Darknet ICO, Bitmain Infighting, Calls for Cotten to Be Exhumed: Hodler’s Digest, Dec. 9–15

Darknet ICO, Bitmain Infighting, Calls for Cotten to Be Exhumed: Hodler’s Digest, Dec. 9–15

In this week’s Hodler’s Digest, bitter infighting at Bitmain, Libra’s white paper quietly updated, and the $146 million ICO that’s almost certainly illegal

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Coming every Sunday, Hodler’s Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.

Top Stories This Week

VeChain loses $6.6 million in VET tokens to hacker in attack on buyback wallet

An unknown hacker has redirected a whopping 1.1 billion VET tokens from the VeChain Foundation’s buyback wallet to a personal address. The crypto was worth an estimated $6.6 million at the time, with the company stressing that the security integrity of its mainnet and official mobile wallet has not been affected. In a statement, VeChain said “human error and the mismanagement of the private key by our staff” was to blame for Dec. 13’s incident. Crypto exchanges have been urged to monitor, blacklist and freeze any and all funds that come from the attacker, as well as withdrawals from corresponding wallets. At the time of writing, the value of VET tokens has fallen by more than 8.7% over the past seven days.

Russia: Darknet marketplace plans $146 million ICO for global expansion

Now here’s a surreal story: The biggest darknet marketplace in Russia has unveiled plans to raise $146 million in an initial coin offering — a token sale that would be almost certainly illegal. Those behind the site, which is called “Hydra,” say they need the funds to go global and “start a new era in the West” at a scale that is “hard to imagine.” The platform sees couriers drop off illicit goods in concealed public spaces where clients can pick them up — meaning buyers, sellers and couriers never end up coming face to face. Figures from a Russian investigative site suggest Hydra has 2.5 million registered accounts, with 393,000 of these making at least one purchase. Skeptics have warned that the ICO could turn out to be an exit scam.

QuadrigaCX victims request proof of Gerald Cotten’s death by exhuming body

The surreal news doesn’t end there. A Canadian law firm has asked police to conduct an exhumation and post-mortem autopsy on the body of Gerald Cotten, the late owner of the now-defunct exchange QuadrigaCX. Cotten reportedly died in India from complications relating to Crohn’s disease last December, and he was the only person with the private keys to wallets that held $190 million in user funds. Rumors have been swirling that the entrepreneur could have faked his own death. Lawyers at Miller Thomson believe their request is appropriate given the “questionable circumstances” around his passing and “the need for certainty around the question of whether Mr. Cotten is in fact deceased.”

Wu Jihan resurfaces as Bitmain CEO after co-founder is forced out

Infighting at the Beijing-based mining giant Bitmain has reached a fever pitch. The company’s co-founder, tech billionaire Wu Jihan, has unexpectedly resurfaced as CEO. Fellow co-founder Micree Zhan Ketuan claims he was removed as a legal representative of Bitmain without his consent, with Wu sending out an email announcing he had decided to dismiss all of Zhan’s roles effective immediately. In the aftermath of the boardroom drama, Zhan said he felt like he had been stabbed in the back “by those partners you trusted and brothers you thought with.” Striking a note of defiance, he added: “Bitmain is our child. I will fight for her till the end with legal weapons. I won’t allow those who want to plot against Bitmain to succeed. If someone wants a war, we will give them one.“

French-regulated Napoleon Bitcoin Fund linked to CME futures

The Paris-based asset management firm Napoleon AM has announced the launch of a regulated Bitcoin fund. According to the company, its product is one of the first regulated vehicles that gives exposure to BTC’s price movements. The Napoleon Bitcoin Fund aims to deliver portfolio diversification to institutional and professional investors — replicating the performance of futures listed on the Chicago Mercantile Exchange in cash settlement. Cash was chosen to avoid the hassle of storing and valuing Bitcoin. In its announcement, the company said: “Convinced of the major transformation challenge carried by the blockchain for the entire industry, Napoleon AM got quickly interested in the financial potential of what intrinsically emanates from public blockchains, digital assets.”

Winners and Losers

At the end of the week, Bitcoin is at $7,149.22, Ether at $143.49 and XRP at $0.22. The total market cap is at $194,885,911,888.

The top three altcoin gainers of the week are TomoChain, Davinci Coin and Dentacoin. The top three altcoin losers of the week are Matic Network, Harmony and Celer Network.

For more info on crypto prices, make sure to read Cointelegraph’s market analysis

Most Memorable Quotations

„The inherent violence of fiat money must be replaced by the peaceful nature of Bitcoin. […] Bitcoin is the currency of a global revolution and the nightmare of trust money.”

Max Keiser, Bitcoin evangelist

“My personal conviction on the issue of stablecoins is that we better be ahead of the curve. There is clearly demand out there that we have to respond to.”

Christine Lagarde, ECB president

“Boring & fragile markets here.”

Michaël van de Poppe, Cointelegraph contributor

“New technologies have emerged to make a decentralized approach more viable. Blockchain points to a series of decentralized solutions for open and durable hosting, governance, and even monetization. Much work to be done, but the fundamentals are there.”

Jack Dorsey, Twitter CEO

“In addition to […] traditional money-laundering risks, the financial industry also faces new risks in the area of blockchain technology and the cryptoassets that are attracting growing interest from clients.”

Swiss Financial Market Supervisory Authority

“Overall, I believe we have taken a measured, yet proactive regulatory approach that both fosters innovation and capital formation while protecting our investors and our markets.”

Jay Clayton, SEC chairman

“Bitmain is our child. I will fight for her till the end with legal weapons. I won’t allow those who want to plot against Bitmain to succeed. If someone wants a war, we will give them one.“

Micree Zhan Ketuan, Bitmain co-founder

“Platforms designed to protect us and act in our best interest already exist. We are just waiting for 7 billion people to discover them. When they do, the entire internet will become an application on the blockchain.”

Alex Mashinsky, founder and CEO of Celsius Network

Prediction of the Week

Silk Road darknet marketplace founder: BTC will reach $100,000 in 2020

This week’s prediction comes from behind bars. Ross Ulbricht, who is serving a life sentence for his role as founder of a now-defunct anonymous darknet marketplace, believes BTC is going to soar to $100,000 in 2020. He penned a series of letters from his prison cell that were adapted into blog posts on the outside. Ulbricht used a type of market analysis known as Elliott Wave Theory in order to make the prediction — and claimed it was possible even without knowing Bitcoin’s day-to-day price movements and the general condition of the market. His forecast of a six-figure price comes a week after one of the most successful investors in the world, Tim Draper, called for his release.

FUD of the Week

Libra updates white paper and removes dividends for Libra Association

Oh Libra… remember that? The white paper for the proposed Facebook stablecoin was quietly updated this week. One of the biggest changes is the removal of dividends payable to the Libra Association members who became early investors. This means that any interest on assets held in reserve will now only be used to “cover the costs of the system, ensure low transaction fees, and support further growth and adoption.” The tweak eliminates a potential conflict of interest between members of the not-for-profit association and the currency’s end users, as it removes any incentive to load up the reserve with higher-risk assets that could cause Libra tokens to lose their value. There’s also some speculation that the amendment could be designed to address concerns that Libra may be classified as a security.

Weibo continues rage at Tron and Binance: Sun and Yi He blocked

The major microblogging site Weibo — often referred to as “Chinese Twitter” — has suspended the accounts of Tron founder Justin Sun and Binance co-founder Yi He. Visitors to their pages are now greeted with a notice that says: “The account has been blocked due to violations of laws and regulations and the relevant provisions of the Weibo Community Convention.” It comes weeks after Weibo blocked the official account of Binance, one of the world’s biggest crypto exchanges. Binance has since registered a new Weibo account that remains active, and the profiles of other platforms such as Huobi and OKEx have been unaffected by the blocking spree. However, given the fact that China has been clamping down on all things crypto of late, watch this space.

Circle cuts another 10 employees, rejects connection to CEO stepping down

Circle has laid off another 10 employees, but the payments company says the dismissals are unrelated to the departure of its CEO Sean Neville, who has made the transition to serve on the board of directors. A Circle representative confirmed to Cointelegraph that some departments have been streamlined as the company focuses on its USDC stablecoin.

Best Cointelegraph Features

From health care to mining, Central Asia stays on the blockchain beat

The seven “-stan” countries of Central and South Asia — Pakistan, Kazakhstan, Afghanistan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan — haven’t shied away from cryptocurrency and blockchain technology. Osato Avan-Nomayo looks at some of the notable developments from the region. 

Ethereum ice age may be imminent if miners withdraw from the network

In the lead-up to the Istanbul upgrade, implemented on Dec. 8, the Ethereum team decided again to postpone the explosion of a so-called “difficulty bomb,” which some believe may lead to the onset of an Ice Age. How can this happen and what would be the consequences if the Ethereum network froze? Julia Magas explains.

Soccer teams like Juventus look to score with blockchain push

Why are so many soccer clubs gravitating toward the use of blockchain technology? Shiraz Jagati has been taking a look.

Zur Quelle

In this week’s Hodler’s Digest, bitter infighting at Bitmain, Libra’s white paper quietly updated, and the $146 million ICO that’s almost certainly illegal

QuadrigaCX Users Lose $190M as Speculations Over Cotten’s Death Swirl

QuadrigaCX Users Lose $190M as Speculations Over Cotten’s Death Swirl

Gerald Cotten, the founder of the largest Canadian crypto exchange, QuadrigaCX, potentially stole almost $200 million and reportedly died

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The crypto community has recently been actively discussing the fate of QuadrigaCX’s 30-year-old founder, Gerald Cotten, who reportedly died in India from a fatal disease in December 2018. However, before the apparent passing, he took virtual keys for digital wallets and moved them into cold storage. Why did this story end so tragically, and has it truly come to a conclusion?

How it all began

QuadrigaCX appeared in 2013 and quickly became one of the largest Canadian crypto exchanges. The platform allowed its users to get cash or cryptocurrency through an online trading service by storing digital assets on the blockchain, which are only available in the same alphanumeric code. Gerald Cotten was the only officer and director.

The cryptocurrency world has always been very sensitive to news about large losses of money and hacks, as the market is young, unregulated and has many users who are not protected from any kind of threat. When the news broke that Cotten died, it hit some people extremely hard — especially when it was revealed that he supposedly transferred users‘ funds from the exchange and used them as security for his own margin trading on other platforms. As a result, users of QuadrigaCX lost about $190 million and finally began a noisy trial.

Possible crypto fraud?

QuadrigaCX began to experience difficulties with banks in the autumn of 2018 due to the inability to access their funds. Back then, the Canadian Imperial Bank of Commerce (CIBC) froze five accounts owned by Jose Reyes — the owner of payment processor and exchange Costodian Inc., which was a subsidiary of QuadrigaCX. The governing body also asked the Ontario Supreme Court to hold $19.6 million and determine whether these funds belonged to Costodian, QuadrigaCX or users who deposited the funds. The court ruled in favor of the bank’s request, stating that the owner of the funds was not clearly defined.

But then, the case did not develop and some users could not access their accounts, but no one seemed to be getting worried after the case with CIBC. The bombshell fell in January 2019, when the company’s Twitter page revealed the news that its founder, Cotten, suddenly died during a journey to India:

“Please see our statement regarding the sudden passing of our @QuadrigaCoinEx founder and CEO, Gerry Cotten. A visionary leader who transformed the lives of those around him, he will be greatly missed.”

The most unusual thing was the fact that, after the sudden death of its founder, QuadrigaCX exchange lost $190 million ($145 million) in digital assets, as the exchange representatives had not been able to find or access funds since Cotten’s death in December, which led to a liquidity crisis on the exchange. The exchange had only $286.000 is assets, while it owed its users about $190 million. This was the case since all the assets of the exchange were kept in a cold storage, and only Cotten knew the password.

In January 2019, Cotten’s wife, Jennifer Robertson, legally assured the testimony that her husband had never spoke about the users’ money and he didn’t leave behind any passwords to the crypto wallets. That is: no man, no money. Dead men are not responsible.

In early February, rumors began to gain momentum and the public found out that Cotten could have stored the personal keys from the exchange on paper in a safe. This was an assumption based on the words of Cotten himself in 2014, when, in an interview, he warned about the danger of losing keys to storage systems with a cold wallet and, consequently, loss of access to the assets. He concluded that the best way to keep private keys is to print them and store offline in a safe.

The company’s management wasted no time. In early February, it filed a petition to protect creditors in the Supreme Court of Nova Scotia and announced that the audit by Big Four firm E&Y would be following up on the proceedings as an independent third party.

Related: Round-Up of Crypto Exchange Hacks So Far in 2019 — How Can They Be Stopped?

Also, the users of the exchange created a committee that provided recommendations for victims of QuadrigaCX. A committee of seven former exchange users assisted the law firms in representing all affected users in legal proceedings against QuadrigaCX. To whitewash her husband’s reputation, Robertson made a statement in March, which claimed that Cotten invested his own money in QuadrigaCX to finance user withdrawals in 2018 after the CIBC froze five company accounts.

On April 1, E&Y claimed that the now-closed exchange should be declared bankrupt and proposed an action plan in a report submitted to the Supreme Court of Nova Scotia. And after seven days, on April 8, QuadrigaCX was officially declared bankrupt. Just a month later, E&Y released a report, which described assets and liabilities of the crypto exchange and its subsidiaries. The report said that Quadriga’s assets amount to about $20.8 million and around $160 million in liabilities.

In June 2019, E&Y released its most recent report, in which it was explicitly stated that Cotten had transferred users‘ funds from the exchange and used them as security for his personal trading on other platforms. The report also noted that there was no separation between duties and basic internal control, nor any division of assets between QuadrigaCX funds and those of the users. 

Related: DEX, Explained

According to the document, Cotten also created fake QuadrigaCX accounts under several pseudonyms and used them to trade on the platform to show artificial income.

Some former QuadrigaCX users, however, have started their own investigation. Some Reddit users analyzed bitcoins taken from the QuadrigaCX exchange and found them being traded on other exchanges. Reddit users claimed that the withdrawal of transactions that they had analyzed were found on the exchanges HitBTC and Bittrex. 

Is Cotten really dead?

Cotten and Robertson tied the knot in Scotland in October 2018. A month later, in November, Cotten left all his financial assets to his wife, making her the sole executor of his estate.

For a 30-year-old man who does not have a history of life-threatening diseases, the decision to write his will a few days before leaving for India could be interpreted as a sign of fears for his life or even something nefarious. Within 24 hours of the couple’s arrival on Dec. 8, Cotten was declared dead. 

Representatives of the Indian hospital where he was taken claimed in a press release that Cotten had a history of Crohn’s disease and was on monoclonal antibodies for therapy. Cotten was diagnosed with a case of septic shock, perforation of peritonitis and intestinal obstruction, from which he died. Such a confluence of circumstances is extremely rare, so many netizens questioned the plausibility of such events. One Reddit user even wrote:

“I remember exactly 2 and a half weeks ago, someone on this subreddit that was jokingly talking about gerald said ‘Watch Quadriga say that they can’t access cold wallets because Gerald died and he was the only one with access to the keys. The dude literally said that comment as a complete joke, and I even found it funny because of how ridiculous it was.”

So why did users stay silent for such a long time instead of taking action to protect their funds? Evan Thomas, a Canadian commercial litigator, expressed his opinion with Cointelegraph on this matter:

“Cryptocurrency exchanges like Quadriga are not regulated in Canada, so there were no regulatory authorities supervising Quadriga. Until the founder Gerald Cotten died in December, Quadriga didn’t appear to be having major problems and so many users didn’t have any reason to think the problems were as bad as they turned out to be.”

Thomas noted that users should bare some responsibility for the loss of money, since they paid insufficient attention to where their digital funds were located, and that an easy way to protect yourself is to withdraw the funds from the exchanges:

“Users can protect themselves by not keeping crypto or fiat on custodial exchanges except when they absolutely have to, such as when trading or converting to or from fiat. And customers have to be sure they trust any exchange, especially when there is no regulator supervising the exchange.”

The obvious outcome?

As of June, $286.000 remain in the QuadrigaCX exchange’s accounts. Debt to its former customers amounts to roughly $190 million. Where’s the money? QuadrigaCX holds it in a cold wallet, but there is no key to open it, and the users are seemingly left stranded. 

Cotten was allegedly the only employee of the company who had access to the cold wallet of the exchange. But it seems rather implausible that the board of directors and shareholders would ever allow this to happen in any commercial structure.

Despite what it was — a complicated fraud action or a simple Ponzi scheme that was interrupted by a premature death (or not) — one thing remains unambiguous: Tens of millions are still missing.

But the conclusion of this story is something else. It is hard not to dwell on who stole the money and how much — even more so when it happens in an unregulated market. The lesson to be learned from this is that users must first of all protect themselves, and check as much and as deep as they can before giving their money to someone else. After all, if those funds are gone with the one you entrusted them with, there is an argument to say that the blame is partially on you.

Zur Quelle

Gerald Cotten, the founder of the largest Canadian crypto exchange, QuadrigaCX, potentially stole almost $200 million and reportedly died