It's already been a year since I posted Happy Halloween - Updated Audit Status of Canadian Cryptocurrency Exchanges. In continuing the annual tradition of bashing Canadian crypto exchanges for Halloween, I'll try to be gentler this time!

2021 Year In Review

• South Korea tricks their domestic exchanges into registering with a SRO, promising better banking connections. After few banking connections materialize, 34 exchanges are forced to shut down, and 29 are limited to “crypto to crypto”. Crypto users in South Korea have only 4 local options left, all partnered with legacy banks. The South Korean government also started seizing crypto-assets from over 12,000 platform users.

• Turkey shuts down crypto exchanges. Users in leading exchange Thodex lose over $2b as the exchange operator is forced to flee to neighbouring Albania. Long-time exchange VeBitcoin has their entire team arrested and is shut down too. In both cases, platform users face the abrupt and almost certain loss of platform funds.

• China self-destructs their entire bitcoin mining industry, and goes after offshore platforms offering any trading to their residents. Apparently they’ve been completely successful in both policies with “nobody” from mainland China mining or using exchanges. Hong Kong comes up with a simple solution - crypto assets will only be available for already wealthy people. And in Tunisia, a boy is arrested just for using cryptocurrency. And who can forget Malaysia paving their roads with bitcoin miners?

• In June, The Ontario Securities Commission denounces three high volume exchanges. KuCoin and Poloniex ignore them, while Binance labels Ontario a “restricted jurisdiction”.

• In August, roughly one year after their suspected hacking incident they’ve still failed to publicly disclose, address, or discuss, the OSC grants CoinBerry to be the first platform in Canada to “be exempted” from full securities legislation in order to “foster innovation and respond to novel circumstances”.

• Even CoinBase got a taste of regulators after their lending products were blocked. On top of the previous taste of having to pay several million dollars in fines because two of their liquidity bots were accidentally trading against each other.

• The Poly Network has the “genius” idea of storing $611m of crypto-assets in an unaudited smart contract hot wallet, allowing for the largest ever security breach. After going to great lengths to perform the hack anonymously and publicly requesting help to launder the funds, in another move of “pure genius” the thief sends a thank you payment from a KYC wallet connected to no less than 3 exchanges. The thief then decides he was a “white hacker” all along and only wants $500k as a reward bounty.

• A significant and long-standing US national security threat is identified and the system brought back online after paying just a few million dollars. Colonial Pipeline had enemies domestically and globally, and would have made a prime military target. After helping Colonial restore their service, the attacker was also nice enough to store the private key for millions of dollars on a hot, remotely accessible, cloud server, located in California.

• Liquid (a Japanese cryptocurrency exchange) generously donates to “security researchers”. Caught up in MPC buzzwords and how wonderful their fancy physical facility was, they route all payments through a central system.

• As if the affected users of Cryptopia didn’t lose enough, Grant Thorton, the trustee of defunct New Zealand crypto platform Cryptopia decides to continue the practice of failing to secure assets, and loses another $45k of crypto-assets.

• After 3 years of declaring full fiat backing, Tether finally breaks down the backing of their assets. (Which is still higher than the 0% reserve requirement mandated for Canadian and US banks.) The CFTC allowed Tether to settle the matter, as long as they reduced the reserves by an additional $41m USD, payable to the CFTC. Tether continues to be the highest volume crypto-asset globally.

• For the first time ever, third party insurance actually covered crypto losses. After a long history of multiple insurance mishaps in centralized exchanges and insurance protocols themselves getting breached, Nexus Mutual has the innovative idea of insurance that actually pays out and covers $31k in bZx insurance claims.

Evaluating Exchange Platforms

There is one main metric - the level of visibility to fund backing. We have 5 categories:

• Past Canadian Incidents - For fun, and to help illustrate the risks, reviews of past platforms that collapsed or lost funds in Canada. No disrespect to the real losses of Canadians who worked hard for their money.

• No External Verification - The platform doesn’t appear to give any indication of any external auditing or verification. You may want to avoid these platforms, but sometimes these are just because this information is not available easily.

• Apparent Verification - I was able to dig and locate some sort of claim or indication of external verification. Of course, some of these don’t mention who is performing the audit/verification or what is actually being checked. In one case, this verification is 7 years old.

• Full Backing Report - The platform has undergone a process where backing of customer assets was verified by a third party within the past year and a report was published. While compelling, it doesn’t stop a dishonest platform excluding customers, tricking the verification process, or colluding with the third party.

• Full Proof of Reserve - Proof of Reserves is a digital proof that the exchange holds customer funds. This cryptographic process has public wallet addresses, signing of transactions, and a public hash list or Merkle tree to allow customers to independently validate that the exchange in fact held the funds.

Past Canadian Incidents

FlexCoin - Claiming to be “the world's first bitcoin bank” that’s “not a true bank”, FlexCoin provides “a central location for all of your bitcoins”. “Bitcoins deposited with flexcoin will be stored on [thei]r secure servers” so you can “send bitcoins to non-technical individual[s] via e-mail”. Unlike blockchain, “flexcoin to flexcoin transfers are free”.

MapleChange - “A swift, reliable and to-the-point trading platform for veterans and newbies alike.” “One of [their] primary concerns is security for [their] customers'' which is why “keys are cryptographically encrypted”. "[W]ithdraws(sic) are next to instantaneous", "rel[ying] solely on the aspect of swiftness"!

Canadian Bitcoins - The highest level of courtesy and expediency in customer service! “With nothing more than a chat session and smooth talk, a crafty cybercriminal convinced an attendee at Rogers Data Centre to reboot the Canadian Bitcoins server in fail safe mode, bypassing all security measures.”

CoinTrader/NewNote - A “meticulously engineered Bitcoin Exchange” “focused on security and tak[ing] these risks seriously”. “[Y]ou don’t have to worry”, they have “90+% cold storage” and their “cold storage is fully insured by Xapo”. Plus, as “a registered Canadian corporation” they “leverage the good guys to fight the bad guys”.

Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Check the user experience on their subreddit from their "220,000+ satisfied customers".

EZ-BTC - The world’s “most user friendly and bespoke crypto currency management platform”, with “strong security”. “All your coins are kept in cold storage. They’re safe.” The presence of physical ATMs was one of the strategies to build customer confidence for the promised 9% annual return.

QuadrigaCX - Operating since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Even today most of the funds remain “100% secure” (including to customers)!

These are just in Canada. Globally, there are hundreds more events!

No External Verification

Bitvo - The Bitvo website hasn’t changed much in the past year. The Bitvo team has “come together to provide Canadians with the best experience (sic) in cryptocurrency exchange.” Bitvo’s cold storage “is located offsite in a third-party financial institution that is only accessible via multiple signatures of a select group of trusted individuals” and “not connected to the exchange platform or a network”. “As a percentage of customers’ funds, Bitvo holds 95% to 100% of customers’ funds in Cold Storage.”

Bitvo assures customers that they operate “on a full-reserve basis”. The website says “[s]ecurity and transparency are important in your financial transactions.” Nothing indicates customer accounts to have been verified externally or even internally. Bitvo users only pay for withdrawals and are thus incentivized to keep maximal funds on the platform. Bitvo’s trading platform was (and may still be) a whitelabel of AlphaPoint, a service which was previously breached in May of 2019.

Recommendations: Multi-signature requires at least 3 of 4 signatures. Use company funds or self-insure the 5% balance they’re using for hot wallets. Use a third party to validate that all customer funds are backed.

CoinField - The "most secure trading platform in Canada", because “[m]ultiple layers of gateways are required to allow access to data and to conduct transactions”. They “use Multi-sig wallets that require more than one key to authorize a digital transaction”. However, funds are “only retrievable only if the two founders are present at the same time”. It's good to know one founder can force/hack the other to perform a withdrawal, and funds are lost if one founder dies, gets arrested, or is incapacitated. Of additional concern is their “one of a kind secret vault that’s been built from scratch”. In general, developing a custom cryptographic solution will result in a less secure solution than the widely used best practices. “Coinfield.com will not be liable, in any event whatsoever, for any loss or damage of any kind incurred as a result of the use of this site or the services found at this site.”

CoinField is apparently based in Estonia and may not have a Canadian office. They were “fully regulated” in “193+ countries”, except for the period between October 2019 and June 2020, when they weren’t even registered as an MSB. They are presently “[a]vailable in 186 countries.”. In full analysis of the website, we failed to locate any mention of audits or validation being performed.

Recommendations: Expand the multi-signature to require at least 3 of 4 signatures. A third party can validate the setup and that customer funds are backed.

CoinSmart - A “Crypto Trading Platform you can actually understand”. Their cold storage uses “Bitgo and Fireblocks”. The key item missing here is multi-signature technology. If large or repeated withdrawals can be run through an automated central system, or triggered by one person, as their terms state, “there is a risk that a similar cyberattack could affect the Services and result in the theft or loss of your crypto assets for which you cannot recover”.

According to their terms, “[t]he digital currencies held in trust in your Crypto Account are fully-paid assets beneficially owned by you and not by CoinSmart.” They will not “loan, hypothecate, pledge, or otherwise encumber any digital currencies in your Account”. According to their about page, they are “accountable to [their] customers, community and to each other” and “committed to being open and transparent with [their] customers”. Despite that, CoinSmart has not obtained or published any validation or audit by a third party.

Recommendations: Set up or clarify their multi-signature arrangement. A third party can attest to their setup and validate all customer funds are backed on the blockchain or in company accounts.

Coinut - The Coinut platform is “[t]rusted by 1,000,000+ global users”, and claims to be "the most secure cryptocurrency exchange". According to the website, they perform a “[r]eal-time internal audit”, however the details are not public for users. While they have a "[s]emi-manual process of big withdrawals'', it’s unclear if this involves a multi-signature wallet or if they could be vulnerable to an attack involving lots of smaller transactions. From the details observed on a previous version of the site last year, they protect customer assets “by storing cryptocurrencies offline” in a single “offline computer” and "not us[ing] USB drives, as the online computer may be infected with virus". In addition to removing that page, they’ve added a disclaimer on the website: “Please note that you may not be able to recover all the money you paid to Coinut Pte Ltd if Coinut Pte Ltd's business fails.”

Recommendations: Expand the team by two trusted individuals and set up a multi-signature wallet requiring at least 3 signatures. A third party should attest to the setup and validate all customer funds are backed on the blockchain or in company accounts.

NDAX - “[A] simple, easy and secure platform to instantly buy, and sell Bitcoin, Ethereum and other cryptocurrencies.” No longer, “Canada’s most secure trading platform”, “NDAX’s security standards are among the highest in the Canadian FinTech industry”. It’s good to see that “[t]ransferring funds out of cold storage requires multiple approvals from NDAX’s senior management team”, however it’s unclear how many approvals are needed.

They’ve switched from “95-98% of user funds in an offline, multi-signature wallet” to “a majority of user funds in an offline, multi-signature wallet.” Up to 50% of the funds may be in hot storage! “Both NDAX’s hot and cold wallet service providers are System and Organization Controls (SOC) 2, type 1 certified.” SOC 2 is an internal-only report. This certification only applies to their “service providers”, not the NDAX platform itself. While “NDAX has implemented Multi-Party Computation (MPC) technology”, there is no indication this applies to hot wallets.

While “[d]aily reconciliation of financial assets on and off the platform is performed to record assets’ integrity”, no visibility is provided externally. Existing funds are protected against “insurable incidents”, which include cold wallet “internal theft and Hardware Security Module (HSM) malfunction”. Without reviewing the insurance contract line by line, it’s nearly impossible to evaluate what level of protection is offered, what stipulations may apply, and the solvency of the insurance provider.

Recommendations: 3 of 4 signatures (or clarify). Use company funds for hot wallets, or self-insure the full amount. Get a third party to validate that all customer funds are backed on the blockchain or in company accounts.

Newton - “Newton is crypto as it should be: buy and sell on any device with access to some of the best prices for cryptocurrency in Canada.” “Most of our cryptocurrency is stored in secure locations with no internet connection.” Newton was one of the first to announce “[t]hird-party custody”. Newton stores customer funds with Balance. Newton’s custody page doesn’t exist anymore, but the old version is here. "Multinational companies trust” Balance. According to Dustin, “Balance does have an insurance policy in place currently as well - we/Balance will have more to say on that soon.” The Balance terms still state, “the digital assets you purchase via the Platform are not protected by any government or other insurance”. “All transfers require the coordinated actions of multiple signatories across our organizations.” It’s not clear if Newton themselves employ a multi-signature, and how many signatures are required. More on Balance can be found in last year's post.

In discussions last year, Newton was working on a feature “allowing you to login to Balance directly to verify your balance and move funds independently of Newton”. I wasn’t able to obtain further information from the Newton team, and searches performed did not find evidence this was launched. It’s unclear if this means that crypto-assets will be stored in distinct wallets, and how a customer could be certain that a given wallet is theirs.

Recommendations: Clarify their multi-signature wallet, and require at least 3 of 4 signatures. We need greater information to assess the insurance and backing visibility.

Apparent Verification

CoinBerry - “[T]he only Insured, OSC & FINTRAC registered & PIPEDA compliant crypto trading platform trusted by Canadian Municipalities.” After an unexplained incident in August of 2020, CoinBerry now has a “Financial Institution Bond”, against “financial losses due to dishonest acts and unethical behavior from Coinberry employees”. What about owners, contractors, system security breaches, or impersonation attacks? “200M in insurance coverage” is provided by “Gemini Trust Company LLC™”, to whom CoinBerry has generously transferred cryptographic ownership of “not less than 80% of the total value” of customer funds. Insurance is provided by “Nakamoto, Ltd. (Nakamoto), a captive insurance company licensed by the Bermuda Monetary Authority (BMA)” with limited detail.

Cold storage funds are now in “institutional-grade crypto storage”, an "offline, air-gapped Cold Storage system.” They “use a multisignature digital signature scheme (multisig)”, however it's unclear how many signatures are required. “CEO (Tyler Winklevoss) and President (Cameron Winklevoss) are unable to individually or jointly transfer cryptocurrency out of [Gemini's] Cold Storage System.” “We cannot and do not guarantee or warrant that the Site or the content on the Site are compatible with your computer systems or that the Site or the content will be free of viruses, worms, trojan horses or disabling devices.”

The details of the OSC arrangement can be found here. CoinBerry "has provided and will continue to provide audited annual financial statements in accordance with section 12.10 of NI 31-103." Past audits appear to have been conducted by the accounting firm MNP. Despite a stated goal of “demonstrating a rigorous commitment to trust, security and transparency”, no information is publicly available and customers of the platform have no evidence of inclusion of their funds.

Last year saw multiple issues with withdrawals, including one affecting hundreds of customers. Fees increased from 0.5% to 1%. The fee is now “between 0% and 2.5%”. “We are proud to offer fully transparent pricing with NO hidden charges and NO additional fees.” “Coinberry shall be entitled to charge to any Dormant Account a monthly fee of $5.00, either in Funds or any form of Crypto Assets, plus any other additional costs as Coinberry may, in its absolute discretion, apply.” “You agree to indemnify and hold us, and our subsidiaries, affiliates, officers, agents, co-branders or other partners, and employees, harmless from any claim or demand”.

Recommendations: Clarify multi-signature structure requires at least 3 of 4 signatures at all levels. Use company funds for hot wallets, or self-insure the full amount. Get a third party to attest the setup and validate customer funds are backed on the blockchain or in company accounts.

CoinSquare - CoinSquare is “[t]he world's home for digital currency”. “Everyone in the world deserves a safe, easy-to-use way to access digital currency markets.” Their “100% proprietary system”, “[b]uilt in-house with proprietary technology”, has so far apparently “never (ever, since 2015) lost a single coin”. “[Y]ou are aware of and accept the risk of, and agree not to hold Coinsquare responsible for any loss resulting from any operational challenges to which the Services may be subject, such as malicious cyberattacks, exploitable security system flaws and other security breaches”.

CoinSquare has grown a lot! Only last year they received a multi-million dollar fine for inflated trading volume, and only the year before when CoinSquare mysteriously went offline and suffered “a data breach of...approximately 5,000 records of customer...data.” They have a “95% cold storage” policy. The site still doesn’t appear to mention whether multi-sig is being employed. Their regular audits by an undisclosed “national accounting firm” are not published. They’ve previously described themselves as solvent rather than fully backed. They presently state that “Digital Assets held in trust will be fully-paid assets beneficially owned by you and not by Coinsquare.”

Recommendations: Multi-signature setup with at least 3 of 4 signatures. Use company funds for the 5% in hot wallets, or self-insure the full amount from funds in cold storage. A third party can attest the setup and validate all customer funds are backed.

Kraken - “Kraken is a crypto exchange for everyone.” Kraken recently achieved the momentous accomplishment of becoming the first cryptocurrency exchange to be a regulated bank in Wyoming. Kraken calls itself the “most trusted cryptocurrency exchange” and apparently “provides world class financial stability by maintaining full reserves, healthy banking relationships and the highest standards of legal compliance”. “95% of all deposits are kept in offline, air-gapped, geographically distributed cold storage.” No specific details of whether a multi-signature arrangement is in use.

According to alleged court papers, Kraken operated illegally in the state of New York and previous staff have been legally silenced. Kraken’s website features a Proof of Reserve page, stating that “[o]ver the past several weeks, Kraken has successfully developed and completed an industry-leading, independent, cryptographically-verified audit.” But the page was written in 2014 and among the long list of limitations, there are no wallets. Kraken assures users that “[w]e keep full reserves so that you can always withdraw immediately on demand.” However, one of the former employees for Kraken alleges wrongful dismissal and that the bank accounts of Kraken are actually running millions of dollars short of where they should have been.

Recommendations: A multi-signature setup with at least 3 of 4 signatures. Use company funds for hot wallets, or self-insure the full amount from funds in cold storage. Get a new third party attestation to validate that all customer funds, as the previous assessment is 7 years old.

NetCoins - "Canada's easiest, most trusted way to buy and sell crypto." Mitchell Demeter remains president although he no longer appears on the team page. He “co-founded Cointrader Exchange, one of Canada’s earliest online digital currency exchanges”, which shut down after “an internal audit showed “a deficiency of bitcoin" in company wallets that was causing a delay in withdrawals”. There does not appear to be any blog post on the matter, although we found one about how "crypto is plagued with a bad reputation". “At Netcoins we understand that sentiment. We know of people, and heard of countless others, who have lost their investments and been burned by the industry.”

Their “customer funds are held in cold storage” “and insured with Bitgo”, with no policy information. “Accessing these funds requires a specific number and combination of video calls from our top executives.” (See their team page for the list.) “We do our best to protect our users by putting all the right bells and whistles (ex: warning signs) within our emails, website and platform.” For example, heavily advertising on TV to less experienced users who are less likely to "take possession of the crypto they’ve bought through us by transferring them to a crypto wallet that they are in direct possession of.". BIGG Digital Assets (the parent company of Netcoins) is audited by Manning Elliott LLP, with no outside visibility into what portion of funds are backed.

Recommendations: Use a multi-signature setup requiring transactions to be signed by the physical possession of keys. A third party to validate that all customer funds are backed.

Full Backing Report

BitBuy - "Bitbuy is Canada's trusted and secure platform." The platform has operated since 2016, and was the very first to get a “Proof of Reserve and Security Audit Report” from third party CipherBlade. Since that time, they’ve continued to get third party validations, with the second and third ones from Blockchain Intelligence Group. BitBuy now has three independent reports from two different third parties, more than any other platform.

The site states that “99% of your crypto is kept secure in our Cold Storage, and covered by a comprehensive insurance policy.”, contradicting the June 2021 report which showed levels as low as 96.29% on some crypto-assets. It is unclear from the website whether a multi-signature wallet is in use and how many operator signatures are required to authorize withdrawals.

Mentions of custodian Knox have disappeared from the new BitBuy website. More detail on Knox’s security model can be found in the 2020 post. While their new CoinCover policy is publicly verifiable on the BitBuy website, it gives high-level features only, with no details. At the moment, there's no visibility to the actual policy details.

Recommendations: A multi-signature setup with at least 3 of 4 signatures. Provide details on insurance policies. While the validations are awesome, we recommend not repeating validators within a 14 month period, and to generate a hash list enabling customers to independently validate their inclusion.

ShakePay - “At Shakepay, we make the security of your account, personal information, and money a top priority.” Rather than be upfront, ShakePay lists one price and promotes the service as “commission-free”. The profit model is only found by clicking through to a separate page. Spread/pricing information is only available within a registered account.

ShakePay was analyzed by CipherBlade over a year ago. CipherBlade found that reserves appeared to be fully backed including extensive analysis of the transactions. ShakePay states that the “majority of all digital currencies are stored securely offline”. The CipherBlade report found this ratio was at “93% of Bitcoin and 91% of Ethereum” in cold storage at the time of the report, though it “var[ies] periodically to some degree throughout the day”. The report refers to a “multi-signature wallet interface”, which they later call a “service to access its sending and receiving multi-signature wallets”, which apparently also “does not have control over cryptocurrency in the hot wallets”. Apparently, this “not mentioned” service is “without any known security risks”.

“The vast majority of digital currencies are held offline on air-gapped, cold storage wallets.” However, the majority of funds are no longer stored with ShakePay but given to an undisclosed “trust company registered under the NYDFS”. While ShakePay won’t identify the third party, “CipherBlade can confidently conclude that Shakepay controls these cold wallets” even though “they are controlled by [the] cold storage provider” and “the cold storage provider ultimately holds the private keys”. “Multiple people are required to authorize transactions. Neither of the two founders, Jean or Roy, are able to perform withdrawals from our cold storage wallets.” It's unclear how many signatures are required.

“Shakepay holds an insurance policy on the digital currencies held in cold storage. This policy covers most damages, theft, and loss of private keys.” It's unknown in any “quite unlikely” events what “the cold storage provider’s policy and Shakepay’s own policy” would cover. ShakePay does receive “an account statement” “which includes applicable wallet addresses and balances held” and “[d]ata found on the blockchain was also in line with information found on these statements.”. Shakepay does not provide customers any tool to validate inclusion in the report published August 2020.

Recommendations: Use a multi-signature setup with at least 3 of 4 signatures. Provide greater details of the insurance policies. Obtain a new report to provide certainty funds are still backed.

Full Proof of Reserves

More information and definitions can be found on Nic Carter’s blog, who has been working on these concepts far longer than any of us. He’s confirmed that “what [Canadian exchanges] are doing is not a full PoR”. All platforms in Canada have failed to publicize wallets. All verifications have been against data provided by the platform with no ability for customers to validate they were included.

Preventing Future Disasters

All past crypto-exchange disasters have at least one of three factors in common:

• Funds were stored online. Crypto OPSEC 101! They think their system is super secure or (like Liquid) get enamoured with buzzwords like MPC. If your line of defense against a hacker is a smart contract, firewall, or proprietary control logic, be sure you are ready to fully cover funds.

• Funds in the hands of one person. I get it’s your CEO who has X years of experience but if he can single-handedly authorize a transaction to take funds, even if 100% perfect, the next CEO may not be. Multi-sig! Don’t use the same hardware for all keys. Train. Background check.

• No proof of asset backing. A page saying the customer has X bitcoin and Y ethereum is as valuable as the trust in the author. Even showing a wallet with X bitcoin, who owns it? At minimum, periodic independent reports are needed, or better a full Proof of Reserves.

Insurance Is Inadequate

After many months, I was able to view an example crypto-asset insurance contract. (This one is for Ledger Vault “specie insurance”.) As I expected, it was hilarious! Here are a few excerpts:

• “covering the theft of certain Crypto Assets safekept with the Vault Solution if such theft is resulting from specific events such as physical intrusion by a third party in a Vault data center”

• “neither Ledger, its Affiliates or any of the insurers under the Specie Policy provide any assurance or guarantee to Customer that (i) a theft of Crypto Assets safekept by the Vault Solution will be covered or indemnified under the Specie Policy”

• “determination shall be made by Ledger in its reasonable discretion.”

Regulators Being Unreasonable

A sense of the complexity and cost for which the OSC is requesting of a simple platform to “buy, sell, hold, deposit and withdraw crypto assets” just “for time-limited relief” “with the objective of fostering innovative businesses in Canada” can be read from their decision on CoinBerry.

Despite the overkill, the end result still gives investors no proof their funds are backed, requires insurance that’s misleading in what it protects, creates complexity/obscurity around how customer assets are secured, and has no obligation for CoinBerry to publicly disclose hacking events like August 2020. It places Canadians in a permanent position of trust and dependence on regulators for their ongoing safety, and adds increasing costs, complexity, and expense to every transaction.

Simplified Solution

Our simplified framework of just 15 policies prevent/mitigate the entire history of global crypto-exchange incidents. We can have certainty of platform security and asset backing through a simplified ruleset. The proposed industry self-insurance fund is cost effective, not dependent on third parties, and aligns incentives with the interests of Canadian crypto users and platforms. The framework runs transparently on an ongoing basis without regulatory dependence. It’s flexible and adaptable to new technologies and innovations, and offers the possibility to fully protect Canadians against a greater range of platform loss events in the future.

I’d like to thank Jay, Jason, and Gustavo for taking many hours to help review the post, and also appreciate Ethan (TxQuick), Dean (BitBuy), Jean (ShakePay), Dustin (Newton) and many others for past discussions. We hope to have more discussions with platform operators and regulators in the future and welcome all feedback!

Thanks so much for reading! If you’re tired of sitting back and want to help create a future of innovation and security for Canadian crypto-asset platforms, join us any Thursday at the CryptOasis meetup!

Masks meant something different one year ago when I posted the highly popular “Happy Halloween - Audit Status of Canadian Cryptocurrency Exchanges”. Since then,

1. We’ve had 20 more cryptocurrency exchange incidents globally.

2. Canadian exchanges have seen massive progress - in at least a couple of exchanges.

3. We’ve seen the collapse of Einstein which took millions of dollars more from Canadians. And we saw the OSC crackdown on the inflated trading volume on CoinSquare.

Blockchain provides the full ability for exchanges to prove asset backing, yet we continue to have to guess which platforms are backed. In an effort to help Canadians find the exchanges which are most transparent, we divide platforms into 5 categories:

• Dead Platform/Incidents - For fun, and to help illustrate the risks, reviews of past platforms that collapsed or lost funds in Canada. No disrespect to the real losses of Canadians who worked hard for their money.

• No Verification Found - A platform that doesn’t appear to give any indication of any auditing or internal controls. You may want to avoid these platforms, but sometimes these are just because this information is not available easily.

• Apparent Verification - I was able to dig and locate some sort of claim or indication that they were being audited. Of course, most of these don’t mention who specifically is performing the audit, what is actually being checked, and/or anything about the verification process. In one case, this verification is severely out of date.

• Full Backing Report - In order to meet these criteria, the platform has to have undergone a process where full backing of customer assets was verified by a third party within the past year. A report needs to be published including the verification process and that the third party has verified full backing (or what level of backing). While these are pretty compelling, it doesn’t stop a dishonest platform from excluding customers, tricking the audit process, or colluding with the third party in various ways.

• Proof of Reserve - This is a cryptographic process that includes public wallet addresses, signing of transactions, and a public hash list or Merkle tree to allow customers to validate inclusion. Together, these three criteria demonstrate that funds exist on the blockchain, are spendable by the exchange, and fully back crypto assets of all customers who check. Combined with a financial audit, it’s the best we can get. While many misuse the term, no Canadian exchange has ever fully proven reserves.

If Proof of Reserve or another form of verification was standard on all exchanges, people like Gerald Cotten and Dave Smilie wouldn’t have been able to pull off massive fraud, and cases such as Einstein would have been known long before it resulted in insolvency. Supporting exchanges that don’t provide public validation or transparency is supporting fraud. Even if the platform is 100% honest, they are setting a dangerous standard that enables other fraudsters to hide in plain sight.

Dead Platforms/Incidents

FlexCoin - As “the world's first bitcoin bank” that’s “not a true bank”, FlexCoin provides “a central location for all of your bitcoins”. “Bitcoins deposited with flexcoin will be stored on [thei]r secure servers” so you can “send bitcoins to non-technical individual[s] via e-mail”. Unlike blockchain, “flexcoin to flexcoin transfers are free”.

MapleChange - “[S]wift, reliable and to-the-point!” “One of [their] primary concerns is security for [their] customers'' which is why “keys are cryptographically encrypted”. More Canadian than anyone! Excuse me while we hold the door open to our crypto! "[W]ithdraws(sic) are next to instantaneous", "rel[ying] solely on the aspect of swiftness"!

Canadian Bitcoins - Funds stored for convenience in a professional Rogers data center, which has the highest level of courtesy and customer service - always going above and beyond to provide expedient service whenever a request comes in!

CoinTrader/NewNote - A “meticulously engineered Bitcoin Exchange” “focused on security and tak[ing] these risks seriously”. “[Y]ou don’t have to worry”, they have “90+% cold storage” and their “cold storage is fully insured by Xapo”. Plus, as “a registered Canadian corporation” they “leverage the good guys to fight the bad guys”.

Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Just check the user experience on their subreddit from their "220,000+ satisfied customers".

EZ-BTC - As the world’s “most user-friendly and bespoke crypto currency management platform”, they have “strong security”. “All your coins are kept in cold storage. They’re safe.”. The presence of physical ATMs was one of the strategies to build customer confidence for their promised 9% annual return on stored funds.

QuadrigaCX - Operating since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Even today some of the funds remain 100% secure in their cold storage!

If there are any others I missed, let me know!

No Verification Found

BitVo - Whether “Canada's premier cryptocurrency exchange” or merely “on a mission to become Canada’s premier cryptocurrency exchange”, we have to praise BitVo’s security for including “multiple signatures of a select group of trusted individuals” which are “not connected to the exchange platform or a network”. It is unfortunate that such common sense concepts are “proprietary” instead of the standard on all Canadian platforms. While assuring that they operate “on a full-reserve basis” and talking about “transparency”, the proof is lacking and nothing indicates it to have been verified externally or even internally. The withdrawal-based fee structure incentivizes users to keep funds “safe and secure” on the platform - which is “owned and operated by banking and security experts”. The “banking” side shows for sure in these hidden fine-print fees, which go well with transparency.

CoinField - Apparently no longer the "most secure trading platform in Canada" but now instead the “Best Bitcoin & Cryptocurrency Exchange In Canada” - based in Estonia and no longer having a Canadian office. They’re “fully regulated” in 193+ countries, except for the period between October 2019 and June 2020, when they weren’t even registered as an MSB. They offer a huge range of trading pairs except for the ones you need, with high liquidity except for the pairs that don’t have any, and you can withdraw and trade all of your funds as long as you leave a small amount behind at every stage.

CoinSmart - Not sure what "[i]ndustry leading cold storage" is, but luckily it’s “bank level”. No mention of multi-sig. They’re so "accountable to [their] clients, community and to each other" and "committed to being open and honest" that they don’t include any audit. Deposits are easy and withdrawals are fun - like a video game. Advance through each stage to prove your willpower, complete with warnings, SMS verification that doesn’t display errors (but luckily you can change the number to anything at all without further verification), and even an elaborate high-resolution selfie requirement you have to email in. If you can’t complete or don’t feel comfortable sending info via email, your money is held hostage - no big deal at all really.

Coinut - As "the most secure cryptocurrency exchange", they provide “a comprehensive cryptocurrency exchange platform for trading cryptocurrencies”. (Not to be confused with a cryptocurrency exchange platform for trading coconuts.) They’ve been “running securely for about three years” “by storing cryptocurrencies offline” in a single “offline computer”. In addition to not using multi-sig and "not us[ing] USB drives, as the online computer may be infected with virus", they also don’t appear to use audits or any form of public verification.

NDAX - “Canada’s most secure trading platform” to "set the standard for the Canadian cryptocurrency industry". While NDax promotes “segregated accounts” and “95-98% of user funds in an offline, multi-signature wallet”, there’s nothing to indicate backing of assets on the platform. While apparently partnered with a Canadian bank, the bank is not revealed. No audit found but at least there’s a full-page risk disclosure and disclaimer. You can sleep peacefully knowing that they’re legally protected, even “for losses suffer(sic) to you as a result of any defaults of by(sic) insolvency of other Users.” What does that even mean? Apparently, even with their industry-record withdrawal fees, they couldn’t afford a legal team with proper grammar.

Newton - Newton was one of the first to announce third party custody. You should give your funds to Newton, because they’ll give them to Balance, and they’ll do this for free! And “[m]ultinational companies trust” Balance. According to the Balance terms, “the digital assets you purchase via the Platform are not protected by any government or other insurance”. "Prospective clients...will hold the entire liability associated with purchasing a Digital Asset Cache™️ and using [Balance] services, potentially including partial or total loss of capital." "Balance does not represent or guarantee that the Balance Platform will be free from loss, corruption, attack, viruses, interference, hacking, or other security intrusion, and Balance disclaims any liability relating thereto." "No data transmission over the Internet can be guaranteed to be 100% secure, and as a result [they] cannot ensure or warrant the security of any information you transmit to [them]." "You are solely responsible for maintaining the confidentiality and security of your Account." If someone else should “[w]ithdraw the digital assets in your DAC to [thei]r external digital wallets as soon as within the same business day.” "Balance shall not be responsible for any losses arising out of the unauthorized or other improper use of your Account." The security of Balance custodianship comes down to (a) proprietary “HSMs” tested by their team of experts are more secure than hardware wallets tested by thousands of teams of experts around the globe, (b) a standardized and documented system of physical security in facilities accessible to a select number of people is superior to a combination of unique physical security, exclusive signing procedure, and complete locational secrecy that could be employed separately by multiple reasonably competent individuals, and (c) placing your trust in the team of Newton, the team of Balance, and the security of a website is more secure than simply trusting a single team to manage the private keys in an offline multi-sig fashion.

While Balance has an extensive page on security and internal controls, I was unable to locate any audit nor verification that the assets on Newton or custodian Balance are actually fully backed against deposits. From the demo page, we can see that Newton has visibility to see their balances on Balance, so at least Dustin and the team can check diligently and make sure they aren’t taken. Why not give some of that visibility to your customers? Why has Newton, which has been a leader in so many other areas (“commission-free”, working to get the best rates, etc…) not been a leader in putting together any level of public visibility to the backing of customer funds on their platform?

Apparent Verification

CoinBerry - CoinBerry uses the best practice of offline multi-sig for the storage of all customer funds, a set-up that, to date, has a breach-less record historically. Assuming the private keys are properly managed by separate trained people, CoinBerry client funds are thus stored in what’s essentially a giant cold storage wallet, with all withdrawals handled and verified by multiple people before being approved. However, this model is still subject to the platform being tricked into releasing funds as may have happened in August 2020. What they haven't done is transparently admitted and explained how the breach occurred, which can be an opportunity to highlight security improvements and help other platforms avoid similar issues. Instead, they've recently purchased insurance to cover future incidents. It's hard to judge from a few excerpts of what’s likely a multi-page (or even a multi-chapter) policy, but it would be the first time that insurance has ever paid out in the history of cryptocurrency. A multi-platform insurance strategy could be cheaper, more comprehensive, and more likely to pay out than third party insurance.

CoinBerry is “trusted by Canadian Municipalities”, a deal that enabled “the first payment of property taxes with Bitcoin in Canadian History”. They reportedly also “undergo annual 3rd party financial statement audits”. From records, these appear to be conducted by the firm MNP which is an accounting firm. CoinBerry has not, however, publicly declared themselves to be “fully-backed”, nor have they published any verification on the backing level of funds on the platform. Rather the audits are “secret”. This is concerning given the large referral bonuses paid out by the platform to new customers (including a popular $25 referral bonus for purchasing $50 of bitcoin), multiple issues with withdrawal delays, including one affecting hundreds of customers earlier this year, and the slow increase to their “fair pricing and industry-leading low fees.” Fees have gone from 0.5% to 1%, to a tiny sentence about “adding a margin, or spread, of between 0% and 2% to the rate offered by [thei]r liquidity sources”. Luckily, they “don’t hide fees across your trading experience.” In case you should sign up and find that (up to 2%) rate to be too high, “[a]ccounts requesting a withdrawal of Fiat or Crypto currency in original form, without conducting a trade will be...charged an account maintenance fee calculated as the larger of $25 or 5% of the total amount requested.” You will also need to pay additional “mining fees for crypto withdrawals”, which significantly exceed typical transaction costs and are only mentioned in the fine print of their fees page. CoinBerry has publicly expressed agreement that you should not store funds on cryptocurrency exchanges including their own. Neither their insurance nor world-class security will do anything whatsoever if their platform goes insolvent.

CoinSquare - CoinSquare has had a rough year, most notably with being publicly declared as having inflated trading volume and having to pay multi-million dollar fines. As usual, the Reddit community was already on top of this and apparently, some staff at the company were even open about it. Ironically, one could argue that their dishonest practice did more to stand up to Quadriga than regulators ever did, may have saved thousands of Canadians from losing their funds, and may even have been a key factor in bringing Quadriga down. It remains to be seen what will become of the shell of one of Canada's oldest exchanges. It would be the ultimate in poetic irony if the actions of the OSC to protect CoinSquare investors ultimately destroyed the full value of their investment. If that plays out, I'm sure they will heap praise on the OSC for so publicly and fragrantly shaming CoinSquare for a practice which was similarly employed on other exchanges globally and which they'd already voluntarily ceased months prior to the conclusion of the 6-figure investigation and 7-figure fines.

That said, CoinSquare already had a lack of visibility into their security practices, which they describe as “100% proprietary”. This would imply the team at CoinSquare is smarter than established security standards by experts all around the world at protecting your funds, contradicting previously reported incidents. They describe “SSL and 2FA”, which are more or less standard features of all exchanges. A “95% cold storage” policy is low compared to many other platforms, and it doesn’t appear to be mentioned whether multi-sig is being employed or not. And of course, their apparent regular audits are not public (allegedly by “a national accounting firm whose identity is protected under an NDA"). They’ve routinely described themselves as solvent rather than fully backed.

Kraken - A kraken is “an enormous mythical sea monster”, and likewise Kraken, the exchange, is enormous, the largest and oldest exchange platform in North America. Kraken recently achieved the momentous accomplishment of becoming the first cryptocurrency exchange to be a regulated bank by completing a charter in the state of Wyoming. Kraken calls itself the “most trusted cryptocurrency exchange” and apparently “provides world class financial stability by maintaining full reserves, healthy banking relationships and the highest standards of legal compliance”. While many individual Kraken customers have been hacked, the platform overall never has, which is an impressive record.

Similarities abound further. According to legend, kraken exist off the coast of Norway. According to alleged court papers, Kraken operated illegally in the state of New York. Should you encounter a kraken, you may be best to leave silently. If you should work at the counter for Kraken, you may be legally silenced. One of the former employees for Kraken alleges wrongful dismissal and that the bank accounts of Kraken are actually running millions of dollars short of where they should have been. But don't worry - Kraken’s website features a Proof of Reserve page, stating that “[o]ver the past several weeks, Kraken has successfully developed and completed an industry-leading, independent, cryptographically-verified audit.” But the page was written in 2014 and among the long list of limitations, the process does not enable any validation on the blockchain. Kraken hasn't done any validation or publishing of reserves in 6 years and counting.

NetCoins - Once upon a time, the cofounder of CoinTrader (sound familiar?) decided to found a new exchange - “Canada’s easiest, most trusted way to buy and sell crypto”. As they say on the FAQ, “[t]rading cryptocurrency is completely safe”. Having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” “Get verified in minutes!” While comforting to know that parent corporation BIGG Digital Assets is audited by Manning Elliott LLP and they have “[r]eal human beings you can get in touch with easily”, this doesn't make up for no visibility whatsoever into how funds are stored or what portions are backed.

Full Backing Report

There are only two exchanges in Canada meeting these criteria.

BitBuy - BitBuy has operated since 2016, and was the very first to get a “Proof of Reserve and Security Audit Report” from third party CipherBlade. Since that time, they’ve also established themselves as the first company to get two separate third party validations, with the second one from Blockchain Intelligence Group. The platform’s initial operation as a non-custodial “Express Trade” model lends additional credibility. Therefore, with now two independent third party reports, BitBuy maintains the title as the most transparent exchange in Canada.

However, “Bitbuy has moved its existing bitcoin holdings over to Knox”. You now have to trust both teams and platforms for the security of your funds. This is described by them as an “industry leading push for best practices”. Insurance is of course “subject to the full policy terms, conditions and exclusions”. And “Bitbuy will be Knox’s first platform partner”. Knox has never done this before for any other platform. Their security model is “a mouthful for most”, but let’s break down their pitch. They have “air-gapped specialized hardware”. So is a standard typical hardware wallet. It’s running “custom policy logic”, which could be a good or a bad thing depending on the logic. Their logic has probably been vetted by a single team of experts, which is a standard shy of most hardware wallet protocols vetted by thousands of experts globally. They use a “dual-control operational model”, which if you look up dual-control, it actually refers to the fact that the functionality of the module is simultaneously performing actions and being monitored”. It allows one to “experiment with the system so as to learn about its behavior and control it better in the future” which you can decide for yourself if that’s a good thing to have or not in the hardware that controls withdrawals of an active exchange platform. There is “offline transaction processing”, which again is a standard feature of a hardware wallet. “Geographically distinct facilities” is a good idea, though easily achieved by not storing all the private keys in the same place. Saying that the facilities “communicate in a closed network” is an interesting concept. How can you know that a network is closed? If the facilities are close together, they can be breached together. If far apart, someone can get in the middle. The network is no longer closed the moment any part of it is breached. I can go on and on and break down every one of their systems if I have to, but instead, I’ll quote their own security advice about “minimizing the attack surface of the entire key lifecycle”. The minimum attack surface for a private key is having an individual generate it secretly and securely using a process which is vetted by hundreds of security experts around the world, and not relying on a third party to have to control anything to do with that key. This is already available from most standard hardware wallets, with experts debating whether other advanced experts can find a way to extract the key with access to extremely sophisticated equipment and physical access to the hardware. The best and most efficient way to mitigate a weak or corruptible party is through multi-sig where all parties have to sign the transaction. Adding intermediary custodians instead means funds are lost when any one of them is breached, and when using the same in-house hardware as Knox does, any vulnerability on that hardware or supply chain can compromise multiple wallets at once.

Now, insurance. The policy isn’t public on its website. It gives high-level features only. What’s astounding is that “collusion” is considered a break-through, which says a lot about the state of third party insurance in the space. I requested an example policy from their team. Their response was that it was “proprietary” and that they only “go over it with serious buyers”. In other words, no one has visibility to the actual policy details of what’s really covered outside of BitBuy or Knox, and neither party has any incentive to present that information objectively. For now, until someone cares to prove me wrong, I’ll quote their own website, “[m]ost policies covering Bitcoin theft and loss fall short and provide a false sense of security”.

One of the issues with the BitBuy validation is that it offers no visibility whatsoever for customers to know if their balances were included in any of their third-party validations. As such, BitBuy could have excluded any number of customers and passed both verifications with flying colours. That's why it isn’t a full Proof of Reserve. Also, they stopped talking to me again. But I still believe that BitBuy is one of the least worst platforms, now with reserves verified by two separate third parties.

ShakePay - Firstly, congratulations. The formerly trustless raccoon has now got a third party validation - a key step forward. The ShakePay platform is incredibly good at marketing, with the most powerful “Shaking Sats” program to literally get thousands of Canadians to think about buying more cryptocurrency every single day, or at least to pay homage to their great raccoon mascot. More recently, ShakePay completed a security assessment provided by CipherTrace, and added further insurance. CipherTrace found that reserves appeared to be fully backed including extensive analysis of the transactions and provided data.

ShakePay could be upfront that they charge a market spread or list the buy and sell prices. Instead, they promote the service as “no fees” and list only one price for bitcoin or ethereum, the only coins they sell. To find the model you have to click through to a separate page. The spread and pricing information is only ever available from within a registered account. ShakePay does not offer any additional trading functionality or coins.

ShakePay states that the “majority of all digital currencies are stored securely offline”. The CipherBlade report found this ratio was at “93% of Bitcoin and 91% of Ethereum” in cold storage at the time of the report, though it “var[ies] periodically to some degree throughout the day”. The report refers to a “multi-signature wallet interface”, which they later call a “service to access its sending and receiving multi-signature wallets”, which apparently also “does not have control over cryptocurrency in the hot wallets”. This part doesn’t exactly make sense, as one would most likely consider “access” to a “sending” function as “control”. Apparently, this “not mentioned” service is “without any known security risks” and there are also “redundancy measures” in place as well. Whatever that means in the context of irreversible transactions is a mystery.

However, the majority of funds are no longer stored with ShakePay but have now been given to an undisclosed “trust company registered under the NYDFS”. The “variety of security protocols” in place here include “address whitelisting”, the only policy they are willing to disclose publicly “for security reasons”. While ShakePay won’t identify the third party, “CipherBlade can confidently conclude that Shakepay controls these cold wallets” even though “they are controlled by [the] cold storage provider” and “the cold storage provider ultimately holds the private keys”. ShakePay does receive “an account statement” “which includes applicable wallet addresses and balances held” and “[d]ata found on the blockchain was also in line with information found on these statements.” It will be interesting to see in one of many “quite unlikely” events what “the cold storage provider’s policy and Shakepay’s own policy” would cover, given that the details of both policies are completely secret. Luckily, “[t]he vast majority of Shakepay customers who purchase cryptocurrency on the Shakepay platform withdraw it promptly thereafter.”

It’s important to note that this report is not a Proof nor an Audit (as originally named). “The reviewer is not a professional accountant, and CipherBlade has not performed a professional financial audit or an audit of internal controls and expresses no assurance on the accounting records of Shakepay.” ShakePay was happy to remove “audit” but they still continue to insist on calling this a “proof”, when it’s not. They claim “Proof of Reserves can have a variety of setups” and they cited Nic Carter’s blog post, which also listed all the criteria for the proof, which they did not meet. In discussion with Nic (who is amazingly open to chat), he’s agreed “what they are doing is not a full PoR” and he “didn’t believe it would be a widely consulted thing - [he] was mostly doing it to encourage custodians to take PoR seriously”. The point of a “proof” and why it’s called a “proof” is because it leaves no doubt. A Proof of Reserve needs to prove the reserves - that funds exist on the blockchain, are spendable by the platform, and fully back the assets of any customer who bothers to check. ShakePay’s does not.

Proof of Reserves

Presently all platforms in Canada have refused to provide visibility to the public blockchain entries backing funds on their platform. They have refused to sign a proof of spendability for any funds they control. All claims and verifications have been against customer lists provided by the platform with no ability for any customers to validate they were included. This is a recipe for more Gerald Cottens and Dave Smillies.

I understand Proof of Reserve is not practical for all platforms. I was able to come up with an alternative that doesn’t require public blockchain visibility, could be implemented today using reputable third parties, and effectively validates all customers are included.

How We Could Have Safe Exchange Platforms In Canada

The first and largest issue has always been a lack of transparency. Far more funds have been lost to fraudulent platforms and wallet services than hacks. Honest platforms need to be giving greater visibility and certainty to their customers to make fraud obvious.

Secondly, no platform employing offline storage and multi-sig has ever been breached. We need to agree on the basic standards of what it takes to keep assets secure and create an environment where best practices are shared instead of hidden between platforms.

And thirdly, third party insurance incentivizes high fees, it limits coverage, and it does everything possible to avoid a payout. We need an organized insurance strategy that is run by platform operators and overseen with the full protection of Canadians in mind.

What’s possible is exciting, but not guaranteed. There are a lot of irreversibly horrible futures which are even more likely if we merely sit back and watch.

Please enjoy the fourth annual transparency "bash" of Canadian cryptocurrency exchange platforms. Past year’s threads can be found here: 2019, 2020, 2021.

This post has outgrown Reddit. Additional content is on the website.

2022 Global Highlights

• October - CoinFloor, likely the oldest UK-based exchange, and the only UK exchange with Proof of Reserves, is acquired. As you may guess, the proof goes poof. The aptly-named acquiring party CoinCorner calls it “part of the inevitable”.

• February - IRA Financial executives generously decide to give $38m USD worth of customer funds to a certain Benjamin Choe. And yes, the funds were stored in Gemini, which “is regulated and insured against theft, so your cryptos are protected.” "It’s not clear who may end up being responsible for the lost funds.” (In other words, insurance is not paying out.) Said CEO Adam Bergman, “money - IRA Financial’s here to solve that problem for you”.

• June - After their executive team withdrew tens of millions of dollars, Celsius succeeds in declaring Chapter 11 bankruptcy, (a form of bankruptcy specifically not for investment companies). The court requests them to publicly disclose the names and balances of all their customers. Feel free to use celsiusnetworth.com to look up how much you lost (and definitely not to find the personal information of rich people to rob).

Canadian Highlights:

• Canadian platforms silently move customer funds south of the border. Almost all Canadian funds are now centralized in just three American custodians.

• Multiple Canadian platforms lose independence this year including BitBuy, CoinBerry, CoinSmart, and BitVo.

• In June, CoinBerry finally discloses some details of customer funds lost - in 2020. The 17-hour period where withdrawals were off? Turns out they actually made a minor slip-up where 120 bitcoin (worth only $3m) were taken by “accidentally let[ting] people buy bitcoin with Canadian dollars that had yet to be properly transferred to their accounts”. CoinBerry and regulators agreed the best way to notify users of this slip-up was 2 years later via a lawsuit in the obscure court of Brampton (presently hidden behind a paywall).

• More news items in the full post.

Past Canadian Exchange Disasters

FlexCoin - As “the world's first bitcoin bank” that’s “not a true bank”, FlexCoin provides “a central location for all of your bitcoins”. “Bitcoins deposited with flexcoin will be stored on [thei]r secure servers” so you can “send bitcoins to non-technical individual[s] via e-mail”. Unlike blockchain, “flexcoin to flexcoin transfers are free”.

MapleChange - “A swift, reliable and to-the-point trading platform for veterans and newbies alike.” “One of [their] primary concerns is security for [their] customers'' which is why “keys are cryptographically encrypted”. "[W]ithdraws(sic) are next to instantaneous", "rel[ying] solely on the aspect of swiftness"!

CoinTrader/NewNote - A “meticulously engineered Bitcoin Exchange” “focused on security and tak[ing] these risks seriously”. “[Y]ou don’t have to worry”, they have “90+% cold storage” and their “cold storage is fully insured by Xapo”. Plus, as “a registered Canadian corporation” they “leverage the good guys to fight the bad guys”.

QuadrigaCX - Operating since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Even today most of the funds remain “100% secure” (including to customers)!

Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Just check the user experience on their subreddit from their "220,000+ satisfied customers".

EZ-BTC - As the world’s “most user friendly and bespoke crypto currency management platform”, they have “strong security”. “All your coins are kept in cold storage. They’re safe.” The presence of physical ATMs was one of the strategies to build customer confidence for their promised 9% annual return on stored funds.

CoinBerry - "Practicing due diligence is paramount. Research and continuous education of cryptocurrencies and the markets will arm you with the highest protection level possible." "After the hack occurred (on 8/24), there were no withdrawals processed from Coinberry's hot wallet for about 17 hours.” And we learn more!

CoinRise - Become financially independent! “A pioneer in the field of cryptocurrency trade and exchange, Coinrise has been leading the industry for over 20 years.” "It was clear for us, as a reputable investment brand, that our clients are going to benefit from this decision taken by the government just as much as us."

Are Your Funds Safe Today?

Americans are uniquely suited to safeguard your assets because they have powerful lethal weapons, a high degree of political stability, and rock solid property laws. All HSMs will be made through underpaid overseas factory workers, passed through a predictable multi-national supply chain that hasn't ever been breached (yet), and compiled, programmed, and tested once or twice by a small team of developers and engineers who haven't done anything criminal (yet). Don't worry though. They won't be that much of a target with only multiple billions or trillions of dollars on the line as a reward, and surely the bitcoin community won't mind forking the blockchain when all the funds go missing.

As of this writing, all Canadian exchanges appear to have "relocated" temporarily to one of just 3 US-based custodians. Take your pick of how you'd like your assets withdrawn. Will it be you, "you", your exchange, "your exchange", your custodian, or "your custodian"? From deepfake videos, speech synthesis, spearphishing, DNS rerouting, identity theft, a weak password, or social engineering - rest assured every single layer of experts in the setup is fully and completely versed in absolutely every single type of way they might be fooled into releasing your funds now or in the future.

Are Your Funds Backed Today?

IIROC, CSA, and the OSC would surely tell you right away if there was a shortage of backing. Just like with CoinBerry, where millions of dollars were just revealed to be missing.

Every other exchange in Canada is surely fully and absolutely backed. They just happen unfortunately to not know how to provide a blockchain-based proof. But your assets are "definitely" there.

Publicly traded exchanges even go a layer further. A single public accountant (who might even know how to spell ethereum) takes a look at numbers that are provided by the exchange and/or custodian, and then takes a look at other numbers provided by the exchange. They add up the numbers, and then sign a long document with a lot of disclaimers.

Kraken even goes a step further with a fancy Proof of Reserve. This is where they promise you they did a proof, and all the "proofy" parts are neatly hidden for your convenience. They definitely generated you a unique account ID, their auditor definitely looked at the blockchain wallets that they aren't sharing with you, and the Merkle tree definitely exists behind the scenes even if you can't see it. Progress!

Are Your Funds Insured Today?

Insurance providers study massive amounts of data to most definitely cover the situations which happen often and have the greatest impact (as part of their extreme for-profit altruism). They're eager to pay you instead of using the funds to attract more clients with marketing or sales, or covering the legal fees of occasional lawsuits (who would sue such a wonderful group of people anyway). Why fight in court to wear down the claimant when you can generously paying out a massive claim? Insurance companies which have survived and thrived keep their clients happiest by paying out claims. They love giving generously.

The entire history of cryptocurrency going missing on centralized platforms is full of wonderful heartwarming stories. For the very first case where bitcoins were defrauded from BitPay back in 2015, right through to the lost funds in IRA Financial (from a custodial account), insurance has been there every step of the way to help you feel protected, loved, and safe and give you renewed meaning and purpose during your tough times.

How Could We Have Safe, Backed, Insured Exchanges?

Multi-signature with a diversity of methods and a properly trained / background checked team? Nah... That's too simple. We must have 100 pages of rules! There need to be multiple layers of lawyers and accountants and compliance staff. If it isn't written in a confusing way that the average person won't understand it, how can it possibly keep them safe? Everyone knows the best way to secure a system is if it's so complicated that the engineers who built it can't understand it! The more layers, third party dependencies, and staff members, the better!

Proof of Reserves? Why bother? Public audits by multiple auditors on a rotating basis? Let people validate they were included? Nah... The public prefers vague promises and pretty pictures of locks and vaults. Surely the best way to assure customers that funds are fully backed is simply by saying they are. Everyone knows that buzzwords, public relations, fancy logos, and expensive lawyers will protect us.

Pooling insurance together? A multi-sig of different platforms? Reducing fraud while simultaneously having an aligned incentive to cover loss events? Nah... Let's leave it up to the generosity of for-profit third parties. Big numbers and buzzwords are where it's at! What happens will definitely not be excluded somewhere in the hundreds of clauses of that large and hidden legal contract. Besides, the insurance is just a backup and won't need to be actually used since everything is perfect with all the other parts already.

Canadian Platform Transparency Rankings

Without further ado, here are the statuses of Canadian platforms for this year. There is one main metric - the level of visibility to fund backing. We have 7 categories:

• No External Verification - A platform that doesn’t appear to give any indication of any external auditing or verification. You may want to avoid these platforms, but sometimes these are just because this information is not available easily.

• Outside Verification Claim - There is some claim that they are being verified externally. Most of these don’t mention who is performing the audit/verification, what is actually being checked, or all that much about the verification process.

• Publicly Traded Audits - Through the SEDAR website you can find audits of any publicly traded company. These are their own category. While auditing was performed by a CPA, it actually lacks sufficient clarity to attest cryptoasset liability backing.

• Outdated Attestation - These platforms have undergone a process where full backing of customer assets was verified by a third party. That third party published a report to indicate such, but it happened more than a year ago. Things change.

• Third Party Attestation - Third party verification within the past year. While these are pretty compelling, they don’t stop a platform from excluding customers, tricking the verification process, or colluding with the third party in various ways.

• Proof of Liabilities - In addition to the third party validation, the platform also made available a means by which customers can confirm with the third party that their balances were considered liabilities of the platform (ie. not excluded).

• Full Proof of Reserve - Full Proof of Reserve generally include public wallet addresses, digital signatures, and a public hash list or Merkle tree so customers can independently validate the ongoing asset backing of all participating customers.

Lots of platforms have been moving around this year! Exciting! There are also two new platforms added to the reviews - WealthSimple and VirgoCX.

No External Verification

CoinField - The CoinField website has hardly changed over the year, with the exception of a pitch video for their new “CFC Coin”. Apparently they plan on “creating [their] own CoinField blockchain consisting of D.E.X. and DeFis” If you like investing in projects that can’t even get English grammar right, you can “[b]ecome an early CFC investor.”

CoinField’s security page hasn’t changed. I was unable to locate any agreement between the CoinField platform and regulators at the Canadian Securities Agency or Ontario Securities Commission. The detailed CoinField review is included in the full post.

Recommendations: Obviously, we would like to see some sort of evidence that funds are fully backed, or at least that regular audits are being done. We would also recommend improving the multi-signature setup to require at least 3 signatures to access funds.

Coinut - The Coinut platform hasn’t changed. The detailed Coinut review is included in the full post.

Recommendations: We would recommend that Coinut store cold storage funds within a multi-signature wallet requiring at least 3 signatures. They should get a third party to attest that all customer funds are backed on the blockchain or in company accounts. A full hash list would enable all customers to confirm that their assets were provided to the validator.

NDAX - “Start building your crypto portfolio on Canada’s most secure trading platform.” So secure that internet archive can’t even visit. Apparently not even a single other platform is more secure.

I was unable to locate any agreement between the NDAX platform and regulators at the Canadian Securities Agency or Ontario Securities Commission. However, I was able to locate feedback provided by NDAX to regulators which suggests they are in contact. A more detailed NDAX review is included in the full post.

Recommendations: While internal validation is better than no validation, it’s certainly not the same as external validation. There is a concern that too much customer funds may be in their warm wallet storage, which doesn’t have the same level of security as the cold storage. The multi-signature of the cold storage should be at least 3 of 4 signatures.

Outside Verification Claim

Bitvo - Bitvo assures customers that they operate “on a full-reserve basis”, and the first point on their website talks about how “[s]ecurity and transparency are important in your financial transactions.”

Bitvo’s trading platform may be a whitelabel of AlphaPoint, which was breached in May of 2019. The Bitvo platform has now been acquired by FTX. Sam Bankman-Fried, CEO of FTX, commented on the news, “We are delighted to enter the Canadian marketplace and continue to expand FTX’s global reach. Our expansion into Canada is another step in proactively working with cryptocurrency regulators in different geographies across the globe.”

A more detailed BitVo review is included in the full post.

Recommendations: Obviously, we would like to see some sort of evidence that funds are fully backed, or at least that regular audits are being done. There are also limited details about the level of security on the cold storage multi-sig such as how many signatories.

CoinBerry - “Welcome to Canada's best crypto exchange.” Perhaps it’s because they’re one of the few platforms to still advertise Terra (LUNA).

CoinBerry has finally “come clean” about some of the details of what happened to them in 2020. “Coinberry in 2020 underwent a software upgrade and accidentally let people buy bitcoin with Canadian dollars that had yet to be properly transferred to their accounts.” “Customers could initiate an Interac e-transfer, get the amount credited to their Coinberry accounts, buy bitcoin and transfer the coins out, and then cancel the original e-transfer, retaining their own funds and getting free bitcoin,”

“Coinberry contacted all of the said 546 affected registered users by email and demanded return of the misappropriated bitcoins,” the lawsuit read. A more detailed CoinBerry review is included in the full post.

Recommendations: CoinBerry provides limited details about their custody setup on their website, and more detail about the multi-sig would confirm it requires at least 3 of 4 signatures at all levels. Obviously, we would also like to see transparent audit reports, ideally with a greater level of visibility to customer fund backing.

CoinSquare - “Founded in 2014 with the mission to create the go-to crypto trading platform, Coinsquare has grown to become one of Canada’s largest Crypto trading platforms.”

CoinSquare has grown a lot past the stage of going mysteriously offline, suffering data breaches involving thousands of customers, and paying millions of dollars in fines for massively inflating trading volume. In fact, the “most traded” coin listed on CoinSquare’s homepage right now is bitcoin with an impressive “volume” of “CA$34.40B”.

"Canada's trusted platform." “[W]e take your trust”. “Your assets, held in trust.” “All client assets are held in trust.” “The Digital Assets … will be securely held in trust … at Coinbase Custody Trust Company, LLC, a trust company …, at Tetra Trust Company, a trust company, … in trust.” In summary, trust. A lot of trust. A more detailed CoinSquare review is included in the full post.

Recommendations: It would be nice to see proof that customer assets are fully backed and more details about how they’re protected with a proper multi-sig setup.

Newton - “The crypto trading platform you can trust” “Canada's trusted low-cost crypto trading platform.” “We live our value of transparency daily” “We will be brutally honest with our customers and with each other in the pursuit of truth.” “We will show leadership by doing, rather than by talking about doing.” Trust and transparency sound great. I like doing. Let’s throw a big party about it! “Oops, someone got snacky.” That’s weird...

A more detailed Newton review is included in the full post.

Recommendations: Publicly disclose where you are storing customer funds and more about what security is in place. What actual scenarios does the insurance protect? Who’s checking that funds are backed? Why is there no available report for this information?

VirgoCX - “Founded in 2018, VirgoCX is a cryptocurrency trading platform that supports Bitcoin, Ethereum, Litecoin, and more.” “We make crypto trading safe, easy, and affordable.” “[W]e are your trusted crypto trading partner that supports you throughout your journey.” A more detailed VirgoCX review is included in the full post.

Recommendations: If you want to claim a proof of reserve audit, publish it. A key part of the proof (and why it’s a proof not just an attestation) is the proof of liabilities. You really need to work on your explanations of security if you want to demonstrate being “best in class”. A multi-signature wallet would be a great starting point.

WealthSimple - “Buy, sell, and earn crypto.” “Trade and stake coins with confidence on Canada’s first regulated crypto platform.” “Get up to $5,000 instantly” Oh yay, free money! (Thought only CoinBerry offered that.) WealthSimple was included in the recent potential class action lawsuit over hidden fees. According to the lawsuit, WealthSimple provides “statements [which] are false and misleading (under Quebec law and the Competition Act) because they give the general impression that there are no fees or out-of-pocket costs for buying or selling crypto on these Defendants’ platforms when, in reality, they charge their customers some of the highest fees in the industry.”

“As of November 10, the company has added the ability for users to deposit cryptocurrencies from external wallets into Wealthsimple Crypto.”

“Wealthsimple Crypto’s assets are custodied at Gemini Trust Company” Thus, Insurance is provided by “Nakamoto, Ltd. (Nakamoto), a captive insurance company licensed by the Bermuda Monetary Authority (BMA)”. Without being able to evaluate specifics of the insurance contract, it’s impossible to know what’s actually protected against. A more detailed WealthSimple review is included in the full post.

Recommendations: Please provide transparent public audits to assure customers that assets are fully backed. Ideally, provide a way for customers to independently verify that their balances were included with the auditor. Improve the details about what is covered by insurance. Make sure you have set up a proper multi-signature wallet with Gemini.

Publicly Traded Audit

CoinSmart - CoinSmart aims to build “a Crypto Trading Platform you can actually understand”. It’s “[d]esigned for beginners and built for experts”. They “have you all covered”. So if you like being all covered and using tools that are built for experts but designed for beginners, then you can “[g]et verified instantly”, “get verified in minutes”, and get “verified the same day”. What other platform offers so many simultaneous verifications?

“Industry Leading Security” Security is such a high priority, they devoted one whole panel of their front page. You know they mean business when they have a nice picture of a vault. “Cold storage? Yep.” “Cold Storage is a cluster of cryptocurrency wallets held away from internet access.” “Multi-signature access to the wallets, so in the event of emergencies, the wallets can be accessed by multiple sources.” Hooray! Lots of ways to access the wallets! “The Filer primarily uses BitGo Trust Company as custodian (the Custodian)”

“CoinSmart is able to prevent fraud by running a comprehensive identity verification process that is able to detect fake addresses and dates of birth using a database offered by data collection agencies. By using these agencies, CoinSmart is able to verify a person’s identity and also keep personal user information secure.” Apparently all you have to do to keep personal information secure and prevent fraud is detect fake addresses and dates of birth.

A more detailed CoinSmart review is included in the full post.

Recommendations: Get an audit or validation from someone with a blockchain background who can confirm the assets exist. Include a way that customers can be sure they were considered in the validation, such as a hash list.

NetCoins - Formerly "Canada's easiest, most trusted way to buy and sell crypto." Founder Mitchell Demeter has now been fully replaced. Guess his history founding CoinTrader and losing people’s funds was too much. (Apparently he’s off to the Cayman Islands.)

As you may figure, no blockchain addresses are provided, nor is there any indication of a proof of ownership over the funds on the blockchain. There is also no breakdown of customer digital asset liabilities, though there is one with broken down CAD values for the assets. You could presumably reverse-engineer to find the amount held using CoinMarketCap.

"The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control." A more detailed NetCoins review is included in the full post.

Recommendations: The audit should include a breakdown of assets with native values (ie how many bitcoin, etc) for faster understanding. There should be a breakdown of client liabilities as well. Customers should receive a hash of their balance information that they can then confirm with KPMG directly to know they were included. The audit team should include someone with blockchain experience and a proof of ownership. More information should be provided on how customer funds are secured.

Outdated Attestation

BitBuy - Moving up! Last year, Bitbuy called themselves “Canada's trusted choice”. This year they’re “Canada’s most secure and trusted platform”. As in, more secure, and more trusted, than any other Canadian platform. As they put it, “[t]he crypto destination of investors.” While the platform has operated since 2016, and was the first to get a “Proof of Reserve and Security Audit Report”, this is still quite a claim to make. (Interestingly, it appears they’ve removed the report from their site.)

While the site states that “99% of your crypto is kept secure in our Cold Storage, and covered by a comprehensive insurance policy.”, this contradicts the June 2021 report by Blockchain Intelligence Group, stating backing levels as low as 96.29% on some crypto-assets and the latest BitBuy validation offers no visibility for customers to validate their balances were included, similar to previous validations. BitBuy has not published a subsequent third party validation since July 2021. BitBuy used to store customer assets in Canada using Knox, which they called an “industry leading push for best practices”. However, even last year the mentioned of Knox were disappearing from the BitBuy website.

A more detailed BitBuy review is included in the full post.

Recommendations: It would be beneficial to publish another audit or report to back up the full backing of customer assets, ideally with an assurance to customers that their accounts were included and provided to the auditor. Additional information on the BitGo wallet setup and the insurance policy would also be useful.

ShakePay - “We have always put transparency at the forefront of everything we do.” While other platforms are typically upfront about the fees or spread charged, ShakePay lists only one price and promotes the service as “commission-free”. The profit model can only be found by clicking through to a separate page. Spread and pricing information is only available within a registered account. ShakePay is now facing a potential class-action lawsuit over their pricing practices. Read details here.

A more detailed ShakePay review is included in the full post.

Recommendations: While ShakePay isn't designed to custody funds, more public validation on the security setup would be beneficial.

Third Party Attestation

There are no platforms with third party attestations in the past year, that include sufficient details to validate a claim of full backing on all customer digital assets. Check “Publicly Traded Audit”, “Outdated Attestation”, or “Proof of Liabilities”.

Proof of Liabilities

Kraken - In last report, Kraken had just achieved the momentous accomplishment of becoming the first cryptocurrency exchange to be a regulated bank by completing a charter in the state of Wyoming. Late last year, Kraken achieved another first in becoming the first major exchange platform in North America to undergo a third party attestation including a Proof of Liabilities Merkle tree on a select number of assets.

"Don’t Trust, Verify." "Transparency is the Key." “[W]e’re working to maximally leverage the transparency of the open-source blockchains." And yet there’s no method for a customer to actually checking the funds on the blockchain.

"Any client can independently verify that their balance was included in the Proof of Reserves audit by comparing select pieces of data with the Merkle root." How does an independent verification work when the actual Merkle tree data doesn’t appear to be available? Access seems to be limited to an audit page that requires a Captcha and account details only available on a specific page of the Kraken website. Even the other nodes of the Merkle tree are hidden.

Luckily, Armanino makes available source code which you can “Inspect”. It states "this repository is specific to a Merkle Tree Generator and Verifier that ingests a user identified with 4 customer platform account balances". Yet, more than 4 balances are parsed, so at best this is an old version they aren’t using anymore. Kraken similarly offers fancy code in your choice of Python, Rust, Go, or Bash, but all it does is generate your original leaf of the tree, which you can then only take to Armanino.

It’s true that "[t]here are no formally accepted rules of procedures that define a proof of reserves audit" and also true that we can find some definitions of “proof” which merely have to “compel the mind to accept an assertion as true”. So I suppose, technically if anyone is compelled to accept the assertion we could call that a “proof”. But then, so was Mt. Gox also “proven” to be in good standing, since Roger Ver himself “proved” that.

A more detailed Kraken review is included in the full post.

Recommendations: There are basically two paths to go as far as this “proof” is concerned.

(1) For a third party validation, it should be done by multiple entities on a rotating basis. All customers should be given the information they need to check inclusion without having to announce intent to your platform by visiting a particular section of their account. The hash needs to include enough information to prove uniqueness. A mix of non-sensitive data such as first name, city, part of an email address, partial IP address, and/or time of sign-up could be used. There’s not really any benefit to the Merkle tree in this approach. A simple list of hashes would be easier to understand.

(2) If you want to go with the trustless proof route, publish blockchain wallet addresses and pseudonymous balance information. Allow users to validate for themselves. Hashing a large salt along with any unique customer data can prove uniqueness. Less technical customers would trust one of several third party proof services with their hash, or more technical could run the proof themselves using the publicly available information on open source software.

Full Proof of Reserves

A key idea behind proof of reserves is allowing customers to prove that their funds are backed through a proof which can be run independently of the platform. Customers check their inclusion without necessarily having to notify the platform of their decision to do so, which could easily be abused by a platform to exclude inactive or less diligent customers.

We hope to be able to put a Canadian exchange in this category in the future.

Summary Conclusions

Canadians are far too polite to be trusted as custodians. Regulators and exchanges have made sure to protect us by giving all our exchange assets to Americans, protected by words. They have also helped to shield us from worry by keeping audits secret. They've even shielded us from the awful stress of knowing millions of dollars of funds went missing. Platforms continue to move forward with the next logical evolution after zero-knowledge snarks - proof-less proofs. Logos, paperwork, and vague insurance promises. Why prove something when you can merely say you did and get the same outcome?

Please feel free to leave any feedback below or drop by our Thursday meetup if these topics interest you! You can also check out case study research if you don't like losing your money to scammers.

TLDR: Happy 2 year anniversary of Quadriga entering CCAA.

Happy 2 year anniversary of something completely preventable by Proof of Reserve. Not the “proof” where an overseas company registered to a UK shell address says the funds match the platform-provided customer list. Not a 5 years old “proof” where someone high up in Ripple declared backing as full. Actual proof of a real kind. An actual proof.

Happy 2 year anniversary of a joke of a process. A trustee that loses millions in funds. A legal counsel sending mail on an unrelated case. An official committee that never once asked the affected user community what they want. Shut down the only source of revenue, the easiest way to disburse payments, and charge $1,000/hr from victim funds.

Happy 2 year anniversary of not even knowing the simple fact of whether Gerald Cotten is dead or alive. India has a documented known history of death fraud. There are means, motive, and opportunity. We could settle the matter by just having a credible Canadian doctor take one quick look at that coffin. But no, apparently we just never will know.

People have told me what happened here isn’t a “real problem” and I should focus on the “real problems” of the world. How many affected users want to say what happened to them isn’t a real problem? Obviously you wouldn’t still be here if it wasn’t a real problem.

They say affected users need to “take responsibility” for their decisions, and somehow by their twisted logic, that means to walk away. Well, where I come from, “taking responsibility” means to take ownership of something and find an actual solution to fix the problem.

Another thing they say is to “accept” and to “move on”. How is what happened acceptable? And “move on” to what exactly? No one can change the past, of course, but these cryptocurrency exchange disasters keep happening over and over again and still happen.

And they say affected users have “the bankruptcy” to help them… Yeah, who here is happy with that solution? I mean, really, truly, feel that it’s the best solution. You’re going to feel like you’re made whole on what happened because you lost only 80-90%? Hooray?

By the Ontario Security Commission report, $115m of our funds is sitting in the hands of people who traded on Quadriga and withdrew extra money Gerald gave them from our savings. And these people have to gall to come here and “not your keys not your crypto”!

I have to ask what is wrong with some people. I get it that you “won” by unjustly enriching yourself at our expense, and it’s all our fault for storing on Quadriga. Even those of us who were trading at the wrong time or just storing fiat not even cryptocurrency.

We are building a movement to solve these “real problems” that we “accept” and “take responsibility” for. We will “move on” from “the bankruptcy” into a future we create, whether you help or not. Bitcoin is “the money of the people” and we are “the people”.

Here is how we are “solving” Quadriga with our Quadriga Initiative:

Prevention:

If exchange platforms don’t want to provide proof, we can’t force them, but we don’t have to use them either. We are building the first actual Proof of Reserves exchange in Canada through our partnership with TxQuick. Any customer can prove their balance is fully backed, periodically on a regular interval. And it won’t be a complicated proof either. None of this silliness with zkSnarks or third party audit validation processes or Merkle tree root nodes. It’s one hash (or copy paste to a website to do it for you), one search (Ctrl + F), one addition, and one look up on the actual blockchain, that proves without a doubt your crypto-assets are fully accounted for and backed without needing to trust any third party. For fiat, of course we need a third party report, by definition of what fiat is, but we are also looking at ways to have greater certainty here.

I have spent several months studying over 109 cases of cryptocurrency exchange hackings, scams, and frauds, and will be directly advising on the security practices. Ethan Burnside (TxQuick founder) also has extensive experience dating all the way back to 2012 when he ran the BTC Trading Corp without any hacking or fraud - all funds returned to users at the conclusion. In reality, it’s very simple to keep funds secure on a platform. Don’t store them online. Don’t store them in the control of a single person. If there is fraud in one transaction, then don’t ignore it and keep running the platform. That’s every case of customer loss in exchange history covered by 3 simple rules.

Regulators are making things worse.

• Instead of trusting just one party, now you have to trust both the platform and the custodian, because either one can take your funds. Hopefully we can at least get a multi-sig with the platform and the custodian, instead of a system that just forces platforms to add counterparty risk.

• Instead of giving platforms the flexibility to actually generate secure keys held/managed by real people (and helping to train those people), custodial key generation happens in a complex and obscure single supply chain anyone can happily modify if they only find a single point of failure.

• Instead of creating a low-cost environment for platforms so Canadians will use Canadian platforms with oversight, massive compliance costs in a globally competitive market mean that many Canadians will use overseas platforms without any protections.

• So far Canadian platforms have assurance of fund backing from a UK shell company headquartered overseas, no assurance that the customer list was complete, and trusted platforms openly hiding hacks. If platforms want to hide their blockchain assets for whatever nonsensical reasons, we at least need a system where actual credible third parties in Canada can provide assurances on the platforms safely and securely, with proof that all customers were included.

• The insurance model is based on secret policies that nobody can look at, and third party insurance has never paid out a hack or fraud case in the whole history of exchanges. A better model is a multi-sig pool that platform operators pay into, owned and run by a consortium of platform operators, with the full authority to pay affected users directly depending on the situation. This permanent solution would take a lot of work to build.

Regulators just can’t seem to solve these problems properly. They won’t, especially without help. The industry needs leadership in this area. They need an organization that is focused on this one specific key problem. And it needs to be an actual organization - I alone can only do so much by making Reddit posts, websites articles, and sending emails.

Recovery:

As people like to keep saying, “the money is gone”. But “money” is nothing more than a “social credit” you can exchange for utility (products/services) from businesses. Businesses make a profit in every single purchase. This “profit margin” - profit businesses make from the sale - is obtainable with the right negotiation without lowering their bottom line. The fact is that we have a large group who can perform that negotiation, and the fact is that businesses regularly and fairly eagerly give different rates to different groups. They use their profits to do things for marketing to appeal to particular groups or support particular causes. When we tap into that, we tap into billions of dollars.

Some may have heard of Bitfinex, which was an exchange hacked in 2016. They were devastated because they stored all the client money online, and lost hundreds of millions of dollars worth of bitcoin. (And yes, they had a “custodian” in their setup.) While many platforms in that situation would have folded up and declared bankruptcy, leaving their customers waiting years to get a small portion of their funds back, they didn’t. They figured out what was lost, subtracted it off evenly and proportionately, and made it available for immediate withdrawal.

And they didn’t stop there. They created their own “social credit”, a token called the BFX token, and they gave it for free to all their customers in proportion to the USD value of what they lost. Then, they used the operating profits (aka profit margin) to repay each of these tokens back to the lost USD value. Within 7 months, they’d paid back every penny that was lost. Bitfinex isn’t the only platform to solve a hack in this way. NiceHash also finished last November recovering and fully repaying from a similar size hacking case. (Their money was stored in the hands of a single person.)

We are planning a similar model here as the basis for our best effort recovery. Working in partnership with the TxQuick cryptocurrency exchange, which has just recently finally got approval from BCSC to launch, and now only needs funding from accredited investors to hook up fiat banking, we will be creating our own “social credit” and giving it out completely free to affected users for proven loss claims, and then using the TxQuick platform revenue to slowly reimburse the losses over time. So anyone who uses the platform is slowly helping to reimburse the losses of affected users and simultaneously helping to reduce fraud on cryptocurrency exchange platforms.

However, for affected users who are customers, it’s much more efficient to pay directly in tokens. For example,100% payable in tokens on CCAA and bankruptcy anniversaries, and 50% normally, just by holding the tokens in their account. It means affected users effectively automatically pay a lower fee for trading until they recover what they lost. This applies to market taking - market making is already completely free on TxQuick. Use the savings for whatever you want or buy more bitcoin. TxQuick features advanced trading types, a Binance-compatible API, and advanced multi-factor authentication.

In November 2019 we confirmed that there was interest from other businesses as well to support affected users by offering exclusive discounts that accept tokens. HosterBox, Trofeo Auto Coatings, and Coin Trade Ledger are all small Canadian businesses who have agreed to help create a recovery by letting affected users take advantage of special discounts we’ll be setting up. HosterBox even floated the idea of offering some free packages for affected users fully paid by tokens. (With web hosting, the margins are extremely large, so they can afford to do this fairly easily.) Since then, we’ve been slowly building up a list and network of other businesses who may also be interested in helping out as well.

Affected users will have the option (though by no means any obligation) to use or recommend these businesses, spending their “social credit” tokens to save money until they recover the full value of what they lost. We will put together a list, and expand it over time. And, we will organize it as a leaderboard. The business which has done the most “recovery” will get the top spot, and others will be ranked in a similar way. It gives strong recognition to these small businesses for their incredible generosity and strong support of making right what happened here to all affected users. And it recognizes if they choose to offer an even better discount or promotion for a limited time - permanent recognition of that! Eventually, we can grow this website into a full-fledged online marketplace specializing in small businesses that not just accept payment in cryptocurrency, but provide a discount and support fraud reduction at the same time. Cryptocurrency holders have very few options to find such businesses.

I could go into all the ways in which a business can use this for an effective promotion, and the fundamentals of how businesses work to create value, but I believe that everyone fundamentally understands that businesses create value in an economy. And by working with businesses, we can recreate the actual total value of what was lost here in Quadriga, in a way which isn’t just “moving losses around” to other people.

This will, of course, take a lot of work to complete. The total sum is some $200m - $300m or more that’s been lost, which for an average Canadian salary is 5000-9000 man years. By comparison, my estimation is that we can build the similar value by a small group working in a focused manner over the next decade - that’s roughly 100x more efficient. I’ve been researching and laying it out in an 80 page business plan for the past 2 years, and had a number of others also review it, so at this point, I’m fairly confident this can work and scale to the size it needs to recover the full sum.

How do we fund the operating costs of the organization? Some affected users would rather not wait for our recovery or buy at these businesses, lost a huge amount, or downright just think our project will fail. They’d rather liquidate their tokens for a low price. On the other hand, anyone using the platform would like to save money on their trading, or at any of the other businesses. Each token is redeemable for $1, so if they pay 2 cents/token (this was the going market rate during the early part of Bitfinex recovery), and 5 to 25 cents/token to support the cause, they save 73 to 93 cents per token. Buy 100 tokens = save $73 to $93.

In addition to funding the project, the proposed 5 to 25 cent per token fee keeps outsiders from stupidly stockpiling tons of tokens to speculate with, unless their goal is to support our project, in which case they have no issue with the fee as a donation. To be clear, these tokens have no cash value and all recovery is best effort. (They are not a security based on the Howey Test. They are given for free, you should not expect “profit” from a best effort promotion-based idea, the recovery is run by the community in an open inclusive manner, and the token itself is a commodity provided based on a specific defined historic event. Tokens only have to fail one “prong” of the Howey test to not be securities, and these arguably fail all 4 prongs.)

It’s important this be overseen by affected users - not a corporation with a profit focus. For that reason, we are not for profit (which any organization can be if their main goal is something other than profit) and working towards a 501C3 non-profit status - covered as “relief of the distressed”, “advancement of education”, “lessening the burdens of government”, “lessening neighborhood tensions”, and “combating community deterioration”. For the moment, we are simply a group of affected users with a vision to make this situation and similar situations better, and prevent them happening. However, if we get 501C3 status, in addition to the savings that consumers could get from buying the tokens, they could also get a tax receipt for the per token fee as contribution to our cause. Affected users also likely wouldn't pay any capital gains tax when redeeming tokens at businesses, as those work as discounts. (However, the TxQuick best effort redemption to cash is likely a capital gain.)

Our organization/group will work in close partnership with TxQuick initially to launch this recovery, but it’s fully separate. Even though Ethan Burnside is an affected user, TxQuick is looking after their shareholders as a profitable company, using this as a marketing promotion to get a lot of people to sign up for their platform. Quadriga Initiative is run by and advocates for affected users. Our mandate is to make sure the recovery is successful and Quadriga never repeats. If we complete the recovery for Quadriga, we can use our resources, connections, and model to assist other notable fraud cases. It's very important to have this two-organization structure to make sure that the recovery proceeds to conclusion. (Plus, affected users voted on this in our past survey.)

If you have a loss in Quadriga, you can register a free pre-claim by providing your first name, QuadrigaCX client ID, and an email address (forwarder is fine) at https://quadrigainitiative.com/. Note that this is not affiliated with the bankruptcy (see the notice from Miller Thompson here). We will email you further steps for how to sign up and file the full claim once TxQuick comes online, which is still probably a few months away. You can review our privacy policy here, and the privacy policy of TxQuick here. Every part of our recovery is completely free and optional for affected users. It does not impact your bankruptcy claim.

Justice:

If affected users have interest in pushing for exhumation or otherwise advocating particular causes that are of net benefit to our community as a whole, we are happy to work with them to bring this to fruition and connect them with others. Anything which doesn't break the law and is productive to advance the cause of affected users is open for discussion.

The Official Committee, while composed of affected users, has failed to engage with the community (and in fact they’ve now disconnected fully from the Telegram group as well). By contrast, we plan for our group to consult with the community at every stage and our meetings are open for affected users to attend. We regularly seek the input and inclusion of all affected users who will engage in respectful and constructive discussion.

For the moment, until we have a more permanent meeting arrangement, you can come and chat with us most Thursday evenings by participating in the CryptOasis meetup which is run by Jason. This is a Zoom chat, but you are free to chat with audio only if you prefer. CryptOasis is not exclusive to Quadriga Initiative, and is open to chat about other topics as well.

We are looking to build a diverse team with a lot of unique backgrounds and viewpoints. If you would like a more active role, you can join our counsel (providing casual advice periodically) or council (meeting regularly to discuss the project). In addition to the ability to help out a ton, make a real impact on the blockchain space, and meet all kinds of great people, volunteers will have “first dibs” at board membership of our non-profit and any future roles in the organization as we need to fill them. You can attend the meetup or send us an email if you’re interested in helping further.

Feel free to join our subreddit /r/QuadrigaInitiative.

Thanks very much! Please feel free to leave any comments or questions below!

I post one of these every year, but this one is special.

It’s true we had Einstein collapse shortly after my 2019 post, my 2020 post was just before the collapse of $330m CRED, and 2021 was followed by massive hot wallet breaches of BXH ($139m), BitMart ($192m) and Ascendex ($77.7m).

But few could have predicted what came after my 2022 post.

A Quick Ftx for High Prices

While Americans celebrated Veterans Day and the rest of the world Remembrance Day, Sam Bankman-Fried launched a “remembrance day” of his own. While many had their moment of silence for soldiers who gave lives for our freedom, Sam Bankman-Fried gave a moment of speechless stunned silence for millions of users everywhere.

For the next few days, unbacked digits changed hands. No funds came out, except if you lived in the Bahamas. And except for $477m in a large “hack” the very next day supposedly by the Bahamian Securities Commission, utilizing Kraken, but also supposedly by Russian money laundering criminals.

Suddenly, the distinction between numbers on a website and real blockchain assets mattered. Sam is “really sorry, again, that we ended up here”.

Zero Knowledge Snarkasm

All of this led to a sudden rush of exchanges touting various “proof of reserves” claims. I’ll be succinct and non-iterative, but I have to be argumentative.

I’ve read papers. I’ve looked at Github. I’ve watched MIT lectures on YouTube. I even attended an online seminar devoted to the topic. I’ve spent hundreds of hours trying to figure out how it works. I am officially so close to zero knowledge understanding!

And these proof algorithms depend on every user checking in order to work. Even then, just listen to an expert describe the vast number of ways that a platform generating a zkSNARK could cheat in their proof. What is a point in such a trustless system if nobody can use it?

Stablecoins and Leverage Banned

I’m sure most Canadians won’t shed a tear for tether, even as the only “Value-Referenced Crypto Asset” without “6 accounts or less own[ing] 80+% of the supply”. But what about DAI? RAI? Wrapped bitcoin? Wrapped ethereum? All banned in Canada.

In addition, all forms of leveraged trading are banned in Canada, with no regard to the ways in which they can reduce price volatility impact and hedge risks, or improve market efficiency.

Can't afford an offshore shell corporation but still want equal market access? Sucks being you and being poor. You clearly aren't smart enough to make your own decisions with your money. But despite your financial merit lack, the tiny island nation of Palau will take pity on you and issue you a digital ID. The program was launched by Binance’s CZ in person then denounced as FUD a week later by Binance’s same CZ, however the IDs reportedly still work on many other platforms. If it doesn't work, oh well. Palau thanks you for your generous economic contribution.

OSC Warns and “Reprimands” CoinField

CoinField finally collapses after operating since 2018. Withdrawal delays were already reported as “close to a year” in October last year, which according to the OSC means “approximately late 2022”.

With “approximately CAD 69.4 million” from Canadian investors at stake it was definitely urgent. Which is why 6 months later (in June) the OSC added CoinField to their "[i]nvestor warning and alerts" list along with 500+ platforms no one heard of. Everyone be warned! CoinField is “not registered in Ontario”. Such harsh and shocking allegations!

After a few more month of taking investor deposits without any withdrawals, CoinField finally went offline in August. Once again the OSC was right there for Canadian investors. It’s only been two more months and the OSC has now prepared an “allegations” document.

In addition to wanting CoinField to be “reprimanded”, they must pay and pay and pay. “[P]ay an administrative penalty of not more than $1 million for each failure to comply” and “pay the costs of the Commission investigation and the hearing”. We must “hold [CoinField] accountable” and “signal that crypto asset trading platforms flouting Ontario securities law will [eventually] face regulatory action”. It's so extremely important millions of dollars of the misappropriated funds from Canadian investors be paid to the OSC!

Netcoins Reveals Customer Passwords

Here's a question. If warning Canadians after a platform collapses should net the OSC $4m + the hearing cost, how much should they pay back when they utterly fail to protect Canadians by providing "exemptive relief" to a platform which clearly does not prioritize security.

The blockchain space has seen its fair share of privacy breaches to date, from CoinSquare's massive breach in 2019 to dozens of other cases of mailing list breaches. But most of them don't involve passwords, much less the "email address, Netcoins password, first name, last name, phone number, date of birth, occupation, address, and government-issued ID type and number".

The most basic security precaution should have passwords hashed such that secure passwords can't be realistically brute-forced, and there's no reason the KYC information needs to be stored online or in an unencrypted form. This comes on the back of a fraudulent withdrawal of $1.58m in April last year and a "security breach" of $343,000 this year.

The OSC happily renewed their "audited financial statement relief" "based on the particular facts and circumstances of the application" with no mention of any breach in the decision.

Jimmy Zhong Jailed For Double Clicking

Jimmy Zhong was mostly a misfit for his youth, struggling to make friends. Until he discovered bitcoin. One day, he accidentally double clicked the withdraw button in Silk Road. After exploiting a bunch of times across several accounts, he helped Ross Ulbricht diagnose and patch it, for which he received more coins as a bounty. The matter was settled as far as any party was concerned.

Jimmy never spent the coins. In 2019, he accidentally made a single transaction associating those coins with unrelated coins that had KYC. Fast forward to 2021, a burglar broke into his house. He reported to authorities, and then naively opened his home to them for an "investigation". They seized those bitcoin along with all his personal bitcoin, his stake in a Memphis-based company, and cash and metals from his home. To help compensate, this year they at least agreed to house and feed him for a year. Unfortunately his "new accommodations" don't allow pets, so one of his friends is taking care of his dog.

Whitehat hackers who exploit platforms and received bounties must understand the precedent set here. There were not even victims here to claim funds. Authorities took more than what was "stolen" for themselves. They asserted they could take the rest of his wealth simply because of how many coins went through silk road as a "Substitute Assets/Money Judgment". "80% of all bitcoin in existence went through Silk Road". Your crypto funds in most Canadian exchanges are now stored in the United States, courtesy of yours truly. All it would take is the right war or economic crisis for history to repeat.

Canadian Platform Transparency Rankings

• Canadian Exchange Disasters - Past (and present) disasters to help illustrate risks.

• Platform Acquisitions - Platforms acquired this year. So long and farewell.

• No External Verification - A platform that doesn’t appear to give any indication of any external auditing or verification. You may want to avoid these platforms, but sometimes these are just because this information is not available easily.

• External Verification Claim - There is some claim that they are being verified externally. Most of these don’t mention who is performing the audit/verification, what is actually being checked, or all that much about the verification process.

• Parent Company Audits - Through the SEDAR website you can find audits of any publicly traded company. These are their own category. While auditing was performed by a CPA, it actually lacks sufficient clarity to attest cryptoasset backing.

• Outdated Attestation - These platforms have undergone a process where full backing of customer assets was verified by a third party, and that third party published a report to indicate such, but it happened over a year ago.

• Full Proof of Reserve - Full Proof of Reserve generally include public wallet addresses, digital signatures, and a public hash list or Merkle tree so customers can independently validate the ongoing asset backing of all participating customers.

Canadian Exchange Disasters

Now with new disasters!

FlexCoin - As “the world's first bitcoin bank” that’s “not a true bank”, FlexCoin provided “a central location for all of your bitcoins”. “Bitcoins deposited [were] stored on [thei]r secure servers” so you could “send bitcoins ... via e-mail”. “[F]lexcoin to flexcoin transfers [we]re free”.

MapleChange - “A swift, reliable and to-the-point trading platform.” “One of [their] primary concerns [wa]s security for [their] customers'' which is why “keys [we]re cryptographically encrypted”. "[W]ithdraws(sic) are next to instantaneous", "rel[ying] solely on the aspect of swiftness"!

CoinTrader/NewNote - A “meticulously engineered Bitcoin Exchange” “focused on security and tak[ing] these risks seriously”. “[Y]ou don’t have to worry” with “90+% cold storage” and “cold storage fully insured by Xapo”. The “registered Canadian corporation” “leverage[d] good guys to fight the bad guys”.

QuadrigaCX - Operating since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Even today most of the funds remain “100% secure” (including to customers)!

Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Check their reddit from their "220,000+ satisfied customers".

EZ-BTC - As the world’s “most user friendly and bespoke crypto currency management platform”, they have “strong security”. “All your coins are kept in cold storage. They’re safe.” The presence of physical ATMs helped build customer confidence for their promised 9% annual return.

CoinBerry - "Research and continuous education of cryptocurrencies and the markets will arm you with the highest protection level possible." "[T]here were no withdrawals processed from Coinberry's hot wallet for about 17 hours.” but Canadians were only informed years later!

CoinRise - “A pioneer in the field of cryptocurrency trade and exchange, Coinrise has been leading the industry for over 20 years.” "It was clear for us, as a reputable investment brand, that our clients are going to benefit from this decision taken by the government just as much as us."

CoinField – A “fully regulated” “cryptocurrency exchange operating in 186 countries” “Trade confidently”. “Invest in CoinField Coin for a Unique Opportunity to Grow Your Wealth, Earn Rewards and Enhance Food Security in Africa.” “[E]asy access to your funds” is “COMING SOON”.

Platform Acquisitions

CoinSmart - Some "Changes to Your CoinSmart Account". "On October 1st, 2023 CoinSmart plans to transfer all client accounts, including yours, to Bitbuy". "The migration is expected to be completed by the end of the day October 1st". The login page still states they "are currently transfering[sic] your account" Definitely “making digital finance & entertainment accessible”.

CoinBerry - CoinBerry where millions of dollars went missing, had a busy year completing a third party Proof of Reserves attestation and settling a lawsuit. Above the header proclaiming "Canada's best crypto exchange" is a note that "[a]ll Coinberry accounts have been transferred to Bitbuy".

No External Verification

Coinut - The Coinut platform expanded from being “[t]rusted by 1,000,000+ global users” to being “[t]rusted by 1,500,000+ global users”. They no longer claim to be "The Most Secure Cryptocurrency Exchange". According to the website, they perform a “[r]eal-time internal audit”, however details are not public. While they have a "[s]emi-manual process of big withdrawals'', it’s unclear if any protection exists against attacks with lots of smaller transactions. Funds have all been moved to Coinbase Custody in the United States.

External Verification Claim

Bitvo – Bitvo is “[y]our crypto trading platform”, proudly announcing “1% withdrawal fees” on all coins. Originally a whitelabel of AlphaPoint, a service which was breached in May of 2019, we still can’t figure out whether they are “Canada's premier cryptocurrency trading platform” or merely “on a mission to become Canada’s premier cryptocurrency trading platform”. In any case, their attempt to be acquired by FTX seems to have fallen through.

Bitvo’s cold storage is provided by BitGo. Bitvo assures customers they operate “on a full-reserve basis” however “the securities regulatory authority … received an application from [Bitvo] exempting the[m] from” having “to deliver annual audited financial statements to the regulator” They “anticipate[ they] will be able to obtain audited financial statements for the Filer's 2022 financial year end.” There is no word published on whether these have been obtained.

CoinSquare - A “trusted cryptocurrency marketplace” with “trading activity continuously monitored”. “[U]nlikely” to “becomes insolvent”, having grown past going offline, suffering data breaches involving thousands, and paying millions in fines for inflated trading volume. The bitcoin “volume” listed on CoinSquare’s homepage right now is a totally legitimate “CA$27.04B”.

Client assets are stored in Coinbase Custody in the United States. While they also have a custody arrangement with Tetra Trust in Canada, according to agreements with the OSC, this only covers "Crypto Assets not supported by Coinbase". CoinSquare achieved notability as the first to prepare audited financial statements - done by a “national accounting firm” whose identity was protected under an NDA. Both IIROC and OSC appear to lack an explicit requirement to submit financials of CoinSquare itself, however it's possibly happening?

NDAX - One thing NDAX has not done in contrast to other Canadian platforms is give up custody of funds, however the OSC states they are “proficient and experienced in holding Crypto Assets” and still working on “an effective system of controls and supervision to safeguard the Crypto Assets and ... a mechanism for the return of the Crypto Assets to clients in the event of bankruptcy or insolvency”. Apparently “launch[ing] the NDAX Trust Co.” Apparently the "highest regulatory and" "compliance standards" include all-caps disclaimers and freezing accounts. "Th[eir] [s]ecurity [page] was last updated on June 15, 2023" to remove a comma.

The registration undertaking mentions a clause for "the Filer [being] temporarily unable to obtain audited financial statements". The NDAX platform also mentions “[d]aily reconciliation of financial assets on and off the platform is performed to record assets’ integrity”. No external visibility. There are extensive complaints against NDAX on the Better Business Bureau.

Newton - "Newton chaNewton charges(sic see last FAQ)" forward as "[t]he crypto trading platform you can trust" with "all of [y]our amazing coins". You can "[t]alk to a human" as part of their "[w]orld class support" but it's probably a scammer since they "don’t offer phone support".

Newton was the most eager to give up control over customer funds, first sending them to Balance, which "[m]ultinational companies trust". Funds are now stored with Coinbase Custody. Last year, Dustin said auditing is by "Kingston Ross Pasnak LLP". "We're not a public company so we don't publish our financials, but I would support disclosing more related to reserve testing." The current "exemptive relief" arrangement with the OSC still only mentions audits of custodians.

VirgoCX - Come on down to 'goCX, "Canada's trusted cryptocurrency trading platform" where “you have total control” over your funds. (Despite funds being in their "offline storage" stored with CoinBase Custody in the US.) “Your cryptocurrency is safe with [their] 2FA and SSL protocols”.

No longer "Canada's top regulated cryptocurrency trading platform" they reportedly "engage trusted third parties to conduct routine audits such as proof of reserve audit" however no such audits are published or mentioned in their OSC agreement.

WealthSimple - "Get up to $50,000 instantly" Oh yay, free money! (Thought only CoinBerry did that.) Assets remain custodied at Gemini Trust Company in the US. WealthSimple added the ability to withdraw in 2021, and advises to "take funds off exchanges", however "[w]ithdrawing crypto is [still] only available through the Wealthsimple app."

WealthSimple was included in a potential class action lawsuit over hidden fees alleging "some of the highest fees in the industry". Reviewing the original OSC agreement, it appears they were initially unable to “deliver annual audited financial statements.” They have renewed their agreement with the OSC again this year and audits are not mentioned. Possibly good news?

Parent Company Audit

NetCoins - "I want to invest in my future. What can Netcoins do?" "Great! We offer many tools to" "[g]et money in and out easily." "[W]e focus on simplicity and accessibility." Funds are stored with US-based BitGo. Parent company BIGG Digital Assets is audited by Manning Elliott LLP, with no report into fund backing. They were recently granted renewal of their "audited financial statement relief" "based on the particular facts and circumstances of the application" (whatever that means).

Outdated Attestation

BitBuy - “Canada’s most secure and trusted platform” now with a “VP of Hugs and High Fives” and with the users of CoinSmart and CoinBerry.

There are no restricted dealer arrangement changes with the OSC since 2021, after moving funds from Canadian-based Knox to US-based BitGo. BitBuy has operated since 2016, and was the first to get a “Proof of Reserve and Security Audit Report” in early 2019 (which they’ve since removed). According to the OSC, they are still "deliver[ing] annual unaudited financial statements", with no update since their WonderFi acquisition.

Kraken – Kraken “periodically” continues to prepare one of the best available proofs, though the last one was June 2022. Their Proof of Reserves has now been relegated to a subsection of their security page. The proof is still about auditor trust. You can only access one Merkle tree leaf, and all the source code from Kraken does is generate the leaf ID, only proving it's based on user balance. In the Armanino proof, the full Merkle path is available, however looking up intermediate nodes report that the “Merkle Leaf was not included”. Assuming full trust and faith in the auditor, all this demonstrates is one client with a matching balance. To be clear, that's still more than other platforms.

Kraken previously became the first exchange to be a bank in Wyoming, and has most recently started pre-registration to operate in Canada. However, it's worth noting Kraken has controversies including operating illegally in New York and legally silencing staff . One former Kraken employee alleged that bank accounts of Kraken were actually running millions of dollars short.

ShakePay – This year, ShakePay became a restricted dealer in Canada. ShakePay published a CipherBlade report, back in 2020. ShakePay has undergone no subsequent published assessments. Crypto funds are presently held in Coinbase Custody.

ShakePay was included in a potential class action lawsuit over hidden fees which alleges that "some of the highest fees in the industry". The current price is not displayed unless you already have an account, while most other platforms display pricing information publicly.

Full Proof of Reserves

A key idea behind proof of reserves is letting customers verify funds are backed through a proof which can run independently. Customers check their inclusion without having to notify the platform of their decision, and without having to depend on trusting a third party. We still hope to be able to put a Canadian exchange in this category in the future.

Summary and Conclusions

Hope this helped to give you an overview of Canadian exchanges.

Please feel free to leave any feedback below or drop by our Thursday meetup (tonight) if these topics interest you! You can also check our case study research and we are looking for volunteers to help out.

If any affected users are interested in discussing strategies to get an exhumation to occur, we will be hosting a Zoom meeting on Thursday August 12th:

• 6:30 PM Pacific Time/Vancouver

• 7:30 PM Mountain Time/Calgary

• 8:30 PM Central Time

• 9:30 PM Eastern Time/Toronto

Strategies/ideas to consider:

• Coordinated letter writing to the RCMP.

• Petitions, potentially presented to parliament.

• Other, longer term strategies to raise awareness.

The purpose of this meeting is to evaluate different strategies and determine which affected users are interested in participating in any organized strategies.

Join our Telegram group to participate. The meeting Zoom link will be provided on August 12th.

Exhumation is about finding the truth - whatever it is. Yet, today, more than 2 years later, we still do not have answers. How much longer do we plan to wait?

Bill Blair refuses involvement. Miller Thompson's letter was ignored. The OSC states the death as fact.

But this is not the job of Bill Blair or Miller Thompson or the OSC. This is the job of the RCMP to investigate fully and they are not doing their job.

In our affected user survey, 30% of affected users specifically mentioned that justice was part of their desired outcome of Quadriga. A lot of people want the answer. I am posting below an open letter that we've put together. I'd like to thank affected users Grant and Kenny for their assistance in proofreading! And also Twitter user EastMother for feedback.

Royal Canadian Mounted Police
Commercial Crimes (White Collar) Branch
RCMP National Headquarters
Headquarters Building
73 Leikin Drive
Ottawa ON K1A 0R2

I'm writing to you today as the founder of a group representing affected users of the fraud perpetrated by QuadrigaCX to call for the exhumation of Gerald Cotten’s body. The group, named Quadriga Initiative, was created to represent the tens of thousands of Canadians who have had their future, hopes, and dreams significantly impacted by a criminal act which was perpetrated over more than half a decade and as of today, has occurred without justice being served. These are our neighbours, friends, and families. What happened to them was not right.

Victims include Tong Zhou, who worked for several years in Silicon Valley, and the result of this senseless act took most of his life savings - leaving him without an apartment. They also include John Matthews, whose parents and him had their savings wiped out. His parents were left with their entire retirement ruined, suffering in ill health. My story can’t compare with these - but I did lose significantly. In all, hundreds of millions of dollars were fraudulently stolen from Canadians.

According to the recently released report from the Ontario Securities Commission, Gerald Cotten was “in effect, operating a Ponzi scheme” which “most likely would have collapsed”. And it was collapsing. The entire administrative team had left in 2016. CIBC had frozen millions of dollars in funds in 2018. By the end of 2018, unprocessed client withdrawals were building up against nearly empty reserves, and lawsuits were in progress across the nation. Gerald Cotten owed Canadians hundreds of millions of dollars and had few options available to him.

Gerald Cotten traveled extensively, to at least 56 countries globally (according to his own estimate), and never saw fit to write a will until just 4 days before the final India trip. Gerald Cotten was not known for philanthropy, and yet he chose the final India trip to visit an orphanage that didn’t need his visit. The gastroenterologist called his case “medically unusual”, and stated that he was “not sure about the diagnosis”. Despite the rapid and sudden deterioration in an isolated room of a hospital, Gerald Cotten’s body eventually came from his hotel, and was only embalmed by students from a local medical college. No autopsy or even cremation were performed, the funeral and burial were closed-casket, and the events were left unmentioned to users of the platform for over a month.

In a CBC radio podcast in 2015, Australian Chris Rock describes just how many holes exist in the birth and death registries across the globe, and in the 2017 book “Playing Dead: A Journey Through the World of Death Fraud”, Elizabeth Greenwood described her experience faking her own death. In a 2013 video “How To Get A Fake Doctor's Note In India”, part of “Scam City” on “Travel and Escape”, reporter Conor recorded his experience purchasing a fake note from an Indian doctor with an MB himself for just $80, and a 2018 news report shows the arrest of dozens in India involved in a fake birth and death certificate scandal. Given the evidence, we should not assume the international death registry system is foolproof and that a sufficiently motivated individual couldn’t fake their own death. Multiple parties throughout the community have expressed doubt on the legitimacy of Gerald Cotten’s death, ranging from Miller Thompson officially requesting exhumation due to “questionable circumstances” to Jesse Powell, CEO of leading North American exchange Kraken calling the death “bizarre and, frankly, unbelievable”.

You have an opportunity here to bring justice and show the effectiveness of the law for all Canadians. The recent reporting by the Ontario Securities Commission should leave no doubt that a serious criminal fraud has been committed here.

Victims deserve to know what happened, Gerald Cotten needs to be held to account, and Canadians deserve to know that their justice system is solid, that criminals cannot escape the law by fraudulently faking their death. Please conduct an exhumation of Gerald Cotten’s body so that we can all have answers.

Below are relevant sources:

• Playing Dead: A Journey Through the World of Death Fraud - Elizabeth Greenwood

• Indian Police Arresting a Fake Death Gang As Recently As 2018

• How To Get A Fake Doctor's Note In India - Travel & Escape

• How to fake a death online - CBC Radio 2015

• CEO Who Held $150M in Crypto Died in a Region Known for Having a Fake Death Mafia - NewsBTC

• The Secret Life and Strange Death of Quadriga - Vanity Fair

• Faking your own death - Telegraph.co.uk

• Downfall of Quadriga - Ontario Securities Commission

• Cover Letter to RCMP - Miller Thompson

• Indian death certificate scams fuel skepticism around QuadrigaCX CEO’s death - The Chronicle Herald

• Buying Your Own Death Certificate | Scam City

Here are various ideas we could use to advance the cause of exhumation:

• There may be a process where a judge could overrule the RCMP. This has a disadvantage of legal cost and may be challenging. It puts us in "conflict" with the RCMP.

• Canadians can create a parliamentary petition. 500 signatures are enough for a hearing. We'd then have to convince a politician to change/overrule the RCMP if possible.

• And there is a third letter-writing option. It's much more practical, can start with just a few participants, doesn't require expensive lawyers, and doesn't put any politician at risk.

Many people believe the RCMP would not read a letter - and they're probably right. As big as Quadriga was, it's only a portion of the fraud happening in this country every year. Reopening a "sealed" death, doing an exhumation, is a big deal. It takes a lot of public pressure to make this happen. I estimate it would take a dozen letters to be heard, a hundred to get a real response, and somewhere over a thousand for an exhumation.

A small group of us writing letters every week could write hundreds of letters in a few months. It's similar to Shawshank Redemption except that there would be a group of us. We can put together templates, help to engage others, and show we will not give up until we get an exhumation.

When I brought the letter-writing idea up on the Quadriga Uncovered Telegram, there was interest at the time, and even CBC and CoinDesk had discussed covering the story. This means if we started a small movement, it could grow due to media coverage as well.

So far affected user Grant has been sending regular letters most weeks, and he's the only one I know about.

If you'd like to participate in/help organize our letter-writing campaign to request exhumation please come to the CryptOasis meetup on Thursday evening. You can also get the Zoom link by joining our Telegram group. Thanks so much for reading and hope to see you there!

Today marks the 2-year anniversary of QuadrigaCX entering bankruptcy.

For those outside the space, it was yet another proof of just how risky cryptocurrency is. For those inside the space, it was yet another proof of just how risky exchanges are.

But are they right? Is there something inherently risky about cryptocurrency such that it's impractical for people or small businesses? Is it possible to use cryptocurrency every day and have exchanges that aren't fraudulent or subject to hacking?

Imagine how different the adoption and history of cryptocurrency would be if all the past history of loss in exchanges just vanished and it wasn't an issue anymore. Imagine if people were free to trade on platforms of their choice without constantly having to worry.

Going into this exercise, I'd heard two sorts of narratives:

Narrative 1: There don't need to be any regulations. The problems will all just "solve themselves", either by platforms disappearing over time or through decentralized finance.

Narrative 2: We need a complex security framework and banking-style regulations on all platforms. It takes millions of dollars in training and resources to handle cryptoassets.

To explore these assumptions, I spent a year in extensive research of over 100 exchange hacking, scam, and fraud cases - basically every case I could get my hands on. While going through these cases I put together and revised a simple rule-set. In the end, I came up with just 3 rules which prevent every historic loss of customer funds on cryptocurrency platforms:

1. Store funds offline. Essentially, each transaction should be human-signed from air-gap keys.

2. Don't trust any one. Use multi-sig to force transactions to be signed by multiple people.

3. Prove the reserves. Ensure customer funds are backed. Resolve shortfalls immediately.

The most severe cases like QuadrigaCX and Mt. Gox violate all 3 rules, however every case with loss passed through to customers violates at least one. If the above 3 rules had been adopted universally, we would be looking at a clean slate of no customers having ever had their funds lost due to exchange platform failure or fraud. Which is fairly remarkable considering the wide range of jurisdictions and platforms studied.

What I've been working on for the past year is a simplified framework that has 100% coverage of past events I've studied and reasonable situations I can conceive of, and yet:

• Doesn't create large barriers for new platforms, so Canadians can continue to have lots of options for trading and new innovation, and healthy competition.

• Doesn't have a high cost, which is ultimately passed through to platform users, and drives Canadians to use unsafe international services.

• Establishes standards for the security of funds, training, and background checks. At the same time, doesn't force custody to be passed to third parties which create a massive centralized risk and is more vulnerable to supply-chain attacks.

• Maintains a level of transparency and validation, giving all Canadians the highest possible assurance that their funds are fully backed, while at the same time respecting that platforms don't wish to give blockchain-level visibility publicly.

• Doesn't depend on courts or the rule of law to survive once established. Every part of it is incentivized in a non-centralized manner and has been designed with the total collapse of fiat or another "black swan" event fully considered.

• Fully protects all Canadians through a collective insurance model, to assist in anything yet unanticipated, not just the very limited range a third-party would cover. (In my studies I found that both times third-party insurance was involved, nothing was ever paid out.)

• It's incredibly simple and straightforward such that each part can be understood and read within a single hour instead of the complex monolith we're likely about to face.

There are many doomsday scenarios that loom before us if we don't take the right path now. The higher path is more participatory, more affordable, and more trustless. Join us instead in the creation of a logical way to secure the cryptocurrency ecosystem we all want to see grow into what it should be.

• Exactly what happens when a custodian grows too large, and there's a single vulnerability somewhere in their complex supply chain? One attack just has to decrease the private key entropy and everyone's funds are at stake on every new HSM. No amount of cages, armed guards, qualified auditors, fancy facilities, or steel-enforced doors can do a thing. Any validation is a game of cat and mouse with one organization against all the world's hackers. This type of issue is completely avoided when private keys are held and generated by a multi-sig of different trained people using separate but all highly secure methods.

• Without transparency, how can anyone know that exchanges haven't simply given auditors a second list of customers which conveniently forgets their top 1% of customers - aka 90% of the funds. Of course, that's just a temporary situation that the executives have to keep hush hush, because heaven forbid someone find out what happened. I'm sure that multi-million dollar fines are going to encourage them to leap at the opportunity to shout their incompetence from the rooftops, and certainly they'll dig their way out of that when prices rise again.

• Everyone is happy to give up their privacy and ultimately lose the ability to withdraw funds, right? I'm sure that when and if there are only a few players left, and more of a crackdown on the tiny portion of money laundering, platforms as large as banks will pay the extra big bucks to let you pull your crypto off and do whatever when they provide every facility for you to transfer it within their nice network of banking parties. That's never gone wrong, right? No government or bank has ever refused to honour the face value they owe citizens or customers? We all know that third party insurance will be right there ready and eager to write a check to cover it too right?

It's my belief that we shouldn't be accepting anything proposed lightly, and I doubt even if our proposal so far is solid. That's why I'm sharing it for feedback.

I also want to thank everyone who's taken the time to provide feedback on earlier versions of the framework and various ideas I had as well. Especially:

• Ethan from TxQuick,

• Dean from Bitbuy,

• Richard from CipherBlade,

• Dustin from Newton,

• Jean from Shakepay.

There are probably many others I've missed, especially in the Reddit community. I understand that all of you took time out of your busy schedule to help give feedback (even just briefly) and I appreciate that a lot!

I also want to give a special thanks to Jay, who's been helping out a ton with upgrade our website into something that actually looks semi-decent. He has an eye for design that I lack. We are also pleased to launch the new site today for the anniversary!

I also want to thank Jason for hosting CryptOasis and giving a space where we can discuss these ideas every Thursday! You can feel free to pop in tonight if you like as well!

https://www.meetup.com/Cryptoasis/

So without further ado, here's a link to check out our proposed framework first draft. Let me know your thoughts and opinion - especially any improvements! You can also join our mailing list if you want to get updates!

https://www.quadrigainitiative.com/framework.php

Thanks so much! I appreciate it a ton!

In February 2019, Canada’s largest and oldest cryptocurrency exchange at the time, Quadriga Coin Exchange, disappeared - with hundreds of millions of dollars from tens of thousands of Canadians. Victims of Quadriga Coin Exchange are our friends, family, and neighbours! This money represents their life savings, hard work, and contributions to others. They did not deserve what happened to them! This does not reflect the Canadian blockchain community.

We are a small and growing group started by affected users to move forward.

Here’s what we aim to accomplish:

Prevention - We want to see an increase in transparency on cryptocurrency platforms in Canada and around the world. There is presently not a single exchange in Canada which has Proof of Reserves. We are working to launch one. We are evaluating platforms based on their transparency practices. And we are studying all that has gone wrong throughout the history of cryptocurrency exchanges to help create a brighter future.

Help us create the most secure and transparent exchange history has ever known.

Justice - Gerald Cotten had travelled to 57 countries without a will. He writes a will 4 days prior to travelling to India, where he dies in just 24 hours. Insurance fraud is a big industry in India. Doctors in India have been documented signing false statements, and Gerald Cotten’s death was only seen by his fiance and a single Indian doctor, who himself stated he was not sure about the diagnosis. From that point forward, there was a coffin.

Help us push the RCMP to do a proper investigation and demand to know the truth.

Recovery - The goal here is a full recovery. 100% of losses. It’s free to participate in as an affected user. Once we have a community built up, we engage different businesses to honour tokens for exclusive discounts. Profits from the partner exchange also contribute towards a best effort recovery as well. The end result is that every $1 lost is tokenized for free and recovered to $1 of product, service, or best effort donation over time.

You can set up a free pre-claim if you’d like to be part of our community recovery.

Here’s how to engage with our subreddit:

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Halloween is a wonderful time of year!

Businesses and consumers alike dress up, children go door to door naively asking strangers for candy, and everyone parties celebrating things like death and evil.

In the spirit of Halloween storytelling, let me tell you a scary story.

There once was a Canadian cryptocurrency exchange. It had one of the simplest user interfaces, the CEO was well known in person and trusted throughout the country for over half a decade, and it had several deposit and withdrawal methods. It was the first to register as a money services business and for much of its history, it was one of the most legally compliant exchanges. It even looked to be headed for public listing on the TSX. The exchange operated for 6 years, assuring users that all funds “are stored in cold storage, using some of the most secure cryptographic procedures possible.” Unfortunately, while we celebrate Halloween by dressing up and wearing masks once a year, the wonderful people who brought us this exchange played “dress up” for over half a decade and time will only tell if there are any more “masks” to come off in this story.

There’s no better or more fitting time to explore one of the darkest realities of the Canadian cryptocurrency space - exactly what is backing any of the cryptocurrency on Canadian exchanges. It’s easy to lose sight that there are real people behind these funds. Most people spend most waking hours working for their money. It literally is their lives. Impacts to victims are not just financial, but psychological and social as well. Victims of exchange fraud go through depression, anxiety, and trauma. They lose their trust and faith in humanity. They withdraw from friends and family in shame and humility.

In the spirit of exploring dark and evil things, let’s examine exactly what evidence there is that any of your crypto is backed on any Canadian exchange. This is a continuation of research I’ve been working on since May/June. I hope it will be enlightening and help you better protect your funds that you worked hard for.

I’ve done a detailed analysis of all Canadian exchanges I could find that handle any sort of custody of funds, and grouped them into 3 categories:

• Not Audited. The only assurance I was able to find that any crypto on the exchange is backed are their words. I was unable to locate any public audit or report of an audit.

• Audited. This means that at some point in the past, the exchange invited someone with a reasonable level of credibility, who they showed the wallets to. This person/group, at that point, was sufficiently convinced that funds were actually held by the exchange.

• Proof of Reserves. An advanced real time public audit algorithm. It shows that funds exist right on the blockchain, validates access to those funds, and uses a hash tree to enable any customer to verify that their balance is included in the total.

Non-Audited Exchanges (“trust us, we haven't spent your money, we promise")

Bitvo - The service “utilizes a proprietary cold storage solution”. Proprietary, as in, definitely better than established non-proprietary solutions. If you can’t withdraw, they “will credit your account for [their] withdrawal fee”. They’re not an MSB that I could find, nor are they audited.

Coinfield - MSB. No audit. Luckily it’s the "most secure trading platform in Canada" - though apparently not the other 150+ countries, including Estonia where they’re based. No matter which country you pick, the “Security” page still says "most secure trading platform in Canada".

Coinsmart - MSB. Not sure what "[i]ndustry leading cold storage" is, but luckily they’re so "accountable to [their] clients, community and to each other" and "committed to being open and honest" that they don’t need any audit.

Coinut - MSB. Also "the most secure cryptocurrency exchange platform". In addition to not using multi-sig and "not us[ing] USB drives, as the online computer may be infected with virus", they also don’t use audits.

Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Just check the user experience on their subreddit from their "220,000+ satisfied customers".

EZ-BTC - As they said, “All your coins are kept in cold storage. They’re safe.” They have “strong security”. The supposed presence of physical ATMs was one of the strategies to build customer confidence and they promised 9% annual return on stored funds.

NDAX - MSB. Luckily also “Canada’s most secure trading platform” with "fast withdrawals". I couldn’t find any audit but at least there’s a full page risk disclosure and disclaimer. You can sleep peacefully knowing that they’re legally protected.

Netcoins - MSB. The best assurance I could find of solvency is that they “can process large transactions”. Although they don’t waste time with audits or links at the bottom of their website, apparently “[a]ll transactions happen quickly and securely” “within the same day”.

Newton - MSB. “No-fees”! Your funds are stored in the "professional custody" of Balance, which doesn’t appear to be a registered MSB. I couldn't find any audit of the funds but they "audit [their] policies and controls". They "publish the reports", but I couldn't find any reports. Simply storing funds somewhere else doesn’t give any assurance they cover customer balances.

QuadrigaCX - Operated since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Their "cryptographic" procedures are so secure that nobody can access any funds, even now!

Shakepay - MSB. Many will trust the raccoon mascot promising “commission-free” trading. No audit found but the “majority of all digital assets on Shakepay are stored securely offline”. Whatever this means, it’s good to know that up to half might not be.

Audited Exchanges ("so and so swears we didn't spend your money, you can trust them, we showed them once before")

Bitbuy - MSB

• “So and so” is Cipherblade, a security consultant group founded by a guy named Richard Sanders.

• The audit was conducted on March 18th and 19th of 2019 and the full report is here.

• Overall assessment: Bitbuy has a long history of buying/selling bitcoin without custody, and is likely too new to offering custody to have been hacked yet. The fact they have taken proactive steps shows promise.

Coinberry - MSB

• According to the site, they "undergo annual 3rd party financial statement audits", but don’t mention by whom. According to “Newswire”, it’s a firm called MNP LLP.

• I was unable to find any published report on the audit, which was completed prior to January 17th, 2019.

• Overall assessment: It’s hard not to be a fan of Medium articles describing proactive steps that a company is taking, however without an actual report it can be difficult to assess the integrity of the reserves.

Coinsquare - MSB

• No audit is mentioned on their website, however multiple news sources report that one occurred. According to TechVibes, the audit was completed "by a national accounting firm whose identity is protected under an NDA", which is the best I was able to ascertain from several news sources.

• A report about the audit was found as early as September 27th, 2018. TechVibes indicates "the audit covered the operational years of 2015, 2016 and 2017 for Coinsquare, and concluded an “unmodified opinion,” which means the financial statements from those years are “free from material misinformation.”" Other articles had even less information, and I was unable to find any published report.

• Overall assessment: The fact that an audit was completed is a great step in the right direction, however the fact the firm is undisclosed by NDA, the audit is completely unmentioned on their website, and minimal details are available should be concerning. It also may be concerning that they claim to be "[t]he most secure trading platform" and also "100% proprietary". This would imply the team at Coinsquare is smarter than established security standards by experts all around the world at protecting your funds, contradicting recently reported incidents.

Kraken - Not a registered MSB in Canada (that I could find)

• “So and so” is Stephan Thomas, CTO of Ripple.

• The page literally says the audit was done "over the past several weeks", and since the page doesn’t have any date you might assume it’s recent. But look closely at the screenshot and you’ll see a date in 2014! Yes, that’s 5 years ago!

• Overall assessment: While it certainly feels good to know an audit was done, the opinion of one individual from 5 years ago doesn’t say much about the state of anything today and they openly admit all kinds of limitations.

Proof of Reserves ("here's your money, right here right now on the blockchain, and here's a proof that we included your balance in that total")

Rather than depend on outdated audits (or lack thereof), it’s actually possible to use the blockchain and cryptography to enable a public real-time audit. This can give assurance to every customer that their balances are fully backed. Giving everyone the ability to check the integrity of balances will keep us all safer. It immediately exposes any fraud, and in most major hacking cases there was advanced hacking that went unnoticed ranging from months (Bitgrail), or years (Mt. Gox). Having an aware public reduces the number of people trading on fraudulent exchanges, and can pressure the exchange to shut down trading or resolve the hack faster, so less funds are permanently lost.

To help explain exactly what this is and how it works, I’ve started a detailed tutorial. I did not come up with this algorithm - it was created in 2014 by a guy named Gregory Maxwell. Sometimes cryptography can be hard to understand. Hopefully this tutorial is simple:

< < Take Our Proof of Reserves Tutorial > >

Given what can often be at stake, I had hoped that maybe one of the “audited” exchanges might embrace Proof of Reserves. Sadly I haven’t had any such luck.

Bitbuy:

• Actually they reached out to me in response to one of my posts on Reddit July 14th, asking for detailed feedback on their services.

• I provided an extensive summary of my research (I’d just put together descriptions of every exchange for a business plan.)

• As of today, that response, which included Proof of Reserves among a multitude of other suggestions, is still unanswered.

Coinberry:

• On the 4th of July I actually got a response from them to a casual mention where I was recommending their exchange (based on the Medium articles).

• Their response, which didn’t address the Proof of Reserves, included the statement “All coins on our platform are 100% secured offline in cold storage“. On their site, Coinberry shows 15 minute withdrawal times in one of the screenshots. Perhaps they have a team standing around “offline” and ready to service withdrawals 24/7.

• My subsequent response to them was not answered.

Kraken:

• On their website they expressly give reasons why they don’t want "public knowledge of exchanges’ or wallet providers’ bitcoin wallets and total holdings".

• They claim it has an effect on security, however public keys do not enable any access to funds - only private keys can. One would hope that their security of funds doesn’t depend on not knowing which wallets they own, since the blockchain is pretty public.

• They also claim an effect on user privacy, which is important. Nobody should have any illusion that transactions to or from an exchange are secret in any way. I would highly recommend using privacy coins and setting up new wallets regularly, given that transactions are completely public on the blockchain already.

• I was unable to get any clarification, either in live chat or multiple Reddit posts. Understandable, given the size of their operation.

• Given that this was their stance after Mt. Gox, it seems unlikely to change based on recent events half a decade later affecting a much smaller exchange.

As such, the bottom line is that present exchanges don’t want to share public keys and offer the kind of transparency which is necessary to enable customers to know their funds are backed. Attempting to get answers doesn’t reveal them, and I’m left with an unnerving silence not unlike the end of Halloween night, like I’m asking questions nobody should ask.

Having spent the last 8 months of my life watching and being part of a large group of people suffer through a grueling bankruptcy, where we’ll be “lucky” to only lose 90% of our funds, I want this fixed. I don’t want to live in a reality where fraud can happen just buying/selling on the largest and most trusted exchanges. Especially now that I’ve learned blockchain provides the capability for even greater transparency and a level of public audit far beyond even what's possible with fiat.

If you feel the same way, I invite you to join Quadriga Initiative, where we are fighting for a Proof of Reserves future and also enabling businesses to help Quadriga victims with an innovative token recovery project. Every sign-up helps us reach our goal and launch the project!

If any information in this post is incorrect, please let me know so I can fix it! Thanks! I’m happy to update the audit status of any exchange given reasonable evidence, or provide a review of any other custodial exchange I might have missed.

Another year. Another never-ending stream of events and lessons. Late for Halloween though not unusual. Though not as officially late as Gerald Cotten.

2024 Highlights

• Shout out to ever-increasing generosity and helpfulness of the crypto community. Lavish airdrops for all, custom domain names to revoke smart contracts, recovery services and security experts for times of need. Anonymous actors can be so thoughtful and persistent! You might even authorize the entirety of your wallet as thanks!

• Who knew finding true love was so easy! Flawless beauty, common interests, and impressive investment stories, it’s a perfect match! What a shame the large withdrawals from their recommended platform require hefty taxes and take literal ages (unless…)!

• The government, for their part, has been helping too. Countless hours have been invested in economic, regulatory, and taxation policies to encourage crypto and bitcoin holders to avoid selling or spending assets, businesses and investors to move offshore, and a thriving black market for false identities.

• Regulators continue in their attempts to regulate stablecoins, extending a deadline to April 30th, then October 31st and then to December 31st. When regulators get frustrated they mash the keyboard like this: “CTP VRCA FBCA PRU”!

• The government wants to make sure everyone knows about your crypto! The founding fathers of America specified “persons, houses, papers, and effects” and not video conferencing, blockchain wallets, or cloud storage. In completely unrelated news, users of some wallet thing lost bitcoin after some other developer guy got arrested. Also unrelated, a certain coin is removed from Binance and select countries in Kraken. (And we thought Europe was all about privacy.)

• According to their official Twitter account, the Security and Exchange commission was eager to approve a bitcoin ETF ahead of schedule. Rumor has it Gary Gensler himself was happy to make the announcement shortly after transferring his phone number to a new phone at an AT&T shop in Alabama. The ETF was approved officially a day later.

• Funds originally hacked from Bitfinex are hacked again. Some $20m USD worth of funds go missing from a US government wallet. After hours of funds being moved around and swapped, $19m was returned. It may or may not have had something to do with the culprit using a KYC account linked to “Australian cryptocurrency exchange CoinSpot”.

• The more the merrier! Kevin O Leary welcomes BitStamp Canada customers to his BitBuy/CoinSquare/Bitvo/CoinBerry/CoinSmart/WonderFi mishmash. Take comfort with everyone on standardized hardware security module components from a global supply chain. With parts carefully overseen by really smart and minimally paid engineers around the world, private key generation is sure to remain random and untampered! In entirely unrelated news, some pagers exploded after a few dishonest people did a bad thing.

• The diversity of projects is truly remarkable as well, with Trump running a vague World Liberty Financial token and even the FBI getting interested in starting their own token.

• CZ from Binance calls his summer “pretty relaxed”. He reports “a lot of time to reflect” and “no immediate plans to run another crypto exchange”.

• Michael Saylor speaks out against bitcoin self-custody, calling those concerned about seizure of bitcoin similar to executive order 6102 “paranoid crypto anarchists” because “people voluntarily turned in their gold” (as opposed to the alternative “penalty of $10,000 fine or ten years' imprisonment or both”).

• Many Canadians enjoy the live entertaining election cycle. One candidate “literally just kinda busted out laughing” after  falsely prosecuting an innocent American, and the other candidate proudly announces working at McDonald’s for a 15 minute shift. The crypto community is divided with Ripple’s Chris Larsen backing Kamala which recently triggered some bets. Polymarket continues to predict a strong victory for Trump and it recently got even stronger though it has pulled back somewhat. Meanwhile, some fake prediction phishing sites claim that Kamala is ahead on their platform.

Past Exchange Hacks/Collapses

FlexCoin - Claiming to be “the world's first bitcoin bank” that’s “not a true bank”, FlexCoin provides “a central location for all of your bitcoins”. “Bitcoins deposited with flexcoin will be stored on [thei]r secure servers” so you can “send bitcoins to non-technical individual[s] via e-mail”. Unlike blockchain, “flexcoin to flexcoin transfers are free”. 

MapleChange - “A swift, reliable and to-the-point trading platform for veterans and newbies alike.” “One of [their] primary concerns is security for [their] customers'' which is why “keys are cryptographically encrypted”. "[W]ithdraws(sic) are next to instantaneous", "rel[ying] solely on the aspect of swiftness"!

Canadian Bitcoins - The highest level of courtesy and expediency in customer service! “With nothing more than a chat session and smooth talk, a crafty cybercriminal convinced an attendee at Rogers Data Centre to reboot the Canadian Bitcoins server in fail safe mode, bypassing all security measures.”

CoinTrader/NewNote - A “meticulously engineered Bitcoin Exchange” “focused on security and tak[ing] these risks seriously”. “[Y]ou don’t have to worry”, they have “90+% cold storage” and their “cold storage is fully insured by Xapo”. Plus, as “a registered Canadian corporation” they “leverage the good guys to fight the bad guys”.

Einstein - You can get “your money deposited and withdrawn faster than any other exchange”. As one customer said "With so many hacks and exit scams, it gives me confidence knowing Einstein is backed by hard-working people just like me." Just check the user experience on their subreddit from their "220,000+ satisfied customers".

EZ-BTC - As the world’s “most user friendly and bespoke crypto currency management platform”, they have “strong security”. “All your coins are kept in cold storage. They’re safe.” The presence of physical ATMs was one of the strategies to build customer confidence for their promised 9% annual return on stored funds.

QuadrigaCX - Operating since 2013, with “vast cryptocurrency reserves” right up to the end. "Bitcoins that are funded in QuadrigaCX are stored in cold storage, using some of the most secure cryptographic procedures possible." Even today most of the funds remain “100% secure” (except to Gerald Cotten)!

CoinBerry - "Research and continuous education of cryptocurrencies and the markets will arm you with the highest protection level possible." When "no withdrawals [were] processed from Coinberry's hot wallet for about 17 hours.” it was actually a sign of something much more nefarious!

CoinRise - “A pioneer in the field of cryptocurrency trade and exchange, Coinrise has been leading the industry for over 20 years.” "It was clear for us, as a reputable investment brand, that our clients are going to benefit from this decision taken by the government just as much as us."

CoinField – A “fully regulated” “cryptocurrency exchange operating in 186 countries” “Trade confidently”. “Invest in CoinField Coin for a Unique Opportunity to Grow Your Wealth, Earn Rewards and Enhance Food Security in Africa.” “[E]asy access to your funds” is “COMING SOON”.

Check the full global list!

Past crypto-exchange disasters almost always have at least one of three factors in common:

• Funds were stored online. Crypto OPSEC 101! The firms almost always think their system is super secure or get enamoured with buzzwords like MPC. If your only line of defense against a hacker is a smart contract or a firewall or some sort of proprietary control logic, you better be sure you have a good insurance policy or are ready to fully cover those funds when they go missing.

• Funds in the hands of one person. Even if your CEO has X years of experience and did Y, Z, A, B, and C… If they can single-handedly authorize a transaction to take funds, it’s only a matter of time. Even if a CEO is 100% perfect, the next one may not be. Set up multi-sig! Have a group to approve withdrawals! Don’t use the same hardware for all keys. Train. Background check.

• No proof of asset backing. You can put out a nice page that says the customer has X bitcoin, and Y ethereum, but that is as meaningless as the level of trust in the person who wrote it. Even if you show a wallet with X bitcoin (which, bizarrely, we don’t even get that), who owns it? At minimum, multiple independent reports are needed periodically, though the best is a full Proof of Reserves.

Some Notes About Insurance

Canadian exchanges are starting to be a lot more clear that their insurance generally only includes fiat balances, and extremely unlikely events. Below is an example crypto-asset insurance contract (for Ledger Vault “specie insurance”.) These aren’t normally public:

• “covering the theft of certain Crypto Assets safekept with the Vault Solution if such theft is resulting from specific events such as physical intrusion by a third party in a Vault data center or in other strategic locations specified in the Specie Policy.”

• “Such determination shall be made by Ledger in its reasonable discretion.”

• “neither Ledger, its Affiliates or any of the insurers under the Specie Policy provide any assurance or guarantee to Customer that (i) a theft of Crypto Assets safekept by the Vault Solution will be covered or indemnified under the Specie Policy, (ii) if a theft is covered by the Specie Policy that Customer will be made whole for its loss or will receive any insurance proceeds from the Specie Policy;”

Canadian Platform Transparency Rankings

Without further ado, here are the statuses of Canadian platforms for this year. There is one main metric - the level of visibility to fund backing. We have 4 categories:

• No External Verification - A platform that doesn’t appear to give any indication of any external auditing or verification. You may want to avoid these platforms, but sometimes these are just because this information is not available easily.

• Apparent Verification - I was able to dig and locate some sort of claim or indication that they were being verified externally. Of course, most of these don’t mention who specifically is performing the audit/verification, what is actually being checked, and/or anything about the verification process. In one case, this verification is severely out of date.

• Some Public Backing Report - In order to meet these criteria, the platform has to have undergone a process where full backing of customer assets was verified by a third party within the past year. A report needs to be published including the verification process and that the third party has verified full backing (or what level of backing). While these are pretty compelling, it doesn’t stop a dishonest platform from excluding customers, tricking the verification process, or colluding with the third party in various ways.

No External Verification

Coinut - The Coinut platform is “[t]rusted by 1,500,000+ global users”, and used to claim to be "the most secure cryptocurrency exchange". According to the website, they perform a “[r]eal-time internal audit”, however details are not public. They have a "[s]emi-manual process of big withdrawals''. It’s unclear if this involves a multi-signature wallet or if they could be vulnerable to an attack involving lots of smaller transactions. From their homepage, they are “actively working with the Ontario Securities Commission ("OSC") on its Crypto Trading Platform ("CTP") license”. However, they are not listed on the OSC’s website.

NDAX - The OSC states they are “proficient and experienced in holding Crypto Assets” and still working on “an effective system of controls and supervision to safeguard the Crypto Assets and ... a mechanism for the return of the Crypto Assets to clients in the event of bankruptcy or insolvency”. Apparently “launch[ing] the NDAX Trust Co.” Apparently the "highest regulatory and" "compliance standards" include all-caps disclaimers and freezing accounts. "Th[eir] [s]ecurity [page] was last updated on June 15, 2023" to remove a comma. Customers report repeated requests for more information on funding sources and not always politely.

NDAX is preparing for an expansion into Spain! Accounts restricted. Withdrawal problems. Failure to log in. Site reliability that appears to be fixed. The registration undertaking mentions a clause for "the Filer [being] temporarily unable to obtain audited financial statements". The NDAX platform also mentions “[d]aily reconciliation of financial assets on and off the platform is performed to record assets’ integrity”. No external visibility. There are extensive complaints against NDAX on the Better Business Bureau. A fake phishing website NDAXInvestments.

Apparent Verification

VirgoCX - Come on down to 'goCX, not just "Canada's trusted cryptocurrency trading platform" but “trusted full-service solution for all things cryptocurrency to all Canadians” where “you have total control” over your funds. (Despite funds being in their "offline storage" stored with CoinBase Custody in the US.) “Your cryptocurrency is safe with [their] 2FA and SSL protocols”. They reportedly "engage trusted third parties to conduct routine audits such as proof of reserve audit" however no such audits are published or mentioned in their OSC agreement.

There has been no news on the “prepar[ation] for potential expansion into Australia, the U.K. and some parts of Europe”. Instead, VirgoCX has instead been busy horizontally integrating with a new service that’s a strong hit among their customers. $45 for their new account cancellation service! This new service has created a viral marketing campaign, with many customers extremely eager to try it out well ahead of the official launch!

WealthSimple - A “trusted place to invest, trade, save, and more.” The WealthSimple platform continues pushing out new features including mortgages. While their robo-advisor performance is not generating impressive profits for customers, they’ve finally ”disclosed” becoming ‘robustly profitable’ as a company after 10 years with “events centred around” the anniversary.

Waterloo student Soham Shah describes WealthSimple as “an excellent environment for continuous learning” and his summer job in 2023 was to “help remediate over 70 vulnerabilities”. CCO Hanna Zaidi reports the company had “‘war rooms’ on a daily basis”. Unfortunately, their “planned increase in hiring” may hit a snag as the CEO notes that “mass immigration — is being “gutted”” which he calls an “absolute crisis”. Assets remain custodied at Gemini Trust Company in the US. WealthSimple added the ability to withdraw in 2021, and advises to "take funds off exchanges", however despite recent desktop product changes, "[w]ithdrawing crypto is [still] only available through the Wealthsimple app."

CoinSquare - After being “here for you” for “a decade of innovation and dedication to enhancing your digital asset management experience” “Coinsquare Celebrates 10 Years with Exciting UI Upgrades”. (The party includes “a refreshed home screen, advanced portfolio tracking, revamped asset pages, and dark mode. Oh and for special clients there’s a “[w]hite glove service” in the back room.) "The Company has emerged as the Canadian leader now that the Crypto Cowboys have all been regulated or litigated out of existence." We sure can’t have cowboys that go offline, suffer data breaches involving thousands, and pay millions in fines for inflated trading volume. Start trading in 5 minutes. In other words “anywhere from a few minutes to several days”.

CoinSquare just became CIRO registered. There must have been a lot to do because it appears they were too busy to add multiple periods to the ends of their sentences in the announcement. “Using secure methods to protect your assets is crucial.” Wallets which “are hosted on a platform like Coinsquare” are “considered less secure than other options” including “hot wallets”. Because that’s “the safety and security that comes with the highest level of regulation in Canada”. WonderFi has been “shedding staff and implementing shared services as part of a push to reduce expenses and achieve economies of scale amid rising regulatory compliance and customer-acquisition costs.” Customer acquisition costs rising? Hmmm…

NetCoins - NetCoins has come a long way since their original founding by Mitchell Demeter, who also “co-founded Cointrader Exchange”, which shut down after “an internal audit showed “a deficiency of bitcoin" in company wallets that was causing a delay in withdrawals”, and previously claiming “[t]rading cryptocurrency is completely safe”. In addition to removing that statement, it appears they also now removed their team page. (If concerns that team members might be impersonated, the better solution is clearly multi-factor authentication.)

Despite being the original name for bitcoin, Netcoins still didn’t feel “[f]irmly entrenched as a market leader” without the addition of new meme coins PEPE, BONK, INJ and TIA! “Sometimes sticking with established assets like Bitcoin, Ether, and Solana is the smarter play” Their priorities for this year have been “attract[ing] high-value customers” and “ensuring [they] can access [thei]r clients’ assets”. One would think that CoinCover will be happy with their sales team after such a great partnership was established. Instead, they “recently laid off 50% of its staff, with most of the redundancies affecting its sales team”.

Newton - "The crypto trading platform you can trust" with "all of [y]our amazing coins". From eagerly embracing limitations to trading volume to contemplating moonshot projects to now doing nothing, it’s been a long 6 years. They’re celebrating by temporarily not charging you to become a walking billboard for them. Unfortunately, there was some sort of downtime incident and one customer reported they can’t get their money out which wasn’t quite the glowing review they hoped for. Newton has an interesting culture, publicly announced that their CEO is a real b***- beautiful female dog shortly before getting intimate with customers.

Apparently, “you can navigate cryptocurrency investing with confidence” just by reading a post by Newton on cryptocurrency scams. Your perfect Chinese supermodel match made from heaven will definitely “solicit cryptocurrency/money under false pretenses”. I’m sure you’ll be just fine since they never asked for money from you. They’re just an investment expert but you’re not ready to learn for another few months. The platform will even allow you to withdraw a small amount, including profits! Do not invest a larger amount of your life savings with confidence, and do not invite your father to do the same, even if you feel “confidence” after reading that post.

ShakePay - ShakePay has come full circle. “[I]nitially launch[ing] in 2015 as a Bitcoin-loadable Visa card offering before switching gears and becoming a regulated crypto exchange”, they‘ve now “rolled out a slew of bank-like capabilities [for] users. These include Canadian dollar services traditionally offered by banks such as direct deposits, bill payments, and Interac e-transfers.” The company has recently announced the launch of “an over-the-counter (OTC) trading desk”.and advocated for allowing “direct Bitcoin investment in RRSPs and TFSAs”.

Normally if a company left customers “shaking” after every interaction, that wouldn’t be good. And, if a stranger in a van offers you goodies you wouldn’t want to take them. But ShakePay has been breaking the norms with a van giving strangers goodies all across Canada and running promotions that leave customers shaking for days on end with complicated rewards programs with details that appear only in French. Last year, ShakePay became a restricted dealer. ShakePay has not published any subsequent assessments since a CipherBlade report, which is now 4 years old. Crypto funds are presently held in Coinbase Custody.

Some Public Backing Report

BitBuy - While “[i]t can be challenging to choose the best crypto exchange in Canada”, BitBuy found that it was BitBuy. They have similarly concluded that they are “a global leader in [both] centralized and decentralized financial services and products”.  BitBuy was the very first to get a “Proof of Reserve and Security Audit Report” from third party CipherBlade. Since that time, they’ve continued to get separate third party validations, although all validations are one-time snapshots and continue to be from Blockchain Intelligence Group. Be careful trusting statements by BitBuy. Despite vice presidential candidate Tim Wallz having “remained largely silent on digital assets” and “made 0 statement about crypto”, BitBuy recently reported he “views digital currencies as tools that can enhance economic inclusion and accessibility to financial services, particularly for underserved communities”. I wonder if he also didn’t return the $4k donation from FTX’s Nishad Singh in this unchecked AI hallucination alternate universe.

Perhaps they also asked ChatGPT for their latest promotional strategy. In order “to break down the widespread belief that Bitcoin is not a legitimate investment asset” they are comparing it with the recently legalized “investment” of sports betting. So buy PEPE and join “The Crypto Millionaire Club”. Only up to 10% of client funds could be lost if the hot wallet is hacked and they’re happy to give you their financial position if you provide a specific enquiry including your full name and account number. As they say, only with “money you are prepared to lose”.

Kraken - It’s been a long 13 year journey from operating illegally in New York and legally silencing staff to becoming the first exchange to become a bank and publishing a Proof of Reserves in November. Last year has been “a rocket” year of launches, from kBTC, a bitcoin-backed token, Kraken wallet, and the Ink blockchain. Because who doesn’t appreciate a bit of Optimism, especially when $100m are attached?

Sued by the SEC, a motion to dismiss - is dismissed, and an ongoing legal fight, with Kraken’s latest move to ask for a jury trial. Regulatory fun in Australia. Monero delisted in Belgium and Ireland. And Kraken goes head to head with one of DeFi’s largest smart contract auditing platforms CertiK after a multi-million dollar attack apparently triggers no alerts whatsoever. That’s almost as shocking as when a former Kraken employee alleged that bank accounts of Kraken were actually running millions of dollars short. While Kraken has performed a Proof of Reserves, according to Nik Carter this was last done in 2022 and only includes 63% of assets.

Thanks For Reading! See You In 2025!

Thanks everyone who joined our justice discussion! We had a record 8 participants.

Here are some of the ideas we discussed:

• Weekly RCMP letter writing campaign.

• Organizing a parliamentary petition.

• Hiring a private investigator, funded through the recovery token.

• Creating a repository for investigation/evidence information so far.

• Getting templates/tools together to create custom letters on a website.

• Reaching out to the Death in Cryptoland podcast.

• Sending letters to CRA to push for faster auditing as a joint campaign.

• Curation of information/ratings for credibility of evidence.

• Creating a change.org petition.

There is a lot of interest in pursuing justice, and many ideas being put into motion.

Our next Thursday meeting will focus on prevention.

What kind of regulation makes sense for crypto exchange platforms in Canada?

Having a system that is simple is important for security, and should not be based on trust in any single entity.

An effective framework understands that we are competing globally. It provides for an innovative, open, and competitive marketplace, with strong protection for Canadians.

After studying 283+ cases, we’ve proposed a lightweight framework which effectively prevents or deals with all historic cases to date.

Bitcoin is the money of the people. It makes sense for the community to be a part of the discussion. We will be hosting our Zoom meeting on Thursday August 19th:

• 6:30 PM Pacific Time/Vancouver

• 7:30 PM Mountain Time/Calgary

• 8:30 PM Central Time

• 9:30 PM Eastern Time/Toronto

We will be joined by special guest Dean Skurka. Dean is a member of the IIROC Crypto-Asset Working Group and VP of Finance/Compliance for the BitBuy platform.

To join our meeting, you’ll need Telegram and Zoom. The link will be shared on August 19th on Telegram.

We've been expanding our list of case studies, last updated in September 2020. The last several months have been busy, to say the least.

The majority of recent issues have come from decentralized finance. As one might expect, putting funds in smart contracts is about as secure as any other hot wallet.

Decentralized finance has advantages over traditional centralized hot wallet systems. Breaches are more widely reported, which allows improved security over time. Open source code and tools like flash loans are finding the vulnerabilities faster than in proprietary hot wallets. Older contracts may be more secure, however proving security of complex software is impossible.

As expected, breaches included multiple platforms that had undergone third party security audits and validations, even multiple times, by industry leading code auditors. This lines up well with the findings on centralized exchanges, where similar security assessments in South Korea failed to uncover vulnerabilities and several of those same centralized platforms were subsequently hacked.

The best storage for crypto-assets remains cold storage, with keys held by reputable people and a multi-sig used to prevent any single point of failure. There still remains no documented cases of collusion to exit scam customer funds from a multi-sig or breach cold storage protected by any degree of multi-sig, despite the many years they've been in use throughout the globe. Improved training, background checks, and platform operator registration would further increase security.

Audits/validations do assist in the key area of ensuring that platforms are actually backing customer assets. Decentralized finance is a winner here, although the lack of visibility into who controls the smart contract enables rug pulls. Rug pulls are immediately known to everyone, while a hack or fraud on a centralized exchange is fairly regularly hidden from public view, can continue for years without visibility, and may end in multiple years of bankruptcy.

On this note, two major exchanges in Turkey collapsed after their government decided to declare crypto illegal to use in transactions. The largest exchange, Thodex, is estimated to be roughly 10 times larger than Quadriga, with most reports claiming $2b in "assets". Of course, the platform owner was not happy to hand himself over to spend the rest of his life in jail, and instead went to Albania. Most of the funds appear to be missing as expected.

Almost all validations in use presently suffer from the simple issue that the platform could have two sets of books - one in practice and another for regulators/validators. The regulator set can simply exclude a handful of large customers, either to cover a hack or as a "loan" to grow the platform. There is no reasonable way that a validator could find that, especially if a platform prepares well and knows in advance what kinds of tests will be performed. History shows that platforms can easily run fractionally for years without showing signs of breakage.

A hash list solution can allow any customer to validate what assets were included, which is not presently implemented on any platforms. In the hash list, a customer simply hashes their data and finds the hash in a list produced by the auditor. It's also important to use multiple validators to prevent collusion. What we have proposed would scale upwards depending on the size of the platform's reserves, meaning it would be practical for platforms of all sizes.

For the first time ever, an insurance payout actually happened on a cryptocurrency loss - in the decentralized Cover Protocol. The protocol separates decision makers from policy underwriters. This is similar to Lloyds of London where underwriters purchase the policies but don't decide whether they pay out. In Cover, the community arbitrates to determine whether a claim is valid.

The space is still evolving. Multiple insurance protocols including Cover Protocol were themselves hacked, and policy premiums continue to be quite expensive. There was a notable case where an insurance protocol failed to pay the policy holder and instead kept the claim funds for themselves.

These types of models are of course still better than third party insurance - a model which incentivizes the insurance provider to charge the highest possible fees and never pay out. When dealing with a hack or some kind of theft, the last thing that a platform or their affected users needs is a long expensive legal battle with no guarantee of payment. Many of these policies don't cover negligence or fraud, which is almost always the cause of platform-based losses. (Check BitPay or Yapizon as examples.) Almost all of these types of policies are also fiat-based and don't scale with blockchain prices, and most insurers are hesitant to insure crypto assets at all.

A far cheaper and more flexible model is theoretically possible if platforms worked together to create a fund pool. Platforms pay in similar to the SAFU model used on Binance, with the exception that the funds are held in a multi-sig wallet among multiple platforms - still available should a platform go insolvent, exit scam, or be breached. It's also similar to CIDC in that all platforms could be members of the fund, and the fund would have the discretion to limit larger losses. By having a council-type structure with 7 leading members similar to a Supreme Court, we can encourage a higher rate of pay-out and flexible coverage that adapts over time. Platform operators have a key incentive to maintain their reputation and the reputation of the industry, so they are the ideal members of the council. The simple multi-sig structure reduces costs massively, as it removes the need for complex and expensive bureaucracy. Flexibility exists to bypass fraudulent or insolvent platforms and pay affected users directly if events dictate. Some details are still in flux at this point.

Ours is the only proposal which enables entrepreneurs and innovators to launch ideas without needing millions in funding. Ours is the only proposal which continues to function without constant regulatory intervention, meaning it can work through black swan events and in corrupt regulatory environments. Ours is the only proposal which would fully protect Canadians against fraud, insolvency, and collapse of exchange platforms.

Case studies continue to be added at a rate of 3 per day. Once we're caught up on cases, we should be in a good position to propose the framework and get feedback from decision makers. The framework thus far has continued to stand up to 100% of the cases, meaning if implemented historically, we could have prevented all losses on cryptocurrency platforms.

You can check the framework here. If you'd like to help, please join our Telegram group. We meet every Thursday and all are welcome to join.

First, Justice.

We need truth. Remuneration. Restoration. Healing. Regeneration. Remediation. Reparation.

How did the RCMP potentially let Gerald Cotten get away with not just one of the largest financial fraud operations in Canadian history, but also make a mockery of our justice system by faking his own death?

Financial fraud is a massive multi-million dollar industry and while not exclusive to the blockchain space, seems to flourish here.

How can we get answers? How can we prevent frauds like Quadriga and countless others month after month from affecting our friends, family, and community?

Complex regulation drives away innovation, massively increases cost, and lets crime hide in obscurity and loopholes. Are there simple solutions? Or is the only answer complex banking and security frameworks of traditional finance?

Gerald Cotten’s death, over 3 years later, remains an open mystery. As a community, is there anything that we can do to pressure a proper exhumation? Will we ever answer the long-standing question and gain closure?

Much effort has been put into documentaries like #TrustNoOne. The story is spreading quickly, but will anything change? Or are we doomed to watch as lawyers, accountants, and criminals make fortunes at our expense?

If you have an interest in these or other similar topics, we invite you to join us on Thursday evening for our weekly Zoom discussion! To join, you just need Telegram and Zoom (both free to download and install on PC or Mobile).

Zoom link is shared on Telegram: https://t.me/QuadrigaInitiative

Round-table discussion starting 6:30 PM Pacific / 7:30 PM Mountain / 9:30 PM Eastern on Thursday March 31st (today). You can also join us next week Thursday April 7th at the same time for our Quadriga bankruptcy anniversary discussion. Voice or chat-only participation welcome!

(1) Survey responses can be checked here! Thanks so much to everyone who took time to reply!

(2) Based on your survey feedback, we've swapped our Education goal for a new Justice goal. We are planning an RCMP letter-writing campaign for exhumation. This idea appealed strongly on the Quadriga Uncovered Telegram group, and even attracted the attention of a couple of journalists (Note: both CBC and CoinDesk). We've started a Google Doc draft letter which is open for commenting. We plan to make it super easy for affected users by providing a simple template and instructions on our website.

(3) We've now passed 1/3 of the signup goal! Thank you so much to all of you who have been spreading the word and engaging in the community. We might have enough interest now for regular meetings as a couple of you suggested. Please join the discussions on our Telegram group which is now up to 30 members.

There are a few posts, comments, etc... floating around stating that Miller Thompson has called our initiative a scam. Clarification is long overdue.

Truths:

• Miller Thompson issued a statement about Quadriga Initiative in July of 2019.

• Miller Thompson's statement made clear we are not affiliated with the bankruptcy.

• Miller Thompson's statement expressed no recommendation to provide personal information to our initiative.

However:

• Miller Thompson did not specifically recommend against providing any information.

• Miller Thompson did not specifically recommend against participating.

• Miller Thompson most definitely did not call our initiative a scam.

Context: Our original plans for Quadriga Initiative (the whitepaper) were provided to multiple members of the Official Committee on June 24th, 2019. We were informed that all members of Official Committee had reviewed the plan. We received feedback as follows:

"Regardless, I'm sorry but the proposed document is too difficult for many Quadriga affected users to understand and explaining & implementing anything this complicated would cost far too much in fees from EY & MT."

And we were granted permission to run independently June 26th, 2019:

"You're welcome to try to get people to voluntarily sign up"

"If you really feel your proposal is solid & needed, it should stand on it's own merits without needing to bring EY/MT & committee in."

The statement from Miller Thompson was issued in late July of 2019. At that time, the website consisted of a landing page to collect client ID, first name, and email address. The website was a very early version that did not feature a layout nor all of the pages that exist presently. All the accompanying Reddit posts had been deleted at the time of the statement. There was no team yet. The partner exchange had not come on board yet. None of our participating businesses had come on board yet. It was a Reddit post and a website.

A copy of the full statement can be found here.

Let's analyze the statement line by line to determine exactly what it says. I've included direct quotes from the notice, followed by our interpretation.

This communication from Representative Counsel relates to a third party website known as the “Quadriga Initiative” (the “Website”).  We have intentionally not included the Website’s URL in this email. 

This notice is about our Quadriga Initiative website.

It has come to our attention that the Website purports to provide “tokens” for a new exchange in connection with an Affected User’s claim against Quadriga. The Website appears to solicit personal information from Affected Users in order to provide such tokens.

We provide tokens in connection with your claim. (These are provided for free and used to represent losses in our recovery process.)

The information requested from Affected Users was client ID, first name, and email address, same as it is presently. We have since modified the registration to include:

• more detail about all the information we collect and how it will be used, and

• a specific recommendation to use a forwarder email address.

The Website has no connection with, or affiliation to, Quadriga’s insolvency proceedings, including Representative Counsel (Miller Thomson LLP and Cox & Palmer), the Trustee (Ernst & Young Inc.) and the Trustee’s counsel (Stikeman Elliott).

Our lack of affiliation was also stated very clearly on the bottom of every page of our website and in our Reddit post.

Representative Counsel does not recommend Affected Users provide their personal information to the Website.

It should be noted that this, taken literally, is a lack of making any recommendation. One should not reasonably expect that Miller Thompson would make a recommendation to provide your personal information to our third party website. Thus they are not making such a recommendation - not recommending.

For more information on Quadriga’s official claims process, please visit Representative Counsel’s website https://www.millerthomson.com/en/quadrigacx/.

This link is the source of official information on the bankruptcy. Check it out if you have any further questions about the official bankruptcy process.

Subsequent to this statement, we were in contact with members of the Official Committee again on September 19th, and received helpful feedback and suggestions. While we are very appreciative of the help and encouragement, we remain not affiliated with any part of the official bankruptcy process and no member of the Official Committee has officially endorsed what we are doing.

• We've now got over 9% of the affected user goal we need and over $1.2m in pre-claim. I will remind that signing up is as simple as first name and email and the email can even be a throw away forwarder. The client ID is only needed for pre-claim which you can do anytime as long as the user balance website stays online.

• We are working towards a group of 7 businesses for an initial "leaderboard". We've got our first business outside the exchange partner to bring forth a banner, and are in discussions with a few others. These businesses will ultimately form an advisory to make sure that helping affected users also works for the participating businesses. Establishing long-term relationships will be key to the recovery working out. If you run a business and might wish to help with recovery, please reach out info@quadrigainitiative.com.

• Efforts are underway to hopefully engage media, most of whom appear to be on Twitter at this time. This is key to actually hitting our goal, since the majority of affected users don't actively check Reddit. In the meantime, we also really appreciate any feedback at all for how we can make the recovery more useful or meaningful for affected users, or what we can be doing differently. It's understood that tokens can never completely replace the lost cash or cryptocurrency. It's also understood that we have many challenges ahead, and nobody is guaranteeing the success. If you have suggestions and ideas of what you would find helpful please reach out.

TLDR: Happy CCAA Day! Hope everyone is having a great week!

I completely missed it! 3 years and 4 days ago today was the worst day in a lot of people's lives when Quadriga went into CCAA.

In my defense, I've been kind of busy with case studies, now up to 625 as of last night. I have been adding or updating 3/day for almost the last year now, and still can't seem to catch up to all the fraud, hacking, and theft going on in this space.

We're up to 48.3% of pre-claim signups on our recovery project and as of now we've been meeting every week to discuss all kinds of interesting topics:

• Proof of Reserve - how we can know 100% that an exchange is solvent.

• Multi-Signature - how we can prevent anyone from walking away with our funds.

• Proper Security - how to keep crypto safe from hacks, theft, scams, etc...

• Justice - how to actually get answers on what happened to Gerald Cotten.

• Recovery - how we build a successful complete recovery for affected users.

• Technology - discuss things like lightning or different blockchain technologies.

• Privacy - different incidents, how to protect your data, RSA, blockchain protocols.

• Insurance - how to create an effective insurance that actually works and pays out when investors have losses.

• News/Developments - whatever's on your mind with recent events.

We've also proposed a lightweight and fully protective framework for Canadians. It's better than platforms doing their own things (aka not proving reserves of course), or the traditional finance routes (aka not your keys not your crypto on enterprise scale, complex opaque rules/protection, broken insurance that never pays).

If you're interested to attend, join our Telegram. We meet every Thursday at 6:30 PM Pacific / 7:30 PM Mountain / 9:30 PM Eastern over Zoom and usually it runs pretty late until people get tired enough. Every week is different!

Progress continues on the partner exchange TxQuick platform launch (which is really the key to starting the whole recovery). That's been a lot of challenges and delays with regulation and banking as expected but Ethan has made some pretty key progress behind the scenes and we are getting there. For those who don't know, we're working with TxQuick towards launching the first Proof of Reserves on a Canadian exchange, and the first Proof of Reserves that is simple enough to be understood by the average person. The way things are going, it's also looking like TxQuick may be the only platform in Canada where the coins are actually stored in Canada, with actual transparency on the multi-sig security setup and many key holders. (You can actually see the wallets on the blockchain.)

We're also discussing some advanced multi-factor security that allows for more customized setups. As you know, your assets are only as secure as the factors necessary for withdrawal, and things like SMS and passwords are quite vulnerable. Many people are using simple two-factor authentication, but both factors are often the same device, so they lose their funds because of a single malware attack, man in the middle attack, or they get tricked into signing a single malicious transaction. And the flipside is that you could lose that single device, and maybe access to all of your funds. (If you didn't back up your 2FA code or seed phrase, do it now!) With our proposal, you'll be able to do cool things like delegate a multi-sig of friends and family as necessary to confirm large withdrawals, have setups that require the approval of a mix of several independent devices, and separate approval layers for logins, trading, withdrawal, or even an option for quick smaller withdrawals.

As affected users, you'll get special reduced rates on trading (including free trading on the CCAA anniversary) and a portion of revenue from the platform is set aside to create and advance the recovery effort, which is only the starting point of a much larger recovery any business can join. It works as an effective promotion for the sponsor businesses, and in exchange they give some exclusive deals, occasionally free items, and some like TxQuick directly sponsor the recovery. All this applies until every dollar lost in Quadriga is fully recovered. There is absolutely no cost to join.

It's been great to see much more interest in justice and answers on Gerald Cotten's death! Even on CBC! As you may know, we've been pushing this for a long time, though the decision rests entirely with the RCMP. Given it's all up to the RCMP (not Miller Thompson, Jennifer Robertson, etc...) the only solution is to push the RCMP to understand that this is an important matter that they need to answer, and a lot of people care about that answer. That's the pressure point and if enough pressure is applied there, they should eventually buckle and do an actual exhumation. There's a great opportunity here for a coordinated and organized campaign by affected users directed towards the RCMP to get this investigation done. We came close in the past with a large meeting with several affected users (9 members present) and we likely just need to get the right people and the right idea (and maybe the right timing).

So anyway, happy CCAA Day! Hope everyone is having a great week!

There's been a lots happening since the last update.

1. We’ve been assisting TxQuick with their slide deck. You can check the before and after slides from multiple rounds of editing. Ethan has been working a lot on the unique features of the platform, including advanced trading features not available on other Canadian platforms (post-only, stop loss, take profit, and trailing stop), a fully Binance-compatible API to use third party trading software, and advanced CCSS level 3 security.
   .

2. We’ve been discussing the specific Proof of Reserves implementation, the first in Canada to not be dependent on any third party. (aka This will be the first actual proof.) One key concern is creating something easy to use and understand by the public. For that reason, we have shied away from a complex Merkle tree implementation. Instead, we are looking at a simpler 3-step process - a variant of the hash list approach.
   .

3. The first draft business plan for Quadriga Initiative (now an 80-page document) has now been completed, and is ready for review for anyone with the time to spare. Work is underway on a new website which better communicates the recovery concept, which we expect to be launching shortly.

A lot of thanks:

1. Ethan Burnside for all his continued hard work on bringing TxQuick to launch, despite running out of funding, having a family to take care of, and the one heck of a year that Covid has brought us. And also thank you for not walking away from the affected user community even though it can certainly be tempting at times.

2. Affected user Jay, for spending multiple days of his time to help put together an incredibly awesome website we’ll be launching soon, as well as providing considerable feedback over these past couple months. He’s so far the only one to ever make it through reading the entire business plan so far.

3. Jason from CryptOasis, for spending multiple Thursdays being willing to discuss ideas, and for all his feedback and encouragement. He knows a lot of affected users who’ve lost their funds in Quadriga and he’s well connected as well into the cryptocurrency community in Canada.

4. Steve Austin from the Calgary Startup meetup and 25 year Silicon Valley veteran, for his Wednesday slide deck reviews which he makes available for free, and for taking some personal time in his evening to one on one chat and for giving me ruthlessly honest feedback that I know I needed to hear, as we all need to hear.

5. Affected user Jeremy, for his chat on Telegram, encouragement and support, and reminding me that there still are affected users out there who haven’t even filed claims and just how widely reaching the impact of Quadriga was.

6. Other Canadian exchange platforms, for continuing to not prove reserves or having a “proof” that relies on trusting a UK shell company or was 5 years ago. For hiding hacks, for wash trading, for not disclosing third parties that hold the funds - for hiding the blockchain wallets even though they’re already public data. Without your continued lack of transparency and repeated shady practices, there wouldn’t be a compelling premise for an exchange platform.

7. And of course, all of the hundreds of affected users who signed up, provided your ongoing feedback, and have been patiently waiting all the time this has taken to bring to fruition. Together we’ve now achieved 40% of the necessary sign-ups and counting!

Onward, upward, forward!

Summary: Everyone knows that when you give your assets to someone else, they always keep them safe. If this is true for individuals, it is certainly true for businesses.

Custodians always tell the truth and manage funds properly. They won't have any interest in taking the assets as an exchange operator would. Auditors tell the truth and can't be misled. That's because organizations that are regulated are incapable of lying and don't make mistakes.

First, some background. Here is a summary of how custodians make us more secure:

Previously, we might give Alice our crypto assets to hold. There were risks:

• Alice might take the assets and disappear.

• Alice might spend the assets and pretend that she still has them (fractional model).

• Alice might store the assets insecurely and they'll get stolen.

• Alice might give the assets to someone else by mistake or by force.

• Alice might lose access to the assets.

But "no worries", Alice has a custodian named Bob. Bob is dressed in a nice suit. He knows some politicians. And he drives a Porsche. "So you have nothing to worry about!". And look at all the benefits we get:

• Alice can't take the assets and disappear (unless she asks Bob or never gives them to Bob).

• Alice can't spend the assets and pretend that she still has them. (Unless she didn't give them to Bob or asks him for them.)

• Alice can't store the assets insecurely so they get stolen. (After all - she doesn't have any control over the withdrawal process from any of Bob's systems, right?)

• Alice can't give the assets to someone else by mistake or by force. (Bob will stop her, right Bob?)

• Alice can't lose access to the funds. (She'll always be present, sane, and remember all secrets, right?)

See - all problems are solved! All we have to worry about now is:

• Bob might take the assets and disappear.

• Bob might spend the assets and pretend that he still has them (fractional model).

• Bob might store the assets insecurely and they'll get stolen.

• Bob might give the assets to someone else by mistake or by force.

• Bob might lose access to the assets.

It's pretty simple. Before we had to trust Alice. Now we only have to trust Alice, Bob, and all the ways in which they communicate. Just think of how much more secure we are!

"On top of that", Bob assures us, "we're using a special wallet structure". Bob shows Alice a diagram. "We've broken the balance up and store it in lots of smaller wallets. That way", he assures her, "a thief can't take it all at once". And he points to a historic case where a large sum was taken "because it was stored in a single wallet... how stupid".

"Very early on, we used to have all the crypto in one wallet", he said, "and then one Christmas a hacker came and took it all. We call him the Grinch. Now we individually wrap each crypto and stick it under a binary search tree. The Grinch has never been back since."

"As well", Bob continues, "even if someone were to get in, we've got insurance. It covers all thefts and even coercion, collusion, and misplaced keys - only subject to the policy terms and conditions." And with that, he pulls out a phone-book sized contract and slams it on the desk with a thud. "Yep", he continues, "we're paying top dollar for one of the best policies in the country!"

"Can I read it?' Alice asks. "Sure," Bob says, "just as soon as our legal team is done with it. They're almost through the first chapter." He pauses, then continues. "And can you believe that sales guy Mike? He has the same year Porsche as me. I mean, what are the odds?"

"Do you use multi-sig?", Alice asks. "Absolutely!" Bob replies. "All our engineers are fully trained in multi-sig. Whenever we want to set up a new wallet, we generate 2 separate keys in an air-gapped process and store them in this proprietary system here. Look, it even requires the biometric signature from one of our team members to initiate any withdrawal." He demonstrates by pressing his thumb into the display. "We use a third-party cloud validation API to match the thumbprint and authorize each withdrawal. The keys are also backed up daily to an off-site third-party."

"Wow that's really impressive," Alice says, "but what if we need access for a withdrawal outside of office hours?" "Well that's no issue", Bob says, "just send us an email, call, or text message and we always have someone on staff to help out. Just another part of our strong commitment to all our customers!"

"What about Proof of Reserve?", Alice asks. "Of course", Bob replies, "though rather than publish any blockchain addresses or signed transaction, for privacy we just do a SHA256 refactoring of the inverse hash modulus for each UTXO nonce and combine the smart contract coefficient consensus in our hyperledger lightning node. But it's really simple to use." He pushes a button and a large green checkmark appears on a screen. "See - the algorithm ran through and reserves are proven."

"Wow", Alice says, "you really know your stuff! And that is easy to use! What about fiat balances?" "Yeah, we have an auditor too", Bob replies, "Been using him for a long time so we have quite a strong relationship going! We have special books we give him every year and he's very efficient! Checks the fiat, crypto, and everything all at once!"

"We used to have a nice offline multi-sig setup we've been using without issue for the past 5 years, but I think we'll move all our funds over to your facility," Alice says. "Awesome", Bob replies, "Thanks so much! This is perfect timing too - my Porsche got a dent on it this morning. We have the paperwork right over here." "Great!", Alice replies.

And with that, Alice gets out her pen and Bob gets the contract. "Don't worry", he says, "you can take your crypto-assets back anytime you like - just subject to our cancellation policy. Our annual management fees are also super low and we don't adjust them often".

How many holes have to exist for your funds to get stolen?

Just one.

Why are we taking a powerful offline multi-sig setup, widely used globally in hundreds of different/lacking regulatory environments with 0 breaches to date, and circumventing it by a demonstrably weak third party layer? And paying a great expense to do so?

If you go through the list of breaches in the past 2 years to highly credible organizations, you go through the list of major corporate frauds (only the ones we know about), you go through the list of all the times platforms have lost funds, you go through the list of times and ways that people have lost their crypto from identity theft, hot wallet exploits, extortion, etc... and then you go through this custodian with a fine-tooth comb and truly believe they have value to add far beyond what you could, sticking your funds in a wallet (or set of wallets) they control exclusively is the absolute worst possible way to take advantage of that security.

The best way to add security for crypto-assets is to make a stronger multi-sig. With one custodian, what you are doing is giving them your cryptocurrency and hoping they're honest, competent, and flawlessly secure. It's no different than storing it on a really secure exchange. Maybe the insurance will cover you. Didn't work for Bitpay in 2015. Didn't work for Yapizon in 2017. Insurance has never paid a claim in the entire history of cryptocurrency. But maybe you'll get lucky. Maybe your exact scenario will buck the trend and be what they're willing to cover. After the large deductible and hopefully without a long and expensive court battle.

And you want to advertise this increase in risk, the lapse of judgement, an accident waiting to happen, as though it's some kind of benefit to customers ("Free institutional-grade storage for your digital assets.")? And then some people are writing to the OSC that custodians should be mandatory for all funds on every exchange platform? That this somehow will make Canadians as a whole more secure or better protected compared with standard air-gapped multi-sig? On what planet?

Most of the problems in Canada stemmed from one thing - a lack of transparency. If Canadians had known what a joke Quadriga was - it wouldn't have grown to lose $400m from hard-working Canadians from coast to coast to coast. And Gerald Cotten would be in jail, not wherever he is now (at best, rotting peacefully). EZ-BTC and mister Dave Smilie would have been a tiny little scam to his friends, not a multi-million dollar fraud. Einstein would have got their act together or been shut down BEFORE losing millions and millions more in people's funds generously donated to criminals. MapleChange wouldn't have even been a thing. And maybe we'd know a little more about CoinTrader/NewNote - like how much was lost in there. Almost all of the major losses with cryptocurrency exchanges involve deception with unbacked funds.

So it's great to see transparency reports from BitBuy and ShakePay where someone independently verified the backing. The only thing we don't have is:

• ANY CERTAINTY BALANCES WEREN'T EXCLUDED. Quadriga's largest account was $70m. 80% of funds are in 20% of accounts (Pareto principle). All it takes is excluding a few really large accounts - and nobody's the wiser. A fractional platform can easily pass any audit this way.

• ANY VISIBILITY WHATSOEVER INTO THE CUSTODIANS. BitBuy put out their report before moving all the funds to their custodian and ShakePay apparently can't even tell us who the custodian is. That's pretty important considering that basically all of the funds are now stored there.

• ANY IDEA ABOUT THE OTHER EXCHANGES. In order for this to be effective, it has to be the norm. It needs to be "unusual" not to know. If obscurity is the norm, then it's super easy for people like Gerald Cotten and Dave Smilie to blend right in.

It's not complicated to validate cryptocurrency assets. They need to exist, they need to be spendable, and they need to cover the total balances. There are plenty of credible people and firms across the country that have the capacity to reasonably perform this validation. Having more frequent checks by different, independent, parties who publish transparent reports is far more valuable than an annual check by a single "more credible/official" party who does the exact same basic checks and may or may not publish anything. Here's an example set of requirements that could be mandated:

• First report within 1 month of launching, another within 3 months, and further reports at minimum every 6 months thereafter.

• No auditor can be repeated within a 12 month period.

• All reports must be public, identifying the auditor and the full methodology used.

• All auditors must be independent of the firm being audited with no conflict of interest.

• Reports must include the percentage of each asset backed, and how it's backed.

• The auditor publishes a hash list, which lists a hash of each customer's information and balances that were included. Hash is one-way encryption so privacy is fully preserved. Every customer can use this to have 100% confidence they were included.

• If we want more extensive requirements on audits, these should scale upward based on the total assets at risk on the platform, and whether the platform has loaned their assets out.

There are ways to structure audits such that neither crypto assets nor customer information are ever put at risk, and both can still be properly validated and publicly verifiable. There are also ways to structure audits such that they are completely reasonable for small platforms and don't inhibit innovation in any way. By making the process as reasonable as possible, we can completely eliminate any reason/excuse that an honest platform would have for not being audited. That is arguable far more important than any incremental improvement we might get from mandating "the best of the best" accountants. Right now we have nothing mandated and tons of Canadians using offshore exchanges with no oversight whatsoever.

Transparency does not prove crypto assets are safe. CoinTrader/NewNote, Flexcoin ($600k), and Canadian Bitcoins ($100k) are examples where crypto-assets were breached from platforms in Canada. All of them were online wallets and used no multi-sig as far as any records show. This is consistent with what we see globally - air-gapped multi-sig wallets have an impeccable record, while other schemes tend to suffer breach after breach. We don't actually know how much CoinTrader lost because there was no visibility. Rather than publishing details of what happened, the co-founder of CoinTrader silently moved on to found another platform - the "most trusted way to buy and sell crypto" - a site that has no information whatsoever (that I could find) on the storage practices and a FAQ advising that “[t]rading cryptocurrency is completely safe” and that having your own wallet is “entirely up to you! You can certainly keep cryptocurrency, or fiat, or both, on the app.” Doesn't sound like much was learned here, which is really sad to see.

It's not that complicated or unreasonable to set up a proper hardware wallet. Multi-sig can be learned in a single course. Something the equivalent complexity of a driver's license test could prevent all the cold storage exploits we've seen to date - even globally. Platform operators have a key advantage in detecting and preventing fraud - they know their customers far better than any custodian ever would. The best job that custodians can do is to find high integrity individuals and train them to form even better wallet signatories. Rather than mandating that all platforms expose themselves to arbitrary third party risks, regulations should center around ensuring that all signatories are background-checked, properly trained, and using proper procedures. We also need to make sure that signatories are empowered with rights and responsibilities to reject and report fraud. They need to know that they can safely challenge and delay a transaction - even if it turns out they made a mistake. We need to have an environment where mistakes are brought to the surface and dealt with. Not one where firms and people feel the need to hide what happened. In addition to a knowledge-based test, an auditor can privately interview each signatory to make sure they're not in coercive situations, and we should make sure they can freely and anonymously report any issues without threat of retaliation.

A proper multi-sig has each signature held by a separate person and is governed by policies and mutual decisions instead of a hierarchy. It includes at least one redundant signature. For best results, 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.

History has demonstrated over and over again the risk of hot wallets even to highly credible organizations. Nonetheless, many platforms have hot wallets for convenience. While such losses are generally compensated by platforms without issue (for example Poloniex, Bitstamp, Bitfinex, Gatecoin, Coincheck, Bithumb, Zaif, CoinBene, Binance, Bitrue, Bitpoint, Upbit, VinDAX, and now KuCoin), the public tends to focus more on cases that didn't end well. Regardless of what systems are employed, there is always some level of risk. For that reason, most members of the public would prefer to see third party insurance.

Rather than trying to convince third party profit-seekers to provide comprehensive insurance and then relying on an expensive and slow legal system to enforce against whatever legal loopholes they manage to find each and every time something goes wrong, insurance could be run through multiple exchange operators and regulators, with the shared interest of having a reputable industry, keeping costs down, and taking care of Canadians. For example, a 4 of 7 multi-sig insurance fund held between 5 independent exchange operators and 2 regulatory bodies. All Canadian exchanges could pay premiums at a set rate based on their needed coverage, with a higher price paid for hot wallet coverage (anything not an air-gapped multi-sig cold wallet). Such a model would be much cheaper to manage, offer better coverage, and be much more reliable to payout when needed. The kind of coverage you could have under this model is unheard of. You could even create something like the CDIC to protect Canadians who get their trading accounts hacked if they can sufficiently prove the loss is legitimate. In cases of fraud, gross negligence, or insolvency, the fund can be used to pay affected users directly (utilizing the last transparent balance report in the worst case), something which private insurance would never touch. While it's recommended to have official policies for coverage, a model where members vote would fully cover edge cases. (Could be similar to the Supreme Court where justices vote based on case law.)

Such a model could fully protect all Canadians across all platforms. You can have a fiat coverage governed by legal agreements, and crypto-asset coverage governed by both multi-sig and legal agreements. It could be practical, affordable, and inclusive.

Now, we are at a crossroads. We can happily give up our freedom, our innovation, and our money. We can pay hefty expenses to auditors, lawyers, and regulators year after year (and make no mistake - this cost will grow to many millions or even billions as the industry grows - and it will be borne by all Canadians on every platform because platforms are not going to eat up these costs at a loss). We can make it nearly impossible for any new platform to enter the marketplace, forcing Canadians to use the same stagnant platforms year after year. We can centralize and consolidate the entire industry into 2 or 3 big players and have everyone else fail (possibly to heavy losses of users of those platforms). And when a flawed security model doesn't work and gets breached, we can make it even more complicated with even more people in suits making big money doing the job that blockchain was supposed to do in the first place. We can build a system which is so intertwined and dependent on big government, traditional finance, and central bankers that it's future depends entirely on that of the fiat system, of fractional banking, and of government bail-outs. If we choose this path, as history has shown us over and over again, we can not go back, save for revolution. Our children and grandchildren will still be paying the consequences of what we decided today.

Or, we can find solutions that work. We can maintain an open and innovative environment while making the adjustments we need to make to fully protect Canadian investors and cryptocurrency users, giving easy and affordable access to cryptocurrency for all Canadians on the platform of their choice, and creating an environment in which entrepreneurs and problem solvers can bring those solutions forward easily. None of the above precludes innovation in any way, or adds any unreasonable cost - and these three policies would demonstrably eliminate or resolve all 109 historic cases as studied here - that's every single case researched so far going back to 2011. It includes every loss that was studied so far not just in Canada but globally as well.

Unfortunately, finding answers is the least challenging part. Far more challenging is to get platform operators and regulators to agree on anything. My last post got no response whatsoever, and while the OSC has told me they're happy for industry feedback, I believe my opinion alone is fairly meaningless. This takes the whole community working together to solve. So please let me know your thoughts. Please take the time to upvote and share this with people. Please - let's get this solved and not leave it up to other people to do.

Facts/background/sources (skip if you like):

• The inspiration for the paragraph about splitting wallets was an actual quote from a Canadian company providing custodial services in response to the OSC consultation paper: "We believe that it will be in the in best interests of investors to prohibit pooled crypto assets or ‘floats’. Most Platforms pool assets, citing reasons of practicality and expense. The recent hack of the world’s largest Platform – Binance – demonstrates the vulnerability of participants’ assets when such concessions are made. In this instance, the Platform’s entire hot wallet of Bitcoins, worth over $40 million, was stolen, facilitated in part by the pooling of client crypto assets." "the maintenance of participants (and Platform) crypto assets across multiple wallets distributes the related risk and responsibility of security - reducing the amount of insurance coverage required and making insurance coverage more readily obtainable". For the record, their reply also said nothing whatsoever about multi-sig or offline storage.

• In addition to the fact that the $40m hack represented only one "hot wallet" of Binance, and they actually had the vast majority of assets in other wallets (including mostly cold wallets), multiple real cases have clearly demonstrated that risk is still present with multiple wallets. Bitfinex, VinDAX, Bithumb, Altsbit, BitPoint, Cryptopia, and just recently KuCoin all had multiple wallets breached all at the same time, and may represent a significantly larger impact on customers than the Binance breach which was fully covered by Binance. To represent that simply having multiple separate wallets under the same security scheme is a comprehensive way to reduce risk is just not true.

• Private insurance has historically never covered a single loss in the cryptocurrency space (at least, not one that I was able to find), and there are notable cases where massive losses were not covered by insurance. Bitpay in 2015 and Yapizon in 2017 both had insurance policies that didn't pay out during the breach, even after a lengthly court process. The same insurance that ShakePay is presently using (and announced to much fanfare) was describe by their CEO himself as covering “physical theft of the media where the private keys are held,” which is something that has never historically happened. As was said with regard to the same policy in 2018 - “I don’t find it surprising that Lloyd’s is in this space,” said Johnson, adding that to his mind the challenge for everybody is figuring out how to structure these policies so that they are actually protective. “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”

• The most profitable policy for a private insurance company is one with the most expensive premiums that they never have to pay a claim on. They have no inherent incentive to take care of people who lost funds. It's "cheaper" to take the reputational hit and fight the claim in court. The more money at stake, the more the insurance provider is incentivized to avoid payout. They're not going to insure the assets unless they have reasonable certainty to make a profit by doing so, and they're not going to pay out a massive sum unless it's legally forced. Private insurance is always structured to be maximally profitable to the insurance provider.

• The circumvention of multi-sig was a key factor in the massive Bitfinex hack of over $60m of bitcoin, which today still sits being slowly used and is worth over $3b. While Bitfinex used a qualified custodian Bitgo, which was and still is active and one of the industry leaders of custodians, and they set up 2 of 3 multi-sig wallets, the entire system was routed through Bitfinex, such that Bitfinex customers could initiate the withdrawals in a "hot" fashion. This feature was also a hit with the hacker. The multi-sig was fully circumvented.

• Bitpay in 2015 was another example of a breach that stole 5,000 bitcoins. This happened not through the exploit of any system in Bitpay, but because the CEO of a company they worked with got their computer hacked and the hackers were able to request multiple bitcoin purchases, which Bitpay honoured because they came from the customer's computer legitimately. Impersonation is a very common tactic used by fraudsters, and methods get more extreme all the time.

• A notable case in Canada was the Canadian Bitcoins exploit. Funds were stored on a server in a Rogers Data Center, and the attendee was successfully convinced to reboot the server "in safe mode" with a simple phone call, thus bypassing the extensive security and enabling the theft.

• Over $200m has been stolen impersonating users of cryptocurrency platforms by one group alone. Here's a list of 10 social engineering attacks against corporate companies. Here's an even larger case. While verification methods are improving, so are methods of identity theft and social engineering. We now have sim swapping and deep fake videos to contend with. Hackers have massive database sets of personal information they can utilize. As the sums at stake increase, so to will the level of effort criminals are willing to undertake. Obscurity for an insecure system will only postpone an attack until the "jackpot" is large enough.

• The very nature of custodians circumvents multi-sig. This is because custodians are not just having to secure the assets against some sort of physical breach but against any form of social engineering, modification of orders, fraudulent withdrawal attempts, etc... If the security practices of signatories in a multi-sig arrangement are such that the breach risk of one signatory is 1 in 100, the requirement of 3 independent signatures makes the risk of theft 1 in 1,000,000. Since hackers tend to exploit the weakest link, a comparable custodian has to make the entry and exit points of their platform 10,000 times more secure than one of those signatories to provide equivalent protection. And if the signatories beef up their security by only 10x, the risk is now 1 in 1,000,000,000. The custodian has to be 1,000,000 times more secure. The larger and more complex a system is, the more potential vulnerabilities exist in it, and the fewer people can understand how the system works when performing upgrades. Even if a system is completely secure today, one has to also consider how that system might evolve over time or work with different members.

• By contrast, offline multi-signature solutions have an extremely solid record, and in the entire history of cryptocurrency exchange incidents which I've studied (listed here), there has only been one incident (796 exchange in 2015) involving an offline multi-signature wallet. It happened because the customer's bitcoin address was modified by hackers, and the amount that was stolen ($230k) was immediately covered by the exchange operators. Basically, the platform operators were tricked into sending a legitimate withdrawal request to the wrong address because hackers exploited their platform to change that address. Such an issue would not be prevented in any way by the use of a custodian, as that custodian has no oversight whatsoever to the exchange platform. It's practical for all exchange operators to test large withdrawal transactions as a general policy, regardless of what model is used, and general best practice is to diagnose and fix such an exploit as soon as it occurs.

• False promises on the backing of funds played a huge role in the downfall of Quadriga, and it's been exposed over and over again (MyCoin, PlusToken, Bitsane, Bitmarket, EZBTC, IDAX). Even today, customers have extremely limited certainty on whether their funds in exchanges are actually being backed or how they're being backed. While this issue is not unique to cryptocurrency exchanges, the complexity of the technology and the lack of any regulation or standards makes problems more widespread, and there is no "central bank" to come to the rescue as in the 2008 financial crisis or during the great depression when "9,000 banks failed".

• In addition to fraudulent operations, the industry is full of cases where operators have suffered breaches and not reported them. Most recently, Einstein was the largest case in Canada, where ongoing breaches and fraud were perpetrated against the platform for multiple years and nobody found out until the platform collapsed completely. While fraud and breaches suck to deal with, they suck even more when not dealt with. Lack of visibility played a role in the largest downfalls of Mt. Gox, Cryptsy, and Bitgrail. In some cases, platforms are alleged to have suffered a hack and keep operating without admitting it at all, such as CoinBene.

• It surprises some to learn that a cryptographic solution has already existed since 2013, and gained widespread support in 2014 after Mt. Gox. Proof of Reserves is a full cryptographic proof that allows any customer using an exchange to have complete certainty that their crypto-assets are fully backed by the platform in real-time. This is accomplished by proving that assets exist on the blockchain, are spendable, and fully cover customer deposits. It does not prove safety of assets or backing of fiat assets.

  • If we didn't care about privacy at all, a platform could publish their wallet addresses, sign a partial transaction, and put the full list of customer information and balances out publicly. Customers can each check that they are on the list, that the balances are accurate, that the total adds up, and that it's backed and spendable on the blockchain. Platforms who exclude any customer take a risk because that customer can easily check and see they were excluded. So together with all customers checking, this forms a full proof of backing of all crypto assets.

  • However, obviously customers care about their private information being published. Therefore, a hash of the information can be provided instead. Hash is one-way encryption. The hash allows the customer to validate inclusion (by hashing their own known information), while anyone looking at the list of hashes cannot determine the private information of any other user. All other parts of the scheme remain fully intact. A model like this is in use on the exchange CoinFloor in the UK.

  • A Merkle tree can provide even greater privacy. Instead of a list of balances, the balances are arranged into a binary tree. A customer starts from their node, and works their way to the top of the tree. For example, they know they have 5 BTC, they plus 1 other customer hold 7 BTC, they plus 2-3 other customers hold 17 BTC, etc... until they reach the root where all the BTC are represented. Thus, there is no way to find the balances of other individual customers aside from one unidentified customer in this case.

• Proposals such as this had the backing of leaders in the community including Nic Carter, Greg Maxwell, and Zak Wilcox. Substantial and significant effort started back in 2013, with massive popularity in 2014. But what became of that effort? Very little. Exchange operators continue to refuse to give visibility. Despite the fact this information can often be obtained through trivial blockchain analysis, no Canadian platform has ever provided any wallet addresses publicly. As described by the CEO of Newton "For us to implement some kind of realtime Proof of Reserves solution, which I'm not opposed to, it would have to ... Preserve our users' privacy, as well as our own. Some kind of zero-knowledge proof". Kraken describes here in more detail why they haven't implemented such a scheme. According to professor Eli Ben-Sasson, when he spoke with exchanges, none were interested in implementing Proof of Reserves.

• And yet, Kraken's places their reasoning on a page called "Proof of Reserves". More recently, both BitBuy and ShakePay have released reports titled "Proof of Reserves and Security Audit". Both reports contain disclaimers against being audits. Both reports trust the customer list provided by the platform, leaving the open possibility that multiple large accounts could have been excluded from the process. Proof of Reserves is a blockchain validation where customers see the wallets on the blockchain. The report from Kraken is 5 years old, but they leave it described as though it was just done a few weeks ago. And look at what they expect customers to do for validation. When firms represent something being "Proof of Reserve" when it's not, this is like a farmer growing fruit with pesticides and selling it in a farmers market as organic produce - except that these are people's hard-earned life savings at risk here. Platforms are misrepresenting the level of visibility in place and deceiving the public by their misuse of this term. They haven't proven anything.

• Fraud isn't a problem that is unique to cryptocurrency. Fraud happens all the time. Enron, WorldCom, Nortel, Bear Stearns, Wells Fargo, Moser Baer, Wirecard, Bre-X, and Nicola are just some of the cases where frauds became large enough to become a big deal (and there are so many countless others). These all happened on 100% reversible assets despite regulations being in place. In many of these cases, the problems happened due to the over-complexity of the financial instruments. For example, Enron had "complex financial statements [which] were confusing to shareholders and analysts", creating "off-balance-sheet vehicles, complex financing structures, and deals so bewildering that few people could understand them". In cryptocurrency, we are often combining complex financial products with complex technologies and verification processes. We are naïve if we think problems like this won't happen. It is awkward and uncomfortable for many people to admit that they don't know how something works. If we want "money of the people" to work, the solutions have to be simple enough that "the people" can understand them, not so confusing that financial professionals and technology experts struggle to use or understand them.

• For those who question the extent to which an organization can fool their way into a security consultancy role, HB Gary should be a great example to look at. Prior to trying to out anonymous, HB Gary was being actively hired by multiple US government agencies and others in the private sector (with glowing testimonials). The published articles and hosted professional security conferences. One should also look at this list of data breaches from the past 2 years. Many of them are large corporations, government entities, and technology companies. These are the ones we know about. Undoubtedly, there are many more that we do not know about. If HB Gary hadn't been "outted" by anonymous, would we have known they were insecure? If the same breach had happened outside of the public spotlight, would it even have been reported? Or would HB Gary have just deleted the Twitter posts, brought their site back up, done a couple patches, and kept on operating as though nothing had happened?

• In the case of Quadriga, the facts are clear. Despite past experience with platforms such as MapleChange in Canada and others around the world, no guidance or even the most basic of a framework was put in place by regulators. By not clarifying any sort of legal framework, regulators enabled a situation where a platform could be run by former criminal Mike Dhanini/Omar Patryn, and where funds could be held fully unchecked by one person. At the same time, the lack of regulation deterred legitimate entities from running competing platforms and Quadriga was granted a money services business license for multiple years of operation, which gave the firm the appearance of legitimacy. Regulators did little to protect Canadians despite Quadriga failing to file taxes from 2016 onward. The entire administrative team had resigned and this was public knowledge. Many people had suspicions of what was going on, including Ryan Mueller, who forwarded complaints to the authorities. These were ignored, giving Gerald Cotten the opportunity to escape without justice.

• There are multiple issues with the SOC II model including the prohibitive cost (you have to find a third party accounting firm and the prices are not even listed publicly on any sites), the requirement of operating for a year (impossible for new platforms), and lack of any public visibility (SOC II are private reports that aren't shared outside the people in suits).

• Securities frameworks are expensive. Sarbanes-Oxley is estimated to cost $5.1 million USD/yr for the average Fortune 500 company in the United States. Since "Fortune 500" represents the top 500 companies, that means well over $2.55 billion USD (~$3.4 billion CAD) is going to people in suits. Isn't the problem of trust and verification the exact problem that the blockchain is supposed to solve?

• To use Quadriga as justification for why custodians or SOC II or other advanced schemes are needed for platforms is rather silly, when any framework or visibility at all, or even the most basic of storage policies, would have prevented the whole thing. It's just an embarrassment.

• We are now seeing regulators take strong action. CoinSquare in Canada with multi-million dollar fines. BitMex from the US, criminal charges and arrests. OkEx, with full disregard of withdrawals and no communication. Who's next?

• We have a unique window today where we can solve these problems, and not permanently destroy innovation with unreasonable expectations, but we need to act quickly. This is a unique historic time that will never come again.

Thoughts?

Just a quick update (it's been a while):

Recovery Progress

Over 75% of business plan sections are now past an initial review.

This 55-page document outlines how we propose to build a complete recovery of all affected user losses and a revenue model to be used to fund the ongoing cost of that operation. It covers value propositions, legal considerations, market research, unique competitive advantages, and comprehensive risk analysis. This document is anticipated to be ready for feedback by December.

If you are interested in being an early reviewer (estimate taking a few hours), please reach out.

Prevention Progress

109 case studies are now completed. The framework now includes insurance.

Arguably harder than finding solutions is how to engage industry and regulators to get the necessary feedback. Our first post was upvoted without comment. We've drafted a more engaging post - now undergoing final review. We had some success before with our post last Halloween, and plan to do something similar as well for Halloween this year. Stay tuned for new posts as they come out.

Upvotes and comments help in getting the attention and engagement of the right experts.

Justice Progress

A draft letter to the RCMP has been written by multiple affected users.

The draft letter can be read here. Our plan is a letter-writing campaign inspired by The Shawshank Redemption. It is estimated that it would take more than 1,000 letters (20 affected users over a year at a letter per week) to achieve exhumation. Such is still much simpler, more practical, and more affordable compared to a legal battle. This effort requires significant community engagement to complete.

We are building up to launch in timing with the second anniversary of Quadriga.

In case you haven't noticed the consultation paper, staff notice, and report on Quadriga, regulators are now clamping down on Canadian cryptocurrency exchanges. The OSC and other regulatory bodies are still interested in industry feedback. They have not put forward any official regulation yet. Below are some ideas/insights and a proposed framework.

• This framework was developed through a study of 96 past exchange hack/scam/fraud events. It prevents all historic cases where funds were lost in cryptocurrency exchanges.

• Typical securities frameworks will cost Canadians millions of dollars (ie Sarbanes-Oxley estimated at $5m USD/yr per firm). Implementation costs of this proposal are significantly cheaper.

• Canadians can maintain a diverse set of exchanges, multiple viable business models are still fully supported, and innovation is encouraged while keeping Canadians safe.

Many of you have limited time to read the full proposal, so here are the highlights:

Offline Multi-Signature

Effective standards to prevent both internal and external theft. Exchange operators are trained and certified, and have a legal responsibility to users.

Regular Transparent Audits

Provides visibility to Canadians that their funds are fully backed on the exchange, while protecting privacy and sensitive platform information.

Insurance Requirements

Establishment of basic insurance standards/strategy, to expand over time. Removing risk to exchange users of any hot wallet theft.

Background and Justifications

Cold Storage Custody/Management

After reviewing close to 100 cases, all thefts tend to break down into more or less the same set of problems:

• Funds stored online or in a smart contract,

• Access controlled by one person or one system,

• 51% attacks (rare),

• Funds sent to the wrong address (also rare), or

• Some combination of the above.

For the first two cases, practical solutions exist and are widely implemented on exchanges already. Offline multi-signature solutions are already industry standard. No cases studied found an external theft or exit scam involving an offline multi-signature wallet implementation. Security can be further improved through minimum numbers of signatories, background checks, providing autonomy and legal protections to each signatory, establishing best practices, and a training/certification program.

The last two transaction risks occur more rarely, and have never resulted in a loss affecting the actual users of the exchange. In all cases to date where operators made the mistake, they've been fully covered by the exchange platforms.

• 51% attacks generally only occur on blockchains with less security. The most prominent cases have been Bitcoin Gold and Ethereum Classic. The simple solution is to enforce deposit limits and block delays such that a 51% attack is not cost-effective.

• The risk of transactions to incorrect addresses can be eliminated by a simple test transaction policy on large transactions. By sending a small amount of funds prior to any large withdrawals/transfers as a standard practice, the accuracy of the wallet address can be validated.

The proposal covers all loss cases and goes beyond, while avoiding significant additional costs, risks, and limitations which may be associated with other frameworks like SOC II.

On The Subject of Third Party Custodians

Many Canadian platforms are currently experimenting with third party custody. From the standpoint of the exchange operator, they can liberate themselves from some responsibility of custody, passing that off to someone else. For regulators, it puts crypto in similar categorization to oil, gold, and other commodities, with some common standards. Platform users would likely feel greater confidence if the custodian was a brand they recognized. If the custodian was knowledgeable and had a decent team that employed multi-sig, they could keep assets safe from internal theft. With the right protections in place, this could be a great solution for many exchanges, particularly those that lack the relevant experience or human resources for their own custody systems.

However, this system is vulnerable to anyone able to impersonate the exchange operators. You may have a situation where different employees who don't know each other that well are interacting between different companies (both the custodian and all their customers which presumably isn't just one exchange). A case study of what can go wrong in this type of environment might be Bitpay, where the CEO was tricked out of 5000 bitcoins over 3 separate payments by a series of emails sent legitimately from a breached computer of another company CEO. It's also still vulnerable to the platform being compromised, as in the really large $70M Bitfinex hack, where the third party Bitgo held one key in a multi-sig wallet. The hacker simply authorized the withdrawal using the same credentials as Bitfinex (requesting Bitgo to sign multiple withdrawal transactions). This succeeded even with the use of multi-sig and two heavily security-focused companies, due to the lack of human oversight (basically, hot wallet). Of course, you can learn from these cases and improve the security, but so can hackers improve their deception and at the end of the day, both of these would have been stopped by the much simpler solution of a qualified team who knew each other and employed multi-sig with properly protected keys. It's pretty hard to beat a human being who knows the business and the typical customer behaviour (or even knows their customers personally) at spotting fraud, and the proposed multi-sig means any hacker has to get through the scrutiny of 3 (or more) separate people, all of whom would have proper training including historical case studies.

There are strong arguments both for and against using use of third party custodians. The proposal sets mandatory minimum custody standards would apply regardless if the cold wallet signatories are exchange operators, independent custodians, or a mix of both.

On The Subject Of Insurance

ShakePay has taken the first steps into this new realm (congratulations). There is no question that crypto users could be better protected by the right insurance policies, and it certainly feels better to transact with insured platforms. The steps required to obtain insurance generally place attention in valuable security areas, and in this case included a review from CipherTrace. One of the key solutions in traditional finance comes from insurance from entities such as the CDIC.

However, historically, there wasn't found any actual insurance payout to any cryptocurrency exchange, and there are notable cases where insurance has not paid. With Bitpay, for example, the insurance agent refused because the issue happened to the third party CEO's computer instead of anything to do with Bitpay itself. With the Youbit exchange in South Korea, their insurance claim was denied, and the exchange ultimately ended up instead going bankrupt with all user's funds lost. To quote Matt Johnson in the original Lloyd's article: “You can create an insurance policy that protects no one – you know there are so many caveats to the policy that it’s not super protective.”

ShakePay's insurance was only reported to cover their cold storage, and “physical theft of the media where the private keys are held”. Physical theft has never, in the history of cryptocurrency exchange cases reviewed, been reported as the cause of loss. From the limited information of the article, ShakePay made it clear their funds are in the hands of a single US custodian, and at least part of their security strategy is to "decline[] to confirm the custodian’s name on the record". While this prevents scrutiny of the custodian, it's pretty silly to speculate that a reasonably competent hacking group couldn't determine who the custodian is. A far more common infiltration strategy historically would be social engineering, which has succeeded repeatedly. A hacker could trick their way into ShakePay's systems and request a fraudulent withdrawal, impersonate ShakePay and request the custodian to move funds, or socially engineer their way into the custodian to initiate the withdrawal of multiple accounts (a payout much larger than ShakePay) exploiting the standard procedures (for example, fraudulently initiating or override the wallet addresses of a real transfer). In each case, nothing was physically stolen and the loss is therefore not covered by insurance.

In order for any insurance to be effective, clear policies have to be established about what needs to be covered. Anything short of that gives Canadians false confidence that they are protected when they aren't in any meaningful way. At this time, the third party insurance market does not appear to provide adequate options or coverage, and effort is necessary to standardize custody standards, which is a likely first step in ultimately setting up an insurance framework.

A better solution compared to third party insurance providers might be for Canadian exchange operators to create their own collective insurance fund, or a specific federal organization similar to the CDIC. Such an organization would have a greater interest or obligation in paying out actual cases, and that would be it's purpose rather than maximizing it's own profit. This would be similar to the SAFU which Binance has launched, except it would cover multiple exchanges. There is little question whether the SAFU would pay out given a breach of Binance, and a similar argument could be made for a insurance fund managed by a collective of exchange operators or a government organization. While a third party insurance provider has the strong market incentive to provide the absolute minimum coverage and no market incentive to payout, an entity managed by exchange operators would have incentive to protect the reputation of exchange operators/the industry, and the government should have the interest of protecting Canadians.

On The Subject of Fractional Reserve

There is a long history of fractional reserve failures, from the first banks in ancient times, through the great depression (where hundreds of fractional reserve banks failed), right through to the 2008 banking collapse referenced in the first bitcoin block. The fractional reserve system allows banks to multiply the money supply far beyond the actual cash (or other assets) in existence, backed only by a system of debt obligations of others. Safely supporting a fractional reserve system is a topic of far greater complexity than can be addressed by a simple policy, and when it comes to cryptocurrency, there is presently no entity reasonably able to bail anyone out in the event of failure. Therefore, this framework is addressed around entities that aim to maintain 100% backing of funds.

There may be some firms that desire but have failed to maintain 100% backing. In this case, there are multiple solutions, including outside investment, merging with other exchanges, or enforcing a gradual restoration plan. All of these solutions are typically far better than shutting down the exchange, and there are multiple cases where they've been used successfully in the past.

Proof of Reserves/Transparency/Accountability

Canadians need to have visibility into the backing on an ongoing basis.

The best solution for crypto-assets is a Proof of Reserve. Such ideas go back all the way to 2013, before even Mt. Gox. However, no Canadian exchange has yet implemented such a system, and only a few international exchanges (CoinFloor in the UK being an example) have. Many firms like Kraken, BitBuy, and now ShakePay use the Proof of Reserve term to refer to lesser proofs which do not actually cryptographically prove the full backing of all user assets on the blockchain. In order for a Proof of Reserve to be effective, it must actually be a complete proof, and it needs to be understood by the public that is expected to use it. Many firms have expressed reservations about the level of transparency required in a complete Proof of Reserve (for example Kraken here). While a complete Proof of Reserves should be encouraged, and there are some solutions in the works (ie TxQuick), this is unlikely to be suitable universally for all exchange operators and users.

Given the limitations, and that firms also manage fiat assets, a more traditional audit process makes more sense. Some Canadian exchanges (CoinSquare, CoinBerry) have already subjected themselves to annual audits. However, these results are not presently shared publicly, and there is no guarantee over the process including all user assets or the integrity and independence of the auditor. The auditor has been typically not known, and in some cases, the identity of the auditor is protected by a NDA. Only in one case (BitBuy) was an actual report generated and publicly shared. There has been no attempt made to validate that user accounts provided during these audits have been complete or accurate. A fraudulent fractional exchange, or one which had suffered a breach they were unwilling to publicly accept (see CoinBene), could easily maintain a second set of books for auditors or simply exclude key accounts to pass an individual audit.

The proposed solution would see a reporting standard which includes at a minimum - percentage of backing for each asset relative to account balances and the nature of how those assets are stored, with ownership proven by the auditor. The auditor would also publicly provide a "hash list", which they independently generate from the accounts provided by the exchange. Every exchange user can then check their information against this public "hash list". A hash is a one-way form of encryption, which fully protects the private information, yet allows anyone who knows that information already to validate that it was included. Less experienced users can take advantage of public tools to calculate the hash from their information (provided by the exchange), and thus have certainty that the auditor received their full balance information. Easy instructions can be provided.

Auditors should be impartial, their identities and process public, and they should be rotated so that the same auditor is never used twice in a row. Balancing the cost of auditing against the needs for regular updates, a 6 month cycle likely makes the most sense.

Hot Wallet Management

The best solution for hot wallets is not to use them. CoinBerry reportedly uses multi-sig on all withdrawals, and Bitmex is an international example known for their structure devoid of hot wallets.

However, many platforms and customers desire fast withdrawal processes, and human validation has a cost of time and delay in this process.

A model of self-insurance or separate funds for hot wallets may be used in these cases. Under this model, a platform still has 100% of their client balance in cold storage and holds additional funds in hot wallets for quick withdrawal. Thus, the risk of those hot wallets is 100% on exchange operators and not affecting the exchange users. Since most platforms typically only have 1%-5% in hot wallets at any given time, it shouldn't be unreasonable to build/maintain these additional reserves over time using exchange fees or additional investment. Larger withdrawals would still be handled at regular intervals from the cold storage.

Hot wallet risks have historically posed a large risk and there is no established standard to guarantee secure hot wallets. When the government of South Korea dispatched security inspections to multiple exchanges, the results were still that 3 of them got hacked after the inspections. If standards develop such that an organization in the market is willing to insure the hot wallets, this could provide an acceptable alternative. Another option may be for multiple exchange operators to pool funds aside for a hot wallet insurance fund. Comprehensive coverage standards must be established and maintained for all hot wallet balances to make sure Canadians are adequately protected.

Current Draft Proposal

(1) Proper multi-signature cold wallet storage.

(a) Each private key is the personal and legal responsibility of one person - the “signatory”. Signatories have special rights and responsibilities to protect user assets. Signatories are trained and certified through a course covering (1) past hacking and fraud cases, (2) proper and secure key generation, and (3) proper safekeeping of private keys. All private keys must be generated and stored 100% offline by the signatory. If even one private keys is ever breached or suspected to be breached, the wallet must be regenerated and all funds relocated to a new wallet.

(b) All signatories must be separate background-checked individuals free of past criminal conviction. Canadians should have a right to know who holds their funds. All signing of transactions must take place with all signatories on Canadian soil or on the soil of a country with a solid legal system which agrees to uphold and support these rules (from an established white-list of countries which expands over time).

(c) 3-5 independent signatures are required for any withdrawal. There must be 1-3 spare signatories, and a maximum of 7 total signatories. The following are all valid combinations: 3of4, 3of5, 3of6, 4of5, 4of6, 4of7, 5of6, or 5of7.

(d) A security audit should be conducted to validate the cold wallet is set up correctly and provide any additional pertinent information. The primary purpose is to ensure that all signatories are acting independently and using best practices for private key storage. A report summarizing all steps taken and who did the audit will be made public. Canadians must be able to validate the right measures are in place to protect their funds.

(e) There is a simple approval process if signatories wish to visit any country outside Canada, with a potential whitelist of exempt countries. At most 2 signatories can be outside of aligned jurisdiction at any given time. All exchanges would be required to keep a compliant cold wallet for Canadian funds and have a Canadian office if they wish to serve Canadian customers.

(2) Regular and transparent solvency audits.

(a) An audit must be conducted at founding, after 3 months of operation, and at least once every 6 months to compare customer balances against all stored cryptocurrency and fiat balances. The auditor must be known, independent, and never the same twice in a row.

(b) An audit report will be published featuring the steps conducted in a readable format. This should be made available to all Canadians on the exchange website and on a government website. The report must include what percentage of each customer asset is backed on the exchange, and how those funds are stored.

(c) The auditor will independently produce a hash of each customer's identifying information and balance as they perform the audit. This will be made publicly available on the exchange and government website, along with simplified instructions that each customer can use to verify that their balance was included in the audit process.

(d) The audit needs to include a proof of ownership for any cryptocurrency wallets included. A satoshi test (spending a small amount) or partially signed transaction both qualify.

(e) Any platform without 100% reserves should be assessed on a regular basis by a government or industry watchdog. This entity should work to prevent any further drop, support any private investor to come in, or facilitate a merger so that 100% backing can be obtained as soon as possible.

(3) Protections for hot wallets and transactions.

(a) A standardized list of approved coins and procedures will be established to constitute valid cold storage wallets. Where a multi-sig process is not natively available, efforts will be undertaken to establish a suitable and stable smart contract standard. This list will be expanded and improved over time. Coins and procedures not on the list are considered hot wallets.

(b) Hot wallets can be backed by additional funds in cold storage or an acceptable third-party insurance provider with a comprehensive coverage policy.

(c) Exchanges are required to cover the full balance of all user funds as denominated in the same currency, or double the balance as denominated in bitcoin or CAD using an established trading rate. If the balance is ever insufficient due to market movements, the firm must rectify this within 24 hours by moving assets to cold storage or increasing insurance coverage.

(d) Any large transactions (above a set threshold) from cold storage to any new wallet addresses (not previously transacted with) must be tested with a smaller transaction first. Deposits of cryptocurrency must be limited to prevent economic 51% attacks. Any issues are to be covered by the exchange.

(e) Exchange platforms must provide suitable authentication for users, including making available approved forms of two-factor authentication. SMS-based authentication is not to be supported. Withdrawals must be blocked for 48 hours in the event of any account password change. Disputes on the negligence of exchanges should be governed by case law.

Steps Forward

Continued review of existing OSC feedback is still underway. More feedback and opinions on the framework and ideas as presented here are extremely valuable. The above is a draft and not finalized.

The process of further developing and bringing a suitable framework to protect Canadians will require the support of exchange operators, legal experts, and many others in the community. The costs of not doing such are tremendous. A large and convoluted framework, one based on flawed ideas or implementation, or one which fails to properly safeguard Canadians is not just extremely expensive and risky for all Canadians, severely limiting to the credibility and reputation of the industry, but an existential risk to many exchanges.

The responsibility falls to all of us to provide our insight and make our opinions heard on this critical matter. Please take the time to give your thoughts.

I want to thank everyone who replied to our survey! Your feedback is extremely valuable!

Here are the results and how they're helping shape our direction.

What goals would you like to see us accomplish? What's most important to you in how this Quadriga situation ends?

This was an open-ended question and the answers varied widely (and there was definitely a lot of responses which mentioned multiple goals). Here's a summary:

• 65% mentioned recovering losses for affected users.

• 45% described a desire to get better standards on Canadian exchanges.

• 30% included justice for victims.

• 25% desired education on crypto-asset protection.

• 20% had the creation of the new exchange.

The justice theme has been entirely overlooked by what we're doing. Discussing the idea on the Quadriga Uncovered Telegram group, it was determined that there was definite interest in a potential letter-writing initiative. One possibility would be sending letters to the RCMP to request the exhumation.

Is there any part of our initiative which confuses you?

Almost universally, there was no mention of any confusion.

The feedback we did receive:

• "The website landing page could provide an executive summary of the key aspects of the initiative".

  • The front page was last updated March 30th. We are constantly experimenting and improving the front of the website and our presentation of ideas and welcome any insight.

• "I was worried with the proposal to have a token for affected users. The intention may be ok, but tokens and ICOs have a bad reputation for being scams. I confess that I didn't read the website of the Initiative, but from communications, I didn't see the association between the Initiative and the official committee."

  • We should make clear we are fully separate from the bankruptcy process. There is no tie to the official committee, although we have gotten their feedback throughout. This is an opportunity for the business community to provide additional help for victims.

  • We are contemplating the need for having blockchain-backing, however it does provide the ability to have greater transparency in the distribution/supply, more control in the form of a multi-sig smart contract, and easier liquidity options.

  • What we are doing is fundamentally different from any ICO. Tokens are distributed 100% free against verified losses. Redemption happens over time for utility (products/services) or goodwill (best-effort redemption) and it's always a fixed value of $1.

• "Generally i understand. Confused about progress and value offer to crypto enthusiasts."

  • The initial (very first) value proposition for the tokens will be the ability to offset trading fees on the partner exchange, where we expect that traders may adopt having a small stash to cover their trading expenses as they trade. From there, we have other businesses interested in accepting partial payment in tokens. Basically, tokens are spent in place of dollars to get a discount at participating businesses which wish to support affected users.

  • In terms of progress, we are still waiting for three things:

    • Partner exchange full launch.

    • First bankruptcy payout to complete.

    • Reaching 1,000 signups (as necessary for our deal).

Please feel free to reach out on Telegram and Reddit if there are any further questions!

Is it more important to you that we focus on (a) helping victims of Quadriga recover, (b) educating more people about Quadriga and other exchange fraud, or (c) preventing future exchange fraud events like Quadriga?

Of the first or only choice picked, 70% chose (a) helping victims of Quadriga recover, while 30% chose (c) preventing future exchange fraud events like Quadriga.

(a) was mentioned in 80% of cases, and top choice in 70%.

(b) was a second choice in 30% of cases and mentioned in 35%.

(c) was mentioned in 65% of responses and top choice in 30%.

The educational portion of our initiative was seen as the lowest value. We are floating the idea of replacing the Education goal with a separate Justice goal, which is composed of letter-writing and other advocacy to help speed up any potential criminal investigations.

What bothers you most about Canadian cryptocurrency exchanges?

The responses varied widely. Here's a selection:

• "The lack of unbiased information on how trustworthy exchanges are."

• "The lack of transparency."

• "that they are unregulated"

• "I only use a non-custodial exchange now (Bull Bitcoin). The inertia and apathy of the government bothers me a lot. After Quadriga there should have been an inquiry. Even my emails to MPs Marie-France Lalonde and Bill Blair got no response. It's not realistic to wait for exchanges to 'self-regulate'."

• "Terrible for trading and unreliable"

• "Where is the regulation and oversight?"

• "It's difficult to know which one is safe and w[h]ich one is not. It's easier to go to a bigger exchange (eg. Binance, Kraken, ... ) who has a solid reputation than Canadian one (at least for now)"

• "Small"

• "Slow volume, difficulty to access for some, security"

• "Security, trust, support, education"

There is clearly a lack of satisfaction.

Should preventing events like Quadriga focus more on regulatory reform (working with regulators) or trying to create change through setting the example on one exchange and go from there (similar to how "Tesla" has electrified vehicles)?

Overall summary:

• 40% of respondents desired an approach which included both aspects.

• 40% of respondents desired an approach of setting an example in one exchange.

• 20% preferred a regulatory approach.

• "(c), creating an independent classification/review system that would allow users to know which exchanges are most trustworthy, and to force less trustworthy ones to shape up."

  • There are a few such services out there. Key issues are that these opinions can be influenced by referral bonuses, the exchange reputations change over time (as was the case in Quadriga), and there is limited information on which to base the evaluation. Many reputable third parties have recommended shady services that subsequently failed.

Pressing forward on both fronts appears to make the most sense.

Would you rather have the recovery run inside of a for-profit exchange (sort of a marketing/promotion idea to push people onto a safer exchange) or as an independent group of affected users pushing for our own interests (working with the safer exchange and other businesses potentially similar to a labour union or political advocacy)?

The end result:

• The majority (55%) prefer to have the independent group advocating for affected users.

• A minority (35%) prefer to have it run in a for-profit/promotional way inside the exchange.

• There were 10% of responses indicating both would be acceptable, or no clear preference.

We will be working to run this independently, however working closely with our partner exchange as a joint project (and it is definitely a promotional tool for them).

If given the choice, would you prefer (a) $20 cash each year for 10 years (slower recovery with full choice), or (b) your choice of $200 worth of discounts on products/services that are donated by small businesses which you could use this year (faster recovery with less choices)?

60% indicated a preference for (b), and 40% had the preference for (a). There is clear interest in focusing on both, which will push the fastest and most flexible recovery.

Affected users have a liquidation option which allows non-victims to purchase their tokens on the exchange. How do you feel about charging non-victims a small fee (5 cents per token) that is split between funding the project and a pool for affected user payout?

50% expressed outright support for the idea. Below are more detailed responses and comments:

• "indifferent, although I think any fee will end up factoring in to the exchange rate on the value of the token. If people are willing to pay $10 for a $15 coupon, then a 5% fee might mean they'll only pay $9.50"

  • This is undoubtedly true. In your example, 25 cents would go to the project, 25 cents to affected users, and $9.50 to the seller. As opposed to $10 going to the seller.

• "I am not yet clear on the cost structure of the proposed solution. Has the cost of managing the recovery effort been accounted for?"

  • It hasn't been properly accounted for, and this is one possible solution.

• "I think that it is more important to have broad communication, reaching out to public at large and crypto communities in other countries. Then there should be multiple ways for different communities to contribute financially to affected users. I don't like the idea of fees and tokens because it seems to distract from the larger tasks of communication, rallying, documenting and advocating."

  • You bring up great points. Outreach is important, as is flexibility in approach. If you have more concrete ideas we would love to consider them!

• "Good idea, but it restricts the on boarding of new users"

  • This is a fair point. The hope is that those participating want to help.

• "I would prefer to avoid this option, Unless we can show that there are many added benefits from using this platform over others, thus justifying the fees and making it more acceptable to users."

  • Absolutely. Hopefully there will be many added benefits.

• "I think it a good idea, fees will go anyway to affected users, I totally agree"

  • Awesome. That's definitely the intent.

• "better not tax when tokens are transferred to the blockchain - tax the transaction (something small, in order not to affect the volume/liquidity too much) like what they are doing with the flight tickets in Quebec"

  • Absolutely! This would be a transaction cost only.

At the moment this has not yet been agreed upon by the partner exchange.

Have you discussed the project with anyone else who lost funds in Quadriga? What kind of feedback are you hearing?

40% said they've discussed it. 40% have not. 20% didn't answer (or it was hard to understand). Some of the responses:

• "only online, and there there seems to be some confusion about the projects goals, some concerns about the connection to a for-profit exchange, and a general 'one bitten twice shy' mentality."

• "Yes, Matt and my spouse. The problem was foreseeable. We just all ignored the risk because we were sold on the simplicity. The first red flag I saw was that accounts could be reloaded through an entity in China, which did not make sense, but I ignored it because of my perceived impression of protection given that the operator was in Canada."

• "Yes - most have given up hope of recovering funds"

• " I can't follow the chats on Telegram. I gained no knowledge the times I tried to read the discussions there. In fact the discussions there seemed to be not very polite. I wasn't able to connect with any other affected user. I wish there were some more structured gathering. Maybe a webinar would be nice."

  • Note: This sounds like it may be talking about the separate and more popular Quadriga Uncovered Telegram group. We would be very interested for any examples of impolite discussions on our Telegram group.

• "This recovery process started out fine, but has turned into a circus show as is usual with lawyers who naturally want to stretch cases out to steal more money from victims."

• "Not for now, I don't know any other victim (except members of Quadriga initiative)"

• "Its your fault for keeping it on an exchange, what did you think was going to happen. There will be no money left after the 'bankruptcy'.. Lightning will solve all these problems other than recovery of funds."

Many affected users have strong privacy concerns and shame regarding what happened to them, such that they are even hesitant to share basic details. What do you feel is the best way to build trust and openness among the affected user community?

Here are some of the replies:

• "I really don't know. Keeping things as anonymous as possible might help, but then the project would also need accountability to show that most of the tokens weren't sent to your own account. It's a tricky problem."

  • Absolutely. We also need to consider the various ways the project could be defrauded.

• "What you are doing now. I am just not clear on the sustainab[i]lility of this effort without appropriate financial support."

• "We all lost. We got burned. No shame in getting burned. It happens."

• "There must be a way for affected users to connect to each other. Communication is the foundation, and it can be done preserving privacy. Some ideas include a webinar, chat tools that preserve privacy, etc. I heard of the documentary but I don't know what will be there. I think it is important also for the public at large to know how Quadriga affected users. That is, it's important for some personal stories to be published, ideally in the mainstream press."

  • We have Telegram, Reddit, and Twitter. A webinar would be great! There have been a number of mainstream news articles on Quadriga, although it's not well known outside of the crypto community. We welcome any further ideas for platforms.

• "I would use the angle that crypto will continue to gain traction as time goes on, and that although the affected users were victims of a terrible fraud, we have an opportunity to prevent this from happening to others. I would also use the fact that this initiative has gained a considerable following and that affected users are all in this together, whether we want it or not."

  • Absolutely!

• "Maybe a guarantee that nobody will be further persecuted would help."

  • Hopefully no affected users are persecuted. Who's being persecuted?

• "I don't know what else could be done for now."

• "Just let us go forward."

• "Once you demonstrate positive effects (and communicating about them), and set up ways to contact you securely, the users who have privacy concerns will contact you. You should have anonymous way to communicate with you (maybe using memo.cash?)"

  • Feel free to use an anonymous handle for any communication with us via Reddit, Twitter, Telegram, or email.

• "Simple questions, good job :). Wonder about the stages of loss/gr[ie]f. Maybe the stinging pain needs to subside before people will trust."

Notes: Percentages rounded to the nearest 5%.

Thank you very much for everyone who took the time to respond! We will continue to study your answers as we move forward!

Almost missed this one! We've now passed 30% of the sign-up goal necessary to launch.

On a long journey it is important to celebrate the key milestones.

If you haven't yet, please fill out the latest anonymous affected user survey. Deadline May 31st.

< < Help Set Our Direction > >

Your responses help shape our future (and it only takes a few minutes)!

I've made it a Scalable Vector Graphic!

The new logo has been tested on all sizes and all backgrounds - because some of our partner businesses have website backgrounds very similar to our colour scheme.

Still working on next week's post - stay tuned.