With Halloween coming up shortly, I figured It’s a good time to share horror stories about money. This is a true story from earlier in the year involving some cryptocurrency I purchased back in 2017. I didn’t lose a life-altering amount, although many people sadly lost tens of thousands. I did learn a valuable lesson though -one that I hope someone else can learn from!
Let’s rewind back to 2017 when cryptocurrencies, led by Bitcoin, were soaring in value. Bitcoin(BTC) peaked in December 2017 at over $19,000 USD, when it started the year at just $1,017. That’s a return of over 1660%. Ethereum(ETH) fared even better, rising over 10,400% during those 12 months!
Sometime in the Fall of 2019, I wanted in on the hype. Was it a foolish idea? It likely was, and I considered that. But I felt willing to make a small speculative investment using money that I’d be willing to lose.
Since I’m Canadian, I had limited options at the time for purchasing crypto. I used Coinbase until I discovered the Canadian exchange QuadrigaCX. All in all, I purchased about $1200 USD of crypto in 2017, equally split between BTC and ETH.
Now, both these coins have fallen considerably from their 2017 peaks, but that isn’t the point of the story. The point is that one day I woke up to find my entire ETH investment gone… a scenario that I could’ve been protected from if I chose the right wallet.
Crypto Wallets: Hot or Cold?
Crypto owners can store their digital coins in one of two wallets: a hot wallet or a cold wallet. Choosing the right one for your needs is very important!
A hot wallet is a digital wallet with internet connectivity. It is easier to facilitate transactions with a hot wallet, but they are naturally susceptible to cyber attacks since they involve the internet. The most common example of this would be your account with a crypto exchange. Any crypto kept on an exchange is likely stored in a hot wallet.
A cold wallet on the other hand is totally off the grid. It is immune to cyber attack but is not as convenient to make transactions with. It can be stored on any memory device such as a hard drive or USB memory stick. Unfortunately, if your device becomes inaccessible or you forget your wallet password, your crypto is effectively gone forever!
Long story short, hot wallets are great for making frequent transactions, but cold storage is best for holding cryptocurrency long-term. The common analogy is that a hot wallet is like keeping cash in your pocket, while a cold wallet is like keeping cash in the bank.
The QuadrigaCX Fiasco
Now, I had a long-term buy and hold strategy when it came to crypto. This meant that cold storage was best. I found a great Bitcoin cold wallet and transferred my BTC there, where it remains to this day.
I had a hard time finding a good, user-friendly, cold wallet for Ethereum. I moved all my ETH to a single address, which was my QuadrigaCX account. I told myself I’d keep it all there for the time being until I had the time to search for a good offline wallet. Sadly, it was something that got put off, and I totally forgot about it after a couple of months.
I woke up one morning in December 2018 to see Quadriga trending on Twitter. The founder, Gerald Cotten, had passed away while travelling in India. What ensued in the following weeks was unprecedented: nobody was able to access the company’s reserves, supposedly in cold storage on Cotten’s laptop.
The company entered bankruptcy owing $250 million CAD (~$190 Million USD) to roughly 115,000 users. Even if you exclude the single claim of $70 Million CAD owed to one entity, you’re still left with an average claim size of $1570 per person.
The claims process is well underway, although thousands of Canadians are still waiting for compensation. The defunct exchange’s subreddit
has since become an online community for those who suffered sizable losses.
The Lesson Learned
I’m one of the lucky ones who only had a loss of several hundred dollars to walk away from, and I’ve already accepted that little of it, if anything, will be recovered. Sadly this entire saga has adversely affected some people who had significant savings stored on the Quadriga exchange! There is one lesson to be learned here for those who own any cryptocurrency –use a cold wallet if you are storing large amounts of crypto! Hot wallets (the ones used when storing your money on an exchange) are much more susceptible to fraud, cyber attacks, and the like.
Readers, do you have a story similar to this? Comment below!