Nowhere does the phrase ‘misfortunes don’t come singly’ appear to be truer than in the case of Hong Kong-based cryptocurrency exchange Gatecoin which has been hacked, had its banking accounts frozen, lost funds to a payment processor and now faces liquidation all in a span of three years.
In a statement, Gatecoin revealed that it has to ‘cease operation with immediate effect’. According to Gatecoin, its current predicament was triggered by problems it experienced with banking partners. This saw it turn to a French-regulated payments firm but it soon ran into problems with the payments processor.
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Gatecoin Bites the Dust – Thank the Bankers
Specifically, the payment service provider experienced delays in processing transactions resulting in Gatecoin’s operations being almost paralyzed for several months. The cryptocurrency exchange incurred substantial losses as a result.
Switching service providers did not help as the French-regulated payment institution still retained a significant portion of Gatecoin’s funds. Legal action has, however, not borne any fruit for the Hong Kong crypto exchange:
After months spent trying to recover those funds, we commenced legal action against that PSP [Payment Service Provider] but were advised that it is unlikely that we would be able to recover the funds from them in full.
— Leo Weese 獅草地 (@LeoAW) March 14, 2019
The Genesis of Gatecoin’s problems with Legacy Financial Institutions
The banking problems Gatecoin alluded to in its ‘farewell letter’ started in September 2017. At the time, Gatecoin held banking accounts with Hong Kong’s Hang Seng Bank, whose majority owner is HSBC Group. But suddenly and without notice, these accounts were frozen.
According to a blog post detailing its predicament at the time, Gatecoin turned to two other banks after the freeze. The two banks, however, froze its accounts too. It was after this that Gatecoin turned to the French-regulator payments processor that is allegedly behind its collapse.
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Ironically, Gatecoin is being done in by the actions of financial institutions that crypto is supposed to replace or at least provide serious competition to.
Stolen Crypto Assets Stolen Now Worth More Than $20 million
At the time the value of the stolen crypto assets was $2 million but has since grown tenfold. A total of 250 bitcoins and 185,000 ETH were lost in the hack.
— CCN.com (@CCNMarkets) May 19, 2016
As Gatecoin explained then in a statement, the hackers exploited a system flaw which allowed non-administrators to make alterations:
We have previously communicated the fact that most clients’ crypto-asset funds are stored in multi-signature cold wallets. However, the malicious external party involved in this breach, managed to alter our system so that ETH and BTC deposit transfers by-passed the multi-sig cold storage and went directly to the hot wallet during the breach period.
A provisional liquidator has already been picked and the fallen crypto exchange has promised to assist in ensuring that the liquidation process is expedited. Au revoir Gatecoin!