CoinTrader/NewNote Shuts Down
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CoinTrader.net was a Canadian exchange platform which was acquired by NewNote Financial for $1.5m. No annual report was completed for 2015. When the platform shut down in 2016, an internal audit showed “a deficiency of bitcoin in company wallets". NewNote officially claimed they owed nothing to creditors because the issue was with CoinTrader. The exact amount lost has not been published.
About CoinTrader.net
Cointrader.net was a bitcoin exchange platform based in Vancouver, Canada[7][8] reportedly driven by a team of Bitcoin enthusiasts, entrepreneurs, and engineers deeply invested in the future of cryptocurrency[9]. CoinTrader had a physical office at 100 - 900 Howe Street and was also reachable for support by phone[10]. Cointrader.net was one of Canada's top Bitcoin exchanges by volume, processed over CDN $1,500,000 in transactions monthly, and boasted 10,000 active users[11]. Their homepage emphasized easy payments through solutions like Vogogo Interac and assured customers of security through measures such as Xapo-insured cold storage and CrowdCurity[8]. The website provided a snapshot of the bitcoin market, displaying price trends and order book information[8]. It also offered developer resources and funding options for users[8]. Additionally, Cointrader.net provided access to FAQs and contact information for further inquiries, along with details on fees and legal policies[8].
Cointrader.net is a meticulously engineered Bitcoin Exchange brought to you by the team that installed the world’s first Bitcoin ATM.
The journey of the CoinTrader founders into the Bitcoin industry began with local trades at small coffee shops, evolving into a brokerage in Downtown Vancouver, and culminating in the launch of the world's first Bitcoin ATM[9]. Cointrader.net aimed to bridge physical stores and ATMs worldwide with their online platform, leveraging strategic partnerships with top legal and financial professionals in Canada and securing banking partnerships in reputable jurisdictions[9].
As an online trading platform, Cointrader.net facilitated the exchange of bitcoins (BTC or XBT) for traditional currencies such as CAD and USD[9]. The company operated as a registered Canadian corporation, ensuring compliance with Canadian and international regulations at the time[9]. Their core values revolved around security, affordability, and user-friendliness, with a commitment to providing the best possible Bitcoin exchange experience[9]. Cointrader.net encouraged feedback and suggestions from users to continually improve their services, welcoming communication through their support email[9]. Cointrader.net promised users 100% insured Bitcoin deposits and robust security measures[11].
The team behind Cointrader.net comprised individuals with diverse expertise and backgrounds[9]. Paul Szczesny, the founder, brought technical and economic prowess honed over a decade as a software engineer and involvement with Fortune 500 companies[9]. Jackson Warren contributed extensive domain knowledge in the Bitcoin industry and established robust connections with entrepreneurs and businesses locally and internationally[9]. Cheyne Mackie, a successful entrepreneur and business manager, brought logistical and managerial acumen to the company. Mitchell Demeter rounded out the team with years of experience in business management and a track record of successful ventures, adding valuable insights to Cointrader.net's operations[9].
Acquisition By NewNote
Newnote Financial Corp., previously known as Winrock Resources[12], was a provider of cryptocurrency and Bitcoin-related products and services[11]. Newnote Financial was publicly traded on the Canadian Securities Exchange (CSE)[12]. It had reportedly been working on it's own trading platform called PureTrade prior to the acquisition[12].
In March 2015, Newnote Financial acquired Cointrader.net[11][13], along with along with the CoinZero Point-of-Sale System and ATM machines in London and Tokyo[11] and other assets, for C$1.5 million in cash and stock[11][13]. The acquisition made Newnote the first publicly traded Bitcoin exchange listed on three stock exchanges[11][13]. Cointrader.net, known for its high transaction volume in Canada and its imminent expansion into the U.S. and European markets with the help of strategic partner Vogogo, processed over C$1.5 million in transactions monthly and boasted 10,000 active users[11][13].
Newnote also acquired CoinZero, a Point-of-Sale system enabling merchants to accept Bitcoin and offering features such as inventory tracking and Bitcoin to fiat conversion[11], positioning itself as a competitor to BitPay and Coinbase[13]. With strategic partnerships in place, Cointrader.net is poised to enter the U.S. and European markets later in the year, enabling direct bank transfers in all 50 states and many Eurozone countries[11]. The company planned an aggressive marketing campaign to expand Cointrader.net's user base and international presence[11][13]. Despite a flat stock performance, Newnote saw the acquisition as positioning itself as a leader in the cryptocurrency space in Canada[13]. CEO Paul Dickson sees this transaction as positioning Newnote as a leader in Canada's cryptocurrency space, committed to offering innovative products and services[11].
The Reality
Vulnerabilities in the CoinTrader platform were present which would threaten the ambitious dreams of the Newnote team and CoinTrader users.
This isn't the exchange's first setback; in early 2014, it faced account closures by the Bank of Montreal due to government restrictions on digital currency businesses[14].
Cointrader's closure follows months of low trading volume, with just 81.43 BTC traded over six months[14].
What Happened
The CoinTrader platform was breached, with the attacker making off with approximately 100 bitcoins.
| Date | Event | Description |
|---|---|---|
| March 19th, 2015 2:00:00 AM MDT | Kitco News Reports Acquisition | Kitco News reports that Newnote Financial Corp. has acquired Canadian-based Bitcoin exchange Cointrader.net, along with the CoinZero Point-of-Sale System and ATM machines in London and Tokyo, among other assets, for CDN $1,500,000 in cash and stock[11]. This acquisition establishes Newnote as the world's first publicly traded Bitcoin exchange listed on three stock exchanges. Newnote aims to bolster Cointrader.net's user base and expand internationally through aggressive marketing and strategic partnerships. CEO Paul Dickson sees this transaction as positioning Newnote as a leader in Canada's cryptocurrency space, committed to offering innovative products and services[11]. |
| March 19th, 2015 11:39:19 AM MDT | Finance Magnate Article | Finance Magnates reports on the acquisition[12]. They include details about Newnote's previous name and the current share price of CAD $0.19 per share for a total valuation of CAD $5.77 million[12]. The recent closure of Vault of Satoshi and CaVirtex are mentioned as growth drivers[12]. The plans for QuadrigaCX to go public are mentioned as well as Newnote's prior attempts to launch their own platform called PureTrade[12]. |
| March 19th, 2015 12:19:00 PM MDT | Proactive Investor Reports Acquisition | Proactive Investor reports on the acquisition[13]. This acquisition makes Newnote the first publicly traded Bitcoin exchange listed on three stock exchanges[13]. Newnote has also acquired CoinZero, a Point-of-Sale system enabling merchants to accept Bitcoin, positioning itself as a competitor to BitPay and Coinbase[13]. The company plans an aggressive marketing campaign to expand Cointrader.net's user base and international presence[13]. Despite a flat stock performance, Newnote sees this acquisition as positioning itself as a leader in the cryptocurrency space in Canada[13]. |
| November 2015 | Last Twitter Activity | CoinTrader's official Twitter account is also offline, with the last activity dating back to November 2015[1]. |
| March 22nd, 2016 11:07:44 PM MDT | Homepage Still Online | The last time when the CoinTrader homepage is captured as being online[15]. |
| March 29th, 2016 | Abrupt Shutdown | According to PressReader, the site abruptly shut down on March 29th, 2016[16]. |
| March 30th, 2016 8:41:34 AM MDT | CCN Article About Shutdown | Online new site CCN reports that the CoinTrader platform has shut down[1]. The shut down has left customers uncertain about the fate of their accounts. The exchange announced the closure on its website without providing any indication of a potential return[1]. The homepage of the website now simply states that CoinTrader.net has shut down immediately, assuring customers with balances that they will be contacted via email, mail, or telephone to settle their accounts[1]. Newnote Financial Corp's website is also inactive, with only a message teasing "something cool coming soon." The logistics of settling accounts for all customers remain uncertain, as CoinTrader has yet to provide further details or comments regarding its closure. Despite attempts to contact CoinTrader for clarification, no representative was available for comment at the time of publishing[1]. |
| March 30th, 2016 10:05:00 AM MDT | CoinDesk Article Published | CoinDesk reports that Canada-based bitcoin exchange Cointrader has announced its immediate shutdown, citing a significant hack[14]. Users received unconfirmed emails detailing a deficiency of bitcoins in company wallets, causing withdrawal delays[14]. The exchange halted all deposits, withdrawals, and trading activities until further notice[14]. Cointrader's closure follows months of low trading volume, with just 81.43 BTC traded over six months[14]. This isn't the exchange's first setback; in early 2014, it faced account closures by the Bank of Montreal due to government restrictions on digital currency businesses[14]. Cointrader and its parent company, Newnote Financial, have not responded to requests for comment[14]. |
| March 30th, 2016 11:58:34 AM MDT | BitcoinTalk Discussion | A BitcoinTalk discussion is started on the recent news of the platform closure and hack[6], referencing a CoinDesk article. Users received unconfirmed emails alleging a shortage of bitcoins in company wallets, causing withdrawal delays[6]. This incident underscores the risks of storing bitcoins on exchanges for extended periods, prompting warnings against long-term storage on exchanges. Discussions in online forums suggest skepticism about the claims of hacking, with some suggesting ulterior motives or mismanagement[6]. |
| April 2nd, 2016 3:29:01 AM MDT | Offline 406 Error | The CoinTrader website appears to be offline. A 406 error was returned and archived when accessing the website[17]. |
| November 16th, 2016 | Trading Delisted | The Canadian Securities Exchange delists Newnote[16]. |
| September 8th, 2017 | Notice Of Claim | A Vancouver man named Kenneth Charles Craig files a notice of claim in the Supreme Court of British Columbia[16]. "The troubles, as described by Mr. Craig, go back to his purchase of 9.75 bitcoins through Cointrader.net. He says that subsequent to his purchase, Cointrader.net was acquired by Newnote. Initially, he thought his deposit was secure. He claims to have received assurances from Newnote and Mr. Dickson to that effect."[16] |
| September 13th, 2017 | PressReader Article Published | PressReader publishes an article reporting on the breach and resulting lawsuits which have happened[16]. |
Technical Details
Very few technical details about the nature of the breach have ever been disclosed.
Total Amount Lost
"Newnote said that it suffered the loss of approximately 100 bitcoins after a security breach."[16]
The total amount lost has been estimated at $1,500,000? USD.
Immediate Reactions
The CoinTrader website was shut down. This was reported by multiple media sources. The shut down left customers uncertain about the fate of their accounts[1]. The logistics of settling accounts for all customers remain uncertain, as CoinTrader has yet to provide further details or comments regarding its closure[1].
Closure Of The Website
The homepage of the website stated that CoinTrader.net had shut down immediately, assuring customers with balances that they will be contacted via email, mail, or telephone to settle their accounts[1]. The exchange halted all deposits, withdrawals, and trading activities until further notice[14].
"In addition, the Company has discontinued the Cointrader.net Bitcoin Exchange effective immediately. Rising maintenance costs and lower trading volume attributed to an increase in competitors within the Canadian market space have been factors in its closure. Users of Cointrader.net with balances remaining are being settled and accounts closed."
Reports In The Media
Online new sites CoinDesk and CCN reported that the CoinTrader platform had shut down[1][14]. The exchange announced the closure on its website without providing any indication of a potential return[1][14]. Users received unconfirmed emails detailing a deficiency of bitcoins in company wallets, causing withdrawal delays[14]. Despite attempts by CCN to contact CoinTrader for clarification, no representative was available for comment at the time of publishing[1]. Cointrader and its parent company, Newnote Financial, had also not responded to requests for comment from CoinDesk[14].
Discussions On BitcoinTalk
A BitcoinTalk discussion is started on the recent news of the platform closure and hack[6], referencing a CoinDesk article. Users received unconfirmed emails alleging a shortage of bitcoins in company wallets, causing withdrawal delays[6]. This incident underscores the risks of storing bitcoins on exchanges for extended periods, prompting warnings against long-term storage on exchanges. Discussions in online forums suggest skepticism about the claims of hacking, with some suggesting ulterior motives or mismanagement[6].
Another one going down! I think these exchanges are operating just like cloud mining ponzi scams, but this have better returns, once they see people store their bitcoins there and is a good amount, they just came up with the same story over and over again"Oh no we got hacked" and boom they disappear with people money. Advice is to never leave your coins in any exchange no matter how trusted are they before they go down.
Ultimate Outcome
“I had funds in the exchange and have been nagging Newnote repeatedly since it occurred. Intermittently they respond, and generally just blow me off. If you read their ToS, there's some verbiage that (if upheld) seems to indicate a 12-month "limitation period" on any claims - the deadline for which is rapidly approaching. Possible they're trying to lay low in hopes the majority of users don't do anything about it.”"Newnote said that it suffered the loss of approximately 100 bitcoins after a security breach. As a result, it could no longer operate the Cointrader.net site. The company claimed that it subsequently reimbursed all of the users that it could verify. Mr. Kagerer and Mr. Paschenik were not among those users with verified claims, according to the company."[16]
"Newnote further said that the terms of use for the site specifically limited its liability. Those terms stated that the site was not liable for “Monetary or other value attributed to Bitcoins,” among other things. They also stated that the site was provided “as is” and that Cointrader “disclaims any recourse against us and you hereby waive any recourse and indemnify us .. from any and all claims, demands, damages, losses, costs and expenses or [sic] any kind and nature.”"[16]
Total Amount Recovered
There do not appear to have been any funds recovered in this case.
Ongoing Developments
What parts of this case are still remaining to be concluded?
Individual Prevention Policies
When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.
Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...
For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.
Platform Prevention Policies
All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.
All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.
Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.
For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.
Regulatory Prevention Policies
All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.
Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.
For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.
References
- ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 Canadian Bitcoin Exchange CoinTrader Shuts Down - CCN (Feb 5, 2020)
- ↑ Bitcoin exchange Cointrader hacked, taken offline | Bitcoin News (Feb 5, 2020)
- ↑ Newnote Financial Corporate Update (Feb 5, 2020)
- ↑ Cointrader.net hacked :( : Bitcoin (Feb 6, 2020)
- ↑ Was Cointrader hacked? : Bitcoin (Feb 6, 2020)
- ↑ 6.0 6.1 6.2 6.3 6.4 6.5 6.6 Bitcoin Exchange Cointrader Shuts Down After Alleged Hack - BitcoinTalk (Feb 6, 2020)
- ↑ Cointrader Exchange Inc - Bloomberg (Feb 6, 2020)
- ↑ 8.0 8.1 8.2 8.3 8.4 CoinTrader Homepage Archive January 27th, 2015 2:07:29 AM MST (Accessed Feb 29, 2024)
- ↑ 9.00 9.01 9.02 9.03 9.04 9.05 9.06 9.07 9.08 9.09 9.10 CoinTrader's About Page Archive March 26th, 2015 5:09:53 PM MDT (Accessed Feb 29, 2024)
- ↑ Cointrader (Vancouver) - AirBitz Archive August 13th, 2020 5:01:59 AM MDT (Accessed Feb 6, 2020)
- ↑ 11.00 11.01 11.02 11.03 11.04 11.05 11.06 11.07 11.08 11.09 11.10 11.11 11.12 11.13 Newnote Financial Acquires 100% Interest in Revenue Generating Cointrader.net Bitcoin Exchange, CoinZero Point-of-Sale System and ATM Machines in London & Tokyo - Kitco News Archive August 13th, 2022 10:26:12 PM MDT (Feb 6, 2020)
- ↑ 12.0 12.1 12.2 12.3 12.4 12.5 12.6 Canadian Bitcoin Exchange CoinTrader to Go Public in $1.18 Million Deal with Newnote Financial - Finance Magnates (Feb 6, 2020)
- ↑ 13.00 13.01 13.02 13.03 13.04 13.05 13.06 13.07 13.08 13.09 13.10 13.11 Newnote acquires Bitcoin exchange Cointrader.net, other assets for C$1.5 mln - Proactive Investors (Feb 6, 2020)
- ↑ 14.00 14.01 14.02 14.03 14.04 14.05 14.06 14.07 14.08 14.09 14.10 14.11 14.12 Bitcoin Exchange Cointrader Shuts Down After Alleged Hack - CoinDesk (Feb 5, 2020)
- ↑ CoinTrader Homepage Archive March 22nd, 2016 11:07:44 PM MDT (Accessed Feb 29, 2024)
- ↑ 16.0 16.1 16.2 16.3 16.4 16.5 16.6 16.7 Newnote sued by CoinTrader.net customers - PressReader Archive August 11th, 2022 9:31:54 PM MDT (Feb 6, 2020)
- ↑ CoinTrader Homepage 406 Error Archive April 2nd, 2016 3:29:01 AM MDT (Accessed Feb 29, 2024)