Cryptocurrency Exchange Operator Dies Without Sharing Passwords With Anyone

Feb 7, 2019
Originally published on February 8, 2019 9:54 am
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MARY LOUISE KELLY, HOST:

Cash may still be king, but there are more ways to buy and sell and store our money than ever before. We're looking beyond cash in this month's All Tech Considered.

(SOUNDBITE OF ULRICH SCHNAUSS' "NOTHING HAPPENS IN JUNE")

KELLY: You can imagine what might happen if a bank lost the keys to the safe, and thousands of people couldn't get their hands on their own money and valuables. That is a simplified low-tech version of what has happened in Canada. The operator of a cryptocurrency exchange based there died in December without telling anyone what amounts to the passwords - the digital keys to the digital safes. Nolan Bauerle is head of research for the trade hub CoinDesk. He joins us from New York to explain what's going on here. Hi, Nolan.

NOLAN BAUERLE: Hi.

KELLY: So this Canadian cryptocurrency exchange is called QuadrigaCX. It allows people to trade and store money through online platforms. Is that the most basic explanation?

BAUERLE: Yeah. And it does something a little niche in the market in that it's an on-ramp for cash transactions.

KELLY: So you could park your cash there, too.

BAUERLE: You sure can.

KELLY: The CEO who died - he knew what the digital keys were, like a password. He had them stored on his personal laptop, and nobody else can get onto his laptop. Is that the situation right now?

BAUERLE: Yeah. This is a really unsophisticated way to run a company that supposedly has this many digital assets under control.

KELLY: OK.

BAUERLE: It looks like the key management policies of this exchange were almost old-fashioned in this industry.

KELLY: Ye olden days of digital currency (laughter). Go on.

BAUERLE: We have developed as an industry multiple ways to manage these keys safely where three or four people would sign off on a transaction. It looks like what they did here was they gave all the authority to one person. So there's a single point of failure in this exchange.

KELLY: Getting into a laptop, cracking the password for that - that seems like a relatively manageable problem for a smart hacker, or no?

BAUERLE: I think so. And right now what's happening in Canada is Ernst and Young has involved themselves in this case. And they are going to be looking into getting into this laptop. So Quadriga has tried to get into the laptop for a while. We'll find out now where the case is with Ernst and Young - if this is possible.

KELLY: It is also theoretically possible that all this money - and we're talking well over $100 million - that it could maybe be locked away forever.

BAUERLE: Yeah, that is absolutely a scenario here.

KELLY: This is making me want to hide all my money in a big wad under the mattress.

(LAUGHTER)

KELLY: Which prompts me to ask, who had put their money into Quadriga - elite investors investing hundreds of thousands, millions of dollars, or is this ordinary...

BAUERLE: No, this is hundreds of thousands of accounts of small retail investors.

KELLY: Are there laws that are supposed to regulate how you manage your crypto keys?

BAUERLE: Different jurisdictions have different laws. In Canada, what it looks like is, mostly, money service business is law. So they have to show that they have, you know, a certain amount of reserves.

KELLY: But meanwhile, is this giving people who might be thinking about investing in cryptocurrency pause?

BAUERLE: I think it definitely should give everyone a chance to think again, but these are lessons that have been spoken about very openly by the community for a long time. Don't put your keys with an exchange for an extended period of time or a long time.

KELLY: Nolan Bauerle. He's head of research for CoinDesk. Thanks so much.

BAUERLE: Thank you for having me. Transcript provided by NPR, Copyright NPR.