Cryptopia users must wait – fund recovery will ‘take some time’

Grant Thornton, the liquidator appointed to investigate hacked New Zealand cryptocurrency exchange Cryptopia, has confirmed users of the exchange will have to wait a little longer for their funds to be returned as “it is not practicable to estimate a completion date”.

In a new report released yesterday, the company states that while fund recovery is well underway, it will “still take some time to complete”.

Cryptopia was hacked in January 2019 for $11m

Cryptopia ceased operations in January 2019 after hackers managed to siphon off some $11m worth of assets in a security breach.

While the Christchurch-based cryptocurrency exchange attempted to reopen in March, the damage to its reputation was too great. It was forced to go into liquidation in May.

Since then, liquidator Grant Thornton has embarked on a lengthy and challenging process to recuperate users’ funds. This has been hampered by the need to cooperate with third parties and the lack of an existing legal framework to follow.

Why it’s so hard to recover Cryptopia users’ funds

Grant Thornton has been able to recover some of the stolen funds over the last six months. However, it’s an incredibly complex procedure with no legal or technological precedent.

According to the report, recovering funds is so challenging in the case of Cryptopia for three main reasons. Unlike at other exchanges, Cryptopia users did not actually have their own individual wallets.

Instead, in a bid to cut costs by the exchange after it over-scaled in early 2018 and suffered trading losses in the ensuing bear market, Cryptopia pooled crypto assets into commingled coin wallets.

The exchange held details of customer holdings. However, all trades occurred in Cryptopia’s internal ledger and were never confirmed on the blockchain.

To add insult to injury, Grant Thornton claims that “no detailed reconciliation process between the customer databases and the crypto-assets held in the wallets has ever been completed”.

This is a herculean task in itself. Grant Thornton is in the process of reconciling the accounts of more than 900,000 customers, many of whom held multiple types of crypto-assets and carried out collectively millions of transactions with “potentially over 900 different crypto-assets”.

Then there’s the absence of a legal framework for the liquidators to follow. This is further holding up proceedings. The company still does not know how cryptocurrency is classed in New Zealand (whether it is property or not). This affects how the funds are held and returned to users.

And when is that likely to be?

“At this stage, it is not practicable to estimate a completion date for the liquidation,” the report concludes.