Researchers from South Korea’s central bank say issuing a central bank digital currency (CBDC) could have negative ramifications for the economy.

The Bank of Korea (BoK) published a study on Thursday, which modeled how a CBDC issuance might affect on liquidity at commercial banks.

It found that if the public could access the theoretical digital currency directly, commercial banks’ demand deposits, or reserves, could be reduced – leaving them with a cash shortfall. That could eventually force them to compensate by raising interest rates on loans, the central bank explained.

“This has negative effects on financial stability, which increases the likelihood of bank panic in which commercial banks are short of cash reserves to pay out to depositors,” the report states.

According to CoinDesk Korea, report co-author Kwon Oh-Ik said that, if a CBDC is issued, “supplementary measures should be taken so that they do not adversely affect financial stability.”

In June 2018, the BoK said that issuing a CBDC could pose a “moral hazard” by adversely affecting monetary policy and destabilizing the economy.

The Bank of International Settlements (BIS), known as the central bank of central banks, also warned last spring that if any country’s central bank is looking to develop and launch a CBDC, it should “carefully weigh” the implications of doing so, especially as they relate to monetary policy and overall economic stability.

On the other hand, Christine Lagarde, managing director and chairwoman of the International Monetary Fund (IMF) has encouraged the “exploration” of CBDCs in the light of decreasing demand for cash and rising preference for digital money.

A November research report from IBM found that most polled central banks believe they should issue a wholesale CBDC, although they were uncertain if blockchain can provide sufficient cost and efficiency benefits.

Bank of Korea image via Shutterstock 

Fortis Escorts, a private hospital in the Indian city of Jaipur, has released details about the death of Gerald Cotten, CEO of Canadian cryptocurrency exchange QuadrigaCX.

In a statement shared with CoinDesk on Thursday, Fortis Escorts said that Cotten was admitted to the hospital on Dec. 8, 2018 at 9:45 p.m. IST (16:15 UTC) and died of cardiac arrest at around 7:26 p.m. IST (13:56 UTC) on Dec. 9, 2018.

Two separate documents released previously – a statement of death issued from J.A. Snow Funeral Home and a death certificate issued from the Government of Rajasthan’s Directorate of Economics and Statistics – also state that Cotten died on Dec. 9, 2018 in Jaipur, the state capital of Rajasthan.

Cotten was brought to the hospital in a “critical condition” with “pre-existing Crohn’s disease and was on monoclonal antibody therapy every 8th week,” the statement from Fortis Escorts reads. At the time of admission, Cotten was diagnosed to be suffering from septic shock and other serious issues relating to his exacerbated condition.

“On 9th December, 2018, the patient suffered a cardiac arrest but was revived by CPR [cardiopulmonary resuscitation]. The patient heart condition continued to deteriorate and the patient suffered a second cardiac arrest at 6:30 p.m. [13:00 UTC],” the statement from the hospital reads.

It continues:

“Despite the best efforts of our clinicians the patient could not be revived and was declared dead approximately at 7:26 pm. All standard medical procedures and guidelines were followed to treat the patient. The information of his death was communicated to the relevant authorities.”

Cotten’s death is at the center of the concerns and rumors surrounding the QuadrigaCX exchange, which went offline last week owing millions to its thousands of customers because the CEO had died apparently without leaving a way for staff to access the computer storing its funds.

In a sworn affidavit filed Jan. 31 with the Nova Scotia Supreme Court, Jennifer Robertson, identified as the widow of QuadrigaCX founder Gerald Cotten, said the exchange owes its customers roughly 250 million CAD (US$190 million) in both cryptocurrency and fiat.

The exchange has since sought creditor protection in the court. On Tuesday, a Supreme Court judge granted the exchange its application, giving it a 30-day stay of proceedings to try and recover any cryptocurrencies, as well as find other avenues for reimbursing customers.

Canadian flag image via Shutterstock

At the cutting edge of blockchain research is a potential $15 million dollar venture by the Ethereum Foundation centered around a technology called Verifiable Delay Functions (VDFs).

Acting as a source of computer-generated randomness that is unpredictable and unbias-able, VDFs are envisioned for use in a highly-anticipated “proof-of-stake”(PoS) system called Serenity which the ethereum network will migrate to in the next few years.

What’s more, the ability to generate secure randomized numbers – if implemented in Serenity – would be a feature that can be leveraged by all decentralized applications (dapps) on the platform once integrated into the ethereum codebase.

Speaking to current viability studies on VDF technology, Ethereum Foundation researcher Justin Drake told CoinDesk:

“We’re basically doing all this groundwork to make an informed go, no-go decision on the bigger project. The bigger project is 15 million dollars on that order of magnitude. So we want to make sure that if we do go ahead it’s going to be successful.”

And in terms of making the final decision on the technology, Drake stressed that the process of decision-making would be multi-layered.

“To an extent we need the buy-in from the wider ethereum community that this is a good idea and that the foundation should be spending this money,” said Drake. “This is something where we can reach rough consensus on public calls.”

For now, Drake told CoinDesk that a number of essential tests will be carried out by ethereum developers before a final “go, no-go decision” is made on the incorporation of the technology into Serenity.

One of these tests, called the RSA ceremony, will require hundreds of randomized individuals spread out across the globe to participate in an experiment which tests the security of random number generation by a VDF.

Outside of the RSA ceremony, there will also be a worldwide circuit competition requiring participants to test and create specialized firmware also called ASICs to run VDF computations.

As Drake elaborated:

“In the VDF, we basically need an ASIC which is very low latency, that is very fast. The so-called circuit – the way transistors connect in the ASIC – needs to follow a clever algorithm … We don’t need it to be the fastest in the world, just fast enough.”

‘A fundamental new primitive’

And it’s not just the Ethereum Foundation looking at hosting circuit competitions to build VDF technology.

To this end, the decentralized app network Chia completed their first-ever VDF open circuit competition, awarding a total of $100,000 to relevant participants. The company is said to be gearing up for a second round of competition by “incorporating the solutions from this first round,” as highlighted in a press release.

“If we don’t do a great job of optimizing performance … there are likely to be sudden jumps in performance of the best VDF that anyone has out there post-launch, which could result in significant network instability,” Bram Cohen, Chia’s co-founder, told CoinDesk.

Outside of Chia, there are a total of 11 other blockchain companies exploring VDF technology – each with unique plans of their own.

As Revealed to CoinDesk in interview, the ethereum sidechain POA Network plans to host “a public bounty” for a VDF implementation using the ethereum open-source collaboration platform Gitcoin.

Other than Chia and POA Network, some of the notable crypto projects researching VDF include file storage system Filecoin, smart contract platform Tezos, decentralized app network NEAR protocol and ThunderCore.

The imperative for increased collaboration between all these companies, according to Drake, is all the more needed given that VDFs are “like a fundamental new primitive.”

“It’s quite generic in that sense … It would be nice if the industry standardizes around a single VDF, partly because that would make the various blockchain projects more compatible with each other but it also means that we [wouldn’t] have to reinvent the wheel and [would collectively] pay less,” said Drake.

And while at least one company was previously reported to be in collaboration with the Ethereum Foundation on VDFs, Drake highlights that for now, the foundation is working independently.

Potential for partnership

Unveiled last November, Filecoin had tentatively agreed to split costs for a VDF viability study and reevaluate at a later date whether or not to move forward with the necessary firmware development to bring VDF ideas to life.

A protocol researcher from Filecoin, who wished to remain unnamed, told CoinDesk:

“We’re enjoying the collaboration with the Ethereum Foundation, but at this point it’s not certain that Filecoin needs a VDF. It could simplify things, but it’s one of a number of options we’re exploring.”

The representative also affirmed that, at present, Filecoin is moving ahead “separately” from the Ethereum Foundation but may “potentially co-fund third party proposals for exploratory VDF research with the Ethereum Foundation” in the months ahead.

As such, Drake highlights that, for now, “the Ethereum Foundation has moved on its own … [funding] various researchers, generally small grants to the order of 10 and 25 thousand dollars.”

But moving forward, Drake estimated that the foundation could come to a decision about whether or not to use the technology in as little as four months time.

“So the various studies that we’ve just kicked off should take four to six months but I think that in about four months we’ll be able to make an informed go, no-go decision,” Drake said.

Ethereum image via Shutterstock

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With bitcoin (BTC) closing yesterday at the lowest level in 7.5 weeks, the gradual sell-off is showing no signs of abating.

On Wednesday, the leading cryptocurrency by market value ended the session (as per UTC) at $3,328 – the weakest daily close since Dec. 16 – according to Bitstamp data, dashing hopes of an upside break of the falling wedge pattern carved out over the last six weeks.

Further, BTC created a bearish lower high at the crucial resistance of the 50-candle moving average (MA) on the 6-hour chart. That average line has thwarted several fledgling rallies over the last three weeks, as discussed yesterday.

As a result, the slow drip sell-off from December highs above $4,200 witnessed over the last six weeks is likely to continue. BTC could soon challenge recent lows near $3,300 and may extend the decline toward the low of $3,100 seen in December.

At press time, BTC is trading largely unchanged on the day at $3,380.

Daily chart

As seen above, yesterday’s high and low engulfed Tuesday’s price action as indicated by a bearish outside candle. Effectively, the day began with optimism but ended on a pessimistic note, meaning the “sell-on-rise” mentality is still strong.

Hence, the cryptocurrency risks falling to the descending channel support, currently at $3,230.

Supporting that bearish case are the 14-day relative strength index of 38 and downward sloping 20-day moving average (MA).

6-hour chart

On the 6-hour chart, the 50-candle MA has proved a tough nut to crack for close to three weeks. A convincing break above that average, currently at $3,434, might lead to a stronger rally toward resistance at $3,658 (high of the bearish gravestone doji created Jan. 26).

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Bitcoin image via Shutterstock; charts by Trading View

Switzerland’s top stock exchange, SIX, aims to roll out a blockchain platform to speed up trading later this year.

Reuters reported Feb. 6 that SIX chairman Romeo Lacher said the planned new SIX Digital Exchange (SDX) will initially operate alongside the existing SIX platform.

Currently, a trade takes several steps to complete, which can take days. However, using a distributed ledger knocks out two of the stages and can reduce the trade lifecycle to fractions of a second, Reuters added.

The report cites officials as having said that SDX will launch offering trading in certain stocks, with a wider range of stocks and bonds to follow. Exchange-traded funds could ultimately be on offer too, and possibly even tokenized physical assets such as art.

Lacher told the news source that the SIX supervisory board will “probably” make the final decision late in the summer, as it is still working out legal and regulatory issues with Switzerland’s financial markets regulator, FINMA.

SIX first announced the new DLT-based platform last July, with CEO Jos Dijsselhof saying at the time: “This is the beginning of a new era for capital markets infrastructures. For us it is abundantly clear that much of what is going on in the digital space is here to stay and will define the future of our industry.”

Once the new platform is live, SIX plans to use it itself to raise funds later in the year, according to Reuters.

“We want to start with our own security token offering,” Lacher said.

Last November, SIX announced it would launch the first ever exchange-traded product (ETP) tracking multiple cryptocurrencies. The Amun Crypto ETP goes by the ticker symbol HODL, and tracks an index the “top 5 crypto assets in terms of market cap and liquidity.”

SIX stock exchange image via Shutterstock

QuadrigaCX, the Canadian cryptocurrency exchange, made headlines the world over last week when it announced it was filing for creditor protection and owed upwards of $130 million or more to its customers.

The long-suffering exchange has had banking issues for more than a year, and customers complained they could not easily withdraw fiat or crypto over the past several months. Fears that the exchange may be insolvent or running a scam were exacerbated by an announcement that its founder and CEO, Gerald Cotten, died of Crohn’s disease while in India.

After weeks of poor communication (and several days of the website going offline entirely), the exchange announced it was filing for a stay of proceedings in an attempt to head off any customer lawsuits while it tries to recoup its funds and figure out its next steps.

The situation as a whole carried echoes of the Mt Gox scandal, both in terms of the degree of global interest (many mainstream news outlets and publications have run stories, centered primarily around the stated inability to access customers funds following Cotten’s death) and the scale of future uncertainty.

As CoinDesk reported on Tuesday, the legal picture surrounding the exchange is beginning to solidify. A Nova Scotia Supreme Court judge granted the exchange its application, giving it a 30-day stay of proceedings to try and recover any cryptocurrencies, as well as find other avenues for reimbursing customers.

Yet many questions swirl around the proceedings, further fed by the theories propagated by QuadrigaCX customers, observers and critics. Below, we explore some of the biggest questions as they currently exist.

What we know

Quadriga owes a lot of money

QuadrigaCX says it owes roughly 115,000 people some C$190 million in both fiat and crypto. These 115,000 customers are part of a larger group of nearly 300,000 individual accounts created, though it appears that the remainder doesn’t currently store any funds on the exchange.

In a court filing last week, Cotten’s widow and the executor of his estate Jennifer Robertson claimed that neither she, nor anyone else on the QuadrigaCX team, knew how to access the exchange’s crypto reserves – or indeed, where they might even be located. The exchange holds roughly 26,500 bitcoin ($92.3 million USD), 11,000 bitcoin cash ($1.3 million), 11,000 bitcoin cash SV ($707,000), 35,000 bitcoin gold ($352,000), nearly 200,000 litecoin ($6.5 million) and about 430,000 ether ($46 million), totaling $147 million, according to the affidavit.

Cotten reportedly conducted all of his business operations out of an encrypted laptop, which Robertson has been unable to gain access to. While a consultant has been hired to try and break into the laptop, this expert has so far been unsuccessful.

While the timing of the move hasn’t been confirmed, the laptop will ultimately be given to professional services firm EY, which was appointed monitor by the court.

Compounding the exchange’s problems is the fact that much of its fiat reserves are tied up after a well-documented legal fight with the Canadian Imperial Bank of Commerce. There is no timeline yet for when those funds might be restored.

All told, the exchange estimates that it owes customers about $53 million in fiat and $137 million in crypto (in U.S. dollars).

Not all of Quadriga’s funds are in crypto

According to its court filing, about $70 million CAD ($53 million USD) of its funds are held by payment processors in fiat.

Of that, about $30 million CAD ($23 million USD) is held by payment processor Billerfy in the form of bank drafts. Billerfy has explained in the past that it was having difficulty finding banking partners to endorse these drafts, preventing it from releasing the funds back to the exchange.

During the discussion in court Tuesday, Quadriga attorney Maurice Chiasson, a partner with law firm Stewart McKelvey, asked whether EY – the monitor appointed to oversee Quadriga’s efforts – might be able to assist in finding a banking partner to endorse the drafts. It is unclear whether this is a possibility, and EY declined to comment when reached.

In an email, Billerfy managing director and owner José Reyes told CoinDesk he had not yet heard from EY, and was not sure what the next steps would be now that the company has been appointed as monitor.

He added in a later email that he has not had any luck finding banking partners to endorse the drafts yet.

Lawyers for Quadriga also control a further $5 million held by several New Brunswick, Canada-based companies. However, these funds may be used to organize bankruptcy processes and other administrative tasks, Chiasson explained.

Quadriga has 30 days under the existing order

Tuesday’s stay grants Quadriga 30 days to try and recover its missing cryptocurrency reserves, as well as unlock its fiat holdings and look for other assets that can generate revenue. In an early filing, EY indicated that the exchange could sell its trading platform as one such revenue generator.

An initial report will be due on March 1, and another hearing will be held at the end of the 30-day period to determine what progress Quadriga is making.

It’s possible that the exchange will file for an extension to the stay during that hearing, though Chiasson said in court Tuesday that “it is our hope that as and when significant events develop, [such as if] we find a significant store of coins, we would immediately [begin distribution].”

There will be a separate hearing to determine which law firm will be appointed as representative counsel on Feb. 14, though no lawsuit can be filed while the stay is in effect.

A request for clarification to Bennett Jones LLP, one law firm vying to be appointed, was not returned by press time.

What we don’t know

Still, numerous questions surround the entire situation, including whether the exchange ever had the funds it claims are currently locked up in cold storage.

If there are really any cold wallets

One of the most concerning claims in Thursday’s affidavit was that the team is currently unable to access cold wallets holding Quadriga’s reserves. However, prominent voices in the crypto community are casting doubt on this assertion.

MyCrypto’s founder and CEO Taylor Monahan told CoinDesk that she would be “very surprised to learn of a cold storage ether address” based on how the exchange managed its holdings with three primary wallets.

“Almost all of the largest transactions are either sent to exchanges or amongst three ‘primary’ addresses … I haven’t seen anything indicating a large reserve or cold storage mechanism being used on the Ethereum chain,” she explained.

That does not mean the exchange has no cold storage wallets at all – but while it is possible, Monahan explained that she would find it “improbable” based on the exchange’s past practices.

The differences in what the blockchain data appears to be saying about Quadriga’s holdings and what the exchange claims have led to further questions about the existence of the funds at all, sparking allegations of fraud on the part of the exchange and its operators.

What’s the deal with the multi-sig wallets

In 2015, Cotten said the exchange used multi-signature wallets as a security precaution. Multi-sig wallets typically see multiple parties maintaining control of a part of a wallet’s private key.

In such a scenario, two or more of the parties would have to sign a transaction before it can be approved. However, no other Quadriga employees appear to have announced themselves as able to sign off on transactions.

In other words, the question remains whether there was a multi-sig wallet, where Cotten single-handedly managed all of the signatures, or if this security precaution was not actually taken.

What comes next

As stated, Quadriga now has 30 days of breathing room to try and find its missing coins, as well as unfreeze its fiat holdings.

What is less clear is how the exchange might proceed.

An email account set up by EY Canada to accept messages from Quadriga creditors was not functional as of press time. While Quadriga has released a new statement on its website, specifics were not included.

Instead, the website’s statement noted that “we are in the early stages of a long process,” and that the work was ongoing.

“What we can tell you is that the CCAA process will allow QuadrigaCX to keep all options open to attempt to maximize the funds available for the company’s stakeholders. We will provide further updates to the extent possible,” the statement reads.

Rumors and speculation

Whether Cotten is really dead

Despite two separate documents stating that Cotten died on Dec. 9, 2018 in Jaipur, the capital city of the Indian state of Rajasthan, online conspiracy theories continue to claim that he faked his death in order to pull an exit scam.

J.A. Snow Funeral Home, which issued a statement of death on Dec. 12, refused to confirm or deny that it actually issued the document. Calls to the Nova Scotia Department of Vital Statistics, which tracks life events (including deaths) were not returned by press time.

Separately, the Government of Rajasthan’s Directorate of Economics and Statistics produced a death certificate for Cotten on Dec. 13, which CoinDesk obtained and published Tuesday. No cause of death was listed and further inquiries were not returned.

Angel House, an organization which builds orphanages in India and has been affiliated with Cotten in the past, did not pick up when called.

Anna Baydakova and Yogita Khatri contributed reporting.

Canadian flag image via Shutterstock