Category Archives: Cold Wallet

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GK8 Creates Cold Storage Wallet with Unidirectional Internet Connectivity

Israeli startup GK8, which was founded by veteran Israeli cybersecurity experts that used to work for the Prime Minister, has created a new type of cold wallet which can broadcast a transaction while simultaneously being secure. This is accomplished via the wallet being unidirectional, meaning that the wallet can broadcast a cryptocurrency transaction to the internet via a communication device, but the wallet does not accept any incoming data. Also, the wallet is disconnected from all other digital devices and isolated from any computer interface.

The idea behind cold wallets in general is that it is safest to store cryptocurrency long term in a device that is completely disconnected from the internet. However, a security risk arises at the point that the user wants to withdraw cryptocurrency from the cold wallet, since it then must be plugged into a computer or the internet.

Essentially, GK8 solves this problem by having a built-in and secure mechanism to broadcast a transaction to the internet while being disconnected from any computers, and not receiving any incoming data. In-fact, the wallet is not actually connected to the internet at all. is committed to unbiased news and upholding journalistic codes of ethics. For more information please read our Editorial Policy here.

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Japan Regulator Urges Improved Security for Offline Crypto Custody

Japan Regulator Urges Improved Security for Offline Crypto Custody (1)

Cryptocurrency exchanges in Japan will be required to fortify their cold wallet storages, according to a Reuters report.

Citing a source with direct knowledge of the matter told, the report states that Japan’s financial regulator, the Financial Services Agency (FSA), is uneased by the current security levels of some exchanges as it perceives risks of internal thefts that threaten cold wallets.

To this end, the undisclosed source told the outlet that a preferred measure would be to have more than one person be in charge of the cold wallet and be placed on rotational shifts.

As Japan embraces the fintech industry to further economic growth, the watchdog will, therefore, urge cryptocurrency exchanges with security lapses to ensure they adopt the best offline security practices, given that the previous year had seen as much as USD 530 million stolen from a single exchange in Tokyo alone.

In the fall of 2017, Japan began issuing a license to cryptocurrency exchanges under its new regulation, with the second exchange announced in March to debut its services in April. With its steady oversight over the industry, Japan continues to drive interest that balances innovation and investor protection.

Cryptocurrency custody remains a crucial subject in the industry; notably one of the major concerns shared by many regulators as well as investors, which in effect has created a competitive market for custody-related solution platforms. As for crypto exchanges, the situation is direr.

Case in point, Bakkt recently experienced hiccups with its launch as the US Commodity Futures Trading Commission (CFTC) stated that Bakkt’s custody protocol would need to take further steps in protecting the cryptocurrency in order to be compliant the commission’s rules.

On the subject of cold wallets, it appears security breach may not be the only threat to funds stored offline. A recent case of trapped customer funds worth over USD 190 million in a cold wallet of major Canadian cryptocurrency exchange QuadrigaCX after the death of the CEO Gerald Cotton – who was solely in charge of the cold wallet – leaves a bitter experience.


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Crypto Exchange QuadrigaCX Funds Trapped in Cold Wallet as Only Dead CEO Had Access

Crypto Exchange QuadrigaCX Funds Trapped in Cold Wallet As Only Dead CEO Had Access

Another colossal misfortune greets 115,000 crypto traders who had their funds trapped in the now insolvent crypto exchange QuadrigaCX as it has reported that it is unable to access about USD 190 million of funds stored in the cold storage as well as fiat drafts held in custody, according to a filing for bankruptcy with the Nova Scotia Supreme Court on 31 January.

QuadrigaCX’s misfortune began when the founder and CEO Gerald Cotten reportedly died from Crohn’s disease in early December 2018, but the exchange waited until early January to announce his passing.

It was common practice for Cotten to move funds from the hot wallet into the cold storage for security purposes, and it was his sole responsibility. However noble the act – protecting users from hackers, – his passing has left the crypto exchange in a predicament, as only he has access to the cold wallet storages.

According to the affidavit submitted by Robertson, the storages hold 26,488.59834 Bitcoins; 11,378.79082 Bitcoin Cash, 11,149.74262 Bitcoin Cash SV, 35,230.42779 Bitcoin Gold; 199,888.408 Litecoins; and 429,922.0131 Ethereum as at 18 January and further reports indicated that the exchange was still accepting deposits after Cotten’s death.

The exchange also had challenges with fiat custody as funds that were deposited in a personal account were frozen – the company had no corporate account due to the nature of cryptocurrency business in the region, and funds operated through third-party has also been held back awaiting further order from the court, according to the affidavit.

A total of about USD 32.5 million in fiat is stuck and awaiting court proceedings before any action can be advised. Perhaps there’s hope for creditors funds to be paid back, which is however largely dependent on how the court proceedings turn out. According to the affidavit:

“The residual balance of these funds [once the cost of the proceeding is deducted], combined with net recoveries from other sources, would be made available to satisfy the claims of Quadriga’s creditors as confirmed through the CCAA process.”

The exchange hopes for a preliminary hearing on 5 February to appoint a third-party Ernst & Young Inc., to monitor the proceedings.

While exchanges provide a rather unique opportunity for digital asset owners to interact and have played important roles in the development of the cryptocurrency industry; seeing that most of the promised platforms are yet to launch a viable product, safety remains an issue.

Exchanges continue to battle on the frontline with compliance, market share, liquidity and security threats and perhaps will continue to do so until there are more standard protocols applicable for the industry. Quadriga’s unfortunate situation is bound to trigger some ill feelings towards crypto, and dent what little reputation has been built thus far. Fear that it might follow suit with the biggest cryptocurrency exchange fallout in the history of crypto – the Mt. Gox – is a possibility.

This incident has, however, further demonstrated the need for users of crypto exchange to have more active roles in the control of their funds, whether stored on an exchange or in a cold wallet in case of emergencies and unpredictable natural disaster as with the case of QuadrigaCX. As for exchanges, employing contingent approach such as multi-signature security systems can go a long way to prevent disasters such as this from scaling.


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