story, however, is even more troubling: what was once Canada’s largest cryptocurrency exchange was run so stupidly that it had been paralyzed by the death of one man. The Quadriga case comes down to either malice or extreme incompetence.

A lot of scandals happen in the cryptocurrency realm, and most do not ripple into the wider world. The Quadriga saga is not one of them.

The 100,000 who are owed money are not just cryptocurrency enthusiasts or Bitcoin millionaires. Many are everyday people, with bills and mortgages to pay. Their lives are tangibly affected.

This is the sort of thing that angers the proverbial gods. Furious rebukes will rain from the sky above.

The fall of Quadriga brings to mind the 2014 collapse of the world’s first cryptocurrency exchange and the similar cases that followed, all of which happened in Japan.

Those cases resulted in criminal charges and lawsuits around the world, including Canada. The Japanese government eventually made cryptocurrency exchanges register and screened them for risk management, asking up to 400 questions.

The industry ended up self-regulating. Companies were subject to regular audits.

In Canada, regulation is currently light. Governments and their agencies have long done little. Whether it’s the taxman or the financial watchdog, they created no new rules, but merely reinterpreted old ones.

Provincial securities regulators have even been friendly, offering help to startups to navigate the system, but ultimately have not changed the system itself.

The government has long been studying the matter, and Quadriga’s fall might just be the spark to make what happened in Japan happen here.

That certainly goes against the spirit of cryptocurrency. Bitcoin, the first cryptocurrency, was born out of the financial crisis of its time. It was made to circumvent banks and governments. Its inherent philosophy is a mistrust of traditional institutions. But regulation is not necessarily a bad thing.

Bitcoin allows peer-to-peer interaction without middlemen, meaning users are solely responsible for their money. Holding cryptocurrency is like keeping gold bars in a vault, albeit one that is more secure and portable.

If that vault is somehow compromised, if you lose the means to unlock it or if you’re scammed into opening it, there is zero recourse. In Russia, people have been tortured to reveal their passwords. In cryptocurrency, any malice or incompetence has far-ranging and heavy consequences.

The wider world sees that, and all it sees is lawlessness and anarchy. Regulation is not just inevitable; for wide adoption and growth of the industry, regulation is almost a prerequisite. After all, the post-regulation Japan has emerged as a cryptocurrency mecca.

All that is not an indictment of cryptocurrency itself. Quadriga’s official story actually demonstrates how secure cryptocurrency is — it is so secure that nobody can access the money.

The problem is the people handling cryptocurrency. We are flawed and fallible, our ability to act responsibly outpaced by the growth of our creations. Technology constantly evolves, but we remain apes.

Ethan Lou is a senior partner at the cryptocurrency firm Ocuis in Calgary.

Source

neallesh@yahoo.co.uk

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