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US a Crypto Exchange Scarecrow — What Needs to Change?

Half of the top-30 crypto exchanges try to avoid dealing with U.S., despite it being one of the biggest markets.

America is the land of opportunity, so long as you don’t happen to be a cryptocurrency exchange. For several years now, a number of prominent exchanges have opted not to serve U.S. citizens; in fact, the list of trading platforms avoiding the U.S. is still growing, with Bancor recently announcing that it would block U.S. citizens from using its website to convert tokens.

As can be guessed, regulation — or rather, the lack of clear regulation — is the main reason why crypto exchanges are increasingly shying away from the U.S. Exchanges complain about the uncertainty of U.S. securities legislation, about the failure of legislators to respond quickly enough to the rise of crypto with corresponding laws, and about how the lack of a transparent regulatory framework is putting America’s domestic cryptocurrency industry at a competitive disadvantage.

However, despite the relative hostility of the current regulatory environment, industry figures are hopeful that it’s only a matter of time before the U.S. government and legislature come through with clear and workable crypto regulation. At the same time, Binance has just announced Catherine Coley as the CEO of its Binance.US platform. The selection of Coley, who has experience such as heading institutional foreign exchange at Morgan Stanley, demonstrates that U.S.-focused and regulatory-compliant exchanges may increasingly be the way to go as crypto enjoys more adoption and mainstream recognition. And with certain new exchanges also setting up in the U.S., it would seem that crypto is prepared to do what it takes to crack the American market.

A history of exiting

While the blocking of U.S. customers has gathered steam over the past few months, the first notable instance of exclusion occurred in August 2017, when Bitfinex announced that it would “be discontinuing services to our existing U.S. individual customers.” Then the biggest exchange in terms of BTC/USD trading volume, Bitfinex blamed crypto-fiat banking difficulties for the decision, the likelihood that regulation could become stricter rather than more permissive, and the relative unimportance of U.S. customers for its revenues. The company’s press release declared:

“While we have been able to normalize banking for some corporate customers and individuals in certain jurisdictions, compliant banking solutions for U.S. individuals remain elusive. […] We anticipate the regulatory landscape to become even more challenging in the future.”

This move came roughly a year after Bitfinex suffered a notorious hack worth 119,756 BTC and around four months after Wells Fargo stopped processing outgoing wire transfers for Bitfinex’s customers. It also followed suspicion regarding the status of Tether (USDT) and the failure of iFinex (which owns Bitfinex and Tether) to publish an audit of the stablecoin’s reserves. Also, given that U.S. authorities and regulators had begun devoting extra attention to crypto exchanges at this time (as evinced by the indictment of the Russian owner of the BTC-e exchange in July), it also appeared as though Bitfinex was preemptively seeking to avoid any unwanted legal scrutiny.

However, as curious as this exit from the American market may have seemed at the time, Bitfinex certainly wouldn’t be the last exchange to exclude U.S.-based customers, although it would take a while before another prominent platform followed its example. The first to do so was Poloniex, which stopped offering trades in nine cryptocurrencies to U.S. customers in May of this year, citing unclear securities legislation as its motivation. Then came Bittrex, which barred U.S. users in June from trading in 32 currencies, and was soon followed by Bancor, which excluded U.S. customers completely from its web-based platform.

There was also Binance, which announced in June that it would stop serving American customers as of Sept. 12. Of course, Binance is in the process of launching a U.S.-only exchange that is fully compliant with all relevant American regulations, so this isn’t a complete withdrawal. Nonetheless, the fact that certain altcoins will become inaccessible to U.S. traders (even with U.S.-dedicated exchanges) indicates that America’s regulatory environment is restricting its domestic cryptocurrency market and industry.

And aside from the exchanges that have pulled out of the U.S., there are also dozens of platforms that have always blocked U.S. customers. These include many of the biggest exchanges by volume, including OKEx, Huobi Global, LBank, HitBTC and Coineal.

In other words, American citizens have a significantly reduced ability to access cryptocurrency, and according to many of the exchanges that have decided to restrict their services for U.S. users, this puts the American cryptocurrency industry at a disadvantage compared to other national crypto sectors. Gus Coldebella, the chief legal officer at Circle, which owns Poloniex, told Cointelegraph:

“There’s no question that the current regulatory approach to crypto in the U.S. breeds uncertainty and could harm innovation. We have advocated for a clear, forward-looking regulatory framework so the U.S. can realize the full potential of crypto and blockchain technologies. That advocacy will continue and will ramp up, especially now that Facebook’s Libra is causing many to reckon with crypto for the first time.”

Other exchanges agree that, currently, the U.S. regulatory regime is not only too restrictive for cryptocurrency platforms, but also too ambiguous. This is essentially what Bancor declared in the press release announcing its decision to stop serving U.S. customers, even if it didn’t highlight any particular regulation or aspect of American regulation that was ambiguous:

“In light of increased regulatory uncertainty, we believe that restricting U.S.-based users from executing conversions via our web interface is the most judicious decision for all members of Bancor’s ecosystem at this time.”

Crypto in the U.S.

On the other hand, some exchanges argue that the regulatory situation isn’t that disadvantageous for the U.S. crypto industry, and that the picture is more mixed and nuanced than some protestors would have you believe. For example, Precious Kenneth W. — the CEO of decentralized exchange Dexage — told Cointelegraph that, even if American retail customers have been negatively impacted by U.S. regulations, institutional actors and investors have had more power to circumvent restrictions. She explained:

“Yes, in the sense that the vast majority of U.S. citizens have been affected, but the case is not so much the same with established companies with deep access to investors funds. These companies with the capacity to tap a liquid market may be able to bypass the restrictions placed locally with offshore investments.”

Kenneth W. also doesn’t entirely agree with the notion that U.S. lawmakers and regulators have been too slow to come through with updates to existing laws, or with entirely new laws or guidelines, not least because the industry is still very young. She continued:

“Blockchain laws & regulations will evolve in line with a jurisdiction legal framework, there is no uniformity or one-size-fits-all standard or approach. I wouldn’t say they have been slow: the blockchain & crypto space is still evolving and the trajectory with technological innovation and regulation is that the former happens and the latter steps in.”

However, when it comes to the matter of token sales, Kenneth W. concurs that current regulations are unclear, and that cryptocurrency startups and companies are avoiding the U.S. as a result, saying that “in the current situation, most ICOs are avoiding the U.S. basically because of what they see as either ‘overregulation’ or because they want to avoid the legal issues that may arise due to the erratic nature of cryptos.”

It’s arguable that the exchanges that have been pulling out of the U.S. have also been trying to avoid such legal issues, and that some may in fact be unwilling to satisfy regulations that have been created in order to protect consumers. But while this might be a valid argument for a minority of platforms, it’s undermined by the fact that Binance is in the midst of setting up a fully compliant U.S.-dedicated exchange, while a number of other companies — such as eToro, Liquid and Riot Blockchain — have recently launched or are in the process of launching U.S.-focused platforms. This argument has also been denied by Circle’s Gus Coldebella, who stated that Poloniex, at least, wasn’t seeking “lax” treatment in restricting its American service. Coldebella said:

“We can’t speak for other companies, but we would put our compliance with laws, our seriousness about safety and security of customer assets, our respect for licensing authorities, and our commitment to compliance up against anyone else in the space. So our desire is not for lax laws — it’s for smart ones.”

Unsurprisingly, Poloniex and Circle believe that U.S. lawmakers have been too slow in acting, and, more importantly, in realizing that the cryptocurrency industry does indeed require its own specific legislation rather than simple incorporation within existing laws. “We’re on record talking about the need for laws to treat crypto differently, rather than understanding it through the nearly century-old securities framework, and only Congress may make that change in the U.S.,” Coldebella added.

Future laws

Even though this paints a fairly bleak picture of the present regulatory climate, the industry is generally hopeful that the situation will sooner or later change. And as Coldebella explained, there are already signs that this change is being set in motion: “Some U.S. lawmakers are tuned in to the opportunity in this space: for example, bipartisan legislation such as the Token Taxonomy Act would provide much-needed clarity, and some other members of Congress are considering other creative approaches.”

Aside from the Token Taxonomy Act, a number of other potentially positive bills are currently being considered in the U.S. Congress, as detailed by the nonprofit Coin Center. These include the Blockchain Promotion Act, as well as the U.S. Virtual Currency Market and Regulatory Competitiveness Act, the latter of which has been drafted to “promote United States competitiveness in the evolving global virtual currency marketplace.” So, assuming that the Token Taxonomy Act — which seeks exemption for digital assets from the Securities Act — and other similar bills are passed, this could create a regulatory framework in which more exchanges are encouraged to return to the U.S., or to set up operations for the first time in the country.

However, as things stand, it seems that at least as many exchanges are abandoning U.S. customers as are embracing them, as highlighted by the cases of Bancor, Bittrex, Poloniex, Bitfinex, Binance (to an extent) and others. This is potentially good news for any country or region that wants to become the world’s crypto capital, but it’s potentially bad news for the American crypto industry overall.

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Bancor Seeks to Exclude US Users From Trading Over Regulatory Uncertainty

Developers will block U.S. IP addresses from being able to trade tokens from July 8, while other functionality will remain.

Decentralized exchange platform Bancor plans to restrict United States residents from trading tokens on July 8, the company confirmed in a blog post on June 18.

Citing a lack of clarity from regulators, executives said they took the decision to ban all users with a U.S. IP address from exchanging cryptocurrency.

“This decision has been made in light of increased regulatory uncertainty; at this time, we believe this is the most judicious decision for all the members of our ecosystem,” the blog post reads. It continues:

“This will enable the Bancor community and ecosystem to innovate faster and with greater clarity.”

Bancor runs as a decentralized protocol using a P2P setup. While it is unclear what specific factor motivated the move, the regulatory situation involving another decentralized exchange (DEX), Etherdelta, in 2018 serves to illustrate the difficulties of operating such a service in the U.S.

As Cointelegraph reported in November of last year, the country’s Securities and Exchange Commission charged the creator of Etherdelta, Zachary Coburn, with operating an unregistered securities trading platform, as well as an over $300,000 fine.

Bancor adds that all its users will still be able to hold and transfer tokens, while conceding that the decentralized portions of its network were beyond its control and would thus remain open to U.S. traders.

“We would like to clarify that this functionality will be blocked to users accessing the website bancor.network, which offers an interface to blockchain activity,” the blog post continues. It notes:

“As the Bancor Liquidity Network is a collection of smart contracts on the blockchain, and a non-custodial system, we cannot restrict users from accessing the blockchain itself. This cannot be blocked.”

New international recommendations from the Financial Action Task Force, set for publication this week, will place stringent new ID requirements on any entity facilitating cryptocurrency trading, both in the U.S. and elsewhere.

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Bancor Co-founder: In the push to one Billion Crypto Users, We Must Think Well Beyond Hodling

Bancor

There have been talks about the ways to help cryptocurrencies become mainstream and the co-founder of Bancor, Galia Benartzi has aired her view, stating that for the crypto space to achieve the 1 billion users mark, it would have to look beyond just investors.

Cryptocurrencies Are Products

The co-founder of Bancor, Galia Benartzi now says that cryptocurrencies would hit the 1 billion users mark if tokens are created that serve as products instead of just investment tools.

She made this statement at the Asia Crypto Week Summit, where she is a participant alongside some prominent names in the cryptocurrency space. At core, Bancor is a decentralized liquidity network that has redesigned the way people create and share value by ensuring continuous on-chain liquidity between blockchain-based assets.

Benartzi noted that the most successful brands in the internet space such as Facebook, YouTube, Reddit, and others are attracting billions of users due to the products they are offering and not their investment opportunities.

Read: Hackers Steal $23.5 Million From Decentralized Cryptocurrency Exchange Platform Bancor

She stated that “many people do buy stocks, but most people that use the products that we think of as the most successful products of the internet age such as Facebook your YouTube your Reddit are buying or consuming products that they want to use rather than products that they want to invest in and wait to appreciate and then cash out

Everyday Use Would Boost Adoption, Not Hodling

Bancor’s co-founder added that once tokens become useful to everyday consumers, then it would gain greater adoption. Benartzi noted that if cryptocurrencies can be used to purchase items on stores, pay for services such as movie tickets, or send funds to other people via social media platforms, then cryptos would be able to gain massive adoption.

If tokens have commercial everyday uses, users “will not think of crypto they’ll think of it as a product, they’ll think of it as a service they will think of it as access to something they want to be in. They won’t think of liquidity networks; they won’t think of blockchains and which blockchain is my token on.

Benartzi believes that once that point is reached, then the cryptocurrency sector would be able to reach over a billion users. She revealed that the everyday use of tokens as products and services is what they are after at Bancor.

There have been an ongoing debate and work put forward by cryptocurrency companies regarding how to take the industry mainstream. At the moment, the number of crypto users is relatively small. On a scale of 1 to 10, Benartzi is convinced that crypto adoption is just at +1 at the moment, which implies that a lot has to be done to achieve global adoption of cryptocurrencies.

Also Read: Formula of Success: EEE + BNT = Your Benefits New

While there is a notion that the entry of institutional investors and the presence of Bitcoin ETFs would help push the prices higher and lead to global adoption, Benartzi is of the view that massive adoption lies in the everyday use of cryptocurrencies and not just their investment.

Without a doubt, the bear market of 2018 did wipe asset valuation, with most of them down by 80 percent or more since their all-time highs recorded in late 2017 and early 2018. Regardless,some are recovering with some experts of the view that only cryptos with real-world use would survive in the long run.

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Decentralized Exchanges Aren't Living Up to Their Name – And Data Proves It

Some say a “decentralized exchange” is an oxymoron. Perhaps not, but for now it’s not much more than an aspiration.

Over the past year, dozens of cryptocurrency trading platforms have marketed themselves as decentralized exchanges. While models vary, the term implies they allow users to trade on a peer-to-peer basis, and more importantly, without using a platform operated by a single entity.

The main selling point is that unlike today’s better-known crypto trading platforms (think Coinbase, Kraken or Binance), a decentralized exchange shouldn’t require traders to store their money with a third party that can be hacked. Yet while “DEX” has been a hot buzzword, it’s been unclear how decentralized they actually are.

Early indications, however, suggest they’re not living up to their name yet.

According to data collected exclusively for CoinDesk from July 2 to July 12 by the ethereum analytics firm Alethio, as well as interviews with market participants, what decentralized exchange models actually offer is a spectrum of technologies with varying degrees of centralization.

Some attempt to decentralize a traditional exchange company, such as the Huobi Chain Project announced in June, while others seek to build a community with stakeholders around a peer-to-peer model, like 0x.

“Decentralized exchanges are making headway toward the re-elimination of central parties in that [crypto trading] system,” said Wall Street veteran Jill Carlson.

But they still have quite a ways to go.

Alethio data analyzing DEXs from July 2-12.
Note: RadarRelay is a 0x relayer.

For example, Bancor was itself the only market maker on its decentralized platform, where it facilitated roughly 9,691 token swaps between 1,147 traders over the two-week period, Alethio found.

That lack of diversity compounds a problem with the “decentralized liquidity network,” highlighted by the steps Bancor took to address a recent $13.5 million hack. Specifically, Bancor’s freezing of funds, an action allowed by a mechanism in its code, prompted criticism that the platform was, for all intents and purposes, no different than its centralized predecessors.

“You’re not a ‘decentralized exchange’ if you’re taking away other people’s tokens whenever you want,” tweeted developer Udi Wertheimer.

Decentralized how?

One problem with talking about decentralization in this context is that it can be measured in different ways. An exchange platform might be highly centralized in one dimension but quite decentralized in others.

Take, for example, 0x. During the two weeks tracked by Alethio this open-source protocol that relies on independent relayers for token trading, had 914 market makers facilitating 9,017 trades by 234 traders – already head and shoulders above Bancor in the diversity-of-participants department.

However, those trades are funneled through a much smaller number (17) of “relayer startups.” Each relayer has its own business model, and the majority of them use their own proprietary software built on top of 0X, rather than purely open-source code that anyone can inspect.
And while 0x isn’t responsible for compliance with regulations, its relayers are. So it’s hard to call this type of DEX leaderless.

One of those relayers, Paradex, was acquired in May by Coinbase, a company that many in crypto would call the quintessential centralized exchange.

To be fair, though, it could be argued that the 0X ecosystem is arguably more decentralized than other exchanges in the way that counts the most.

“It’s different from a centralized exchange because these relayers are not holding user funds at all. They are completely non-custodial,” Amir Bandeali, CTO of 0x, told CoinDesk. “We have seen a lot of relayers starting to make open source market-making tools.”

For Carlson, who works as a consultant to 0x, the term “decentralized” should primarily apply to non-custodial trading platforms. As such, she believes hacks such as the Bancor theft point to the dangers of centralized custodians, telling CoinDesk:

“When we talk about decentralized exchanges, the primary threat that people are concerned about today is custody.”

Early days

Stepping back, it’s important to remember that the DEX market is in its infancy, and so the volume is still pretty low.

Indeed, among the DEX platforms analyzed by Alethio, the most popular was IDEX, an exchange developed by the fintech firm Aurora, which facilitated 69,339 swaps between 12,400 traders during the two-week period.

Compared to centralized Bitfinex, which facilitated roughly 92,024 trades in just two days, from July 9 and 10, according to CoinDesk’s analysis of its trade history, IDEX’s volume is a tiny drop in the niche bucket.

Marshall Swatt, founder of the institutional crypto asset exchange Swatt Exchange, argued that decentralized exchanges are merely “a fancy form” of over-the-counter (OTC) trading that won’t be able to scale. He told CoinDesk:

“I just think the lack of fiat on-ramps, the lack of governance, and the lack of compliance, are going to relegate decentralized exchanges to the margins.”

Swatt, who previously co-founded the New York bitcoin exchange Coinsetter then sold it to Kraken in 2016, warned against underestimating the difficulty of managing compliance, security, and customer support, business departments that may not fit bitcoin’s grassroots model.

“You’ll never have the level of liquidity because it will never attract the algorithmic traders,” he said.

Indeed, most DEX models only allow users to swap one cryptocurrency for another, which keeps newcomers to crypto, whether they be institutional investors or first-time buyers, at bay.

Carlson agreed it’s hard to imagine decentralized order books, market makers, or know-your-customer identity checks. These are all core pillars of most popular exchanges.

However, in her view, it’s an oversimplification to say DEX is merely glorified OTC.

“The difference here, at least today, lies at the settlement level, not at the execution level,” Carlson said, speaking to how some DEXs allow P2P settlement without third party oversight or custody. “What you end up with is an experience that is disintermediated.”

DEX fever

Indeed, none of the shortcomings of current decentralized exchanges have quelled the DEX fervor sweeping the industry.

Speaking to the Paradex acquisition, Scalar Capital co-founder Linda Xie, a Coinbase alum turned hedge fund manager and 0X advisor, told CoinDesk demand for non-custodial P2P platforms could inspire centralized incumbents to offer DEX options as well.

Indeed, Bloomberg reported the long-established exchange Binance wants to “decentralize” itself. So does the legacy platform provider Huobi, which announced in June it’s offering roughly $166 million to a fund for contributors to the upcoming Huobi Chain Project, which aims to establish a decentralized autonomous organization (DAO) and eventually incorporate parts of Huobi’s exchange.

“We’re not 100 percent sure if a corporation can be 100 percent autonomous,” Gordon Chen, Huobi Chain Project’s executive leader, told Coindesk. “We’re not sure if it can be 100 percent decentralized either. But we believe there can be some kind of balance in between.”

Although granting businesses more sway than users on Huobi’s voter-driven exchange HADAX sparked backlash, a few hundred people already applied to build the project’s public blockchain.

Along those same lines, Bancor co-founder Eyal Hertzog tweeted that his project is also on a “pathway to decentralization.”

Alethio’s data suggests that so far platforms with more straightforward P2P models have achieved more diversity of participants, even if they have so far gained less traction. For example, during this two-week period in July the startup AirSwap, which operates almost like a Craigslist for ethereum tokens, facilitated 695 swaps between 216 traders with the help of 60 unique market makers.

Such potential is why Xie remains optimistic about the prospect of DEXs, saying: “This is still just the start.”

Agreeing with Xie’s point, Carlson said the wide range of models offer a promising starting point for the further decentralization of trading platforms, concluding:

“All aspects of the spectrum have an important role to play.”

Man in maze image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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$13.5 Million Hack Ignites Fresh Debate Over Crypto Project Bancor

Innovation is never easy. That said, sometimes it can be that much harder.

Such was the case for crypto project Bancor this week, which saw its design decisions and strategy picked apart on social media as it sought to contain the damage from a multimillion-dollar hack.

On Monday, the project announced its app was down for maintenance, and shortly after, it revealed a security breach had taken place. At the time, the project assured no user wallets were compromised. (The startup has since brought its platform back online.)

Then on Tuesday morning, Bancor published details of the breach: a wallet used to upgrade smart contracts was compromised and used to steal 3.2 million of the platform’s own BNT tokens (worth $10 million), 25,000 ETH (about $12.5 million) and 230 million NPXS tokens ($1 million). Perhaps most notably, Bancor said it had frozen BNT tokens to prevent their loss.

Some background: it was Bancor that raised a then-record-breaking $153 million in a token sale, which saw participation from investors like Tim Draper and the investment firm Blockchain Capital. The startup pitched itself as a kind of “decentralized” market maker for smaller cryptocurrencies and crypto-assets, as well as means to create wholly new tokens.

As an early mover in using the initial coin offering (ICO) funding model, Bancor has long been a magnet for critiques.

Critics have alleged everything from that the platform is unnecessary to that it doesn’t need a blockchain. Sparking discussion of these topics this time around is a crucial detail above: that Bancor was able to quickly stem losses in the cryptocurrency it created and issued.

Included in the Bancor code is a mechanism that allows the company the ability to freeze movements of the BNT token – something that critics quickly pounced on as the antithesis of the “decentralization” mantra, by which a network wouldn’t have one governing force.

Bancor has frequently been referred to as a “decentralized exchange,” a moniker that added fuel to those arguments.

Backdoor blues

Some were more detailed in their critiques, though, including developer Udi Wertheimer who reminded to the community that the centralization issue was well known long ago – and criticized.

On June 20 of last year, Wertheimer wrote in a Medium post that both Bancor’s token and ICO contracts allow Bancor to arbitrarily issue, freeze and even destroy any BNT tokens whenever they want.

“I trust that Bancor’s team won’t try to misuse this backdoor. However, having so much power concentrated centrally, creates a potential single point of failure. The keys held by the team could be stolen for example. Or, law enforcement could force the project to freeze or destroy tokens if they realize this is possible (and if for some reason they would suspect any wrongdoing),” Wertheimer wrote at the time.

Back then, the Bancor’s team responded to the critique saying that the danger of the team losing its key is “quite far-fetched,” as they are keeping the keys securely, using multi-sig contracts and offline wallets.

As might be expected, that pledge was brought up in the wake of the hack.

Wertheimer further argued that such “backdoor” mechanisms that undermine the decentralization principles in Bancor could also cause the current breach, as the compromised wallet existed for the purpose of upgrading smart contracts – another feature allowing Bancor to manage the network in a more centralized manner.


Voices of support

Critiques aside, not everyone on social media took aim at Bancor.

Indeed, some took to social media to back Bancor’s efforts to build their platform in the face of such issues.

One observer suggested that those criticizing Bancor might feel differently if it was their funds at risk following a hack.

Bancor response

Still, the company persevered through the tough week.

Following the attack, it has issued a number of statements seeking to clarify its actions, including its ability to exert control of the BNT tokens.

Stressing once again that user funds weren’t compromised, Bancor said that the funds were stolen out of a BNT’s connector balance that served as a reserve, and smart contracts accessed by that wallet.

Bancor also defended its decision and ability to freeze BNT tokes as “necessary to protect the network and token holder in a state of emergency:

Later, in a July 12 blog post entitled “The Road Ahead,” co-founder Guy Benartzi didn’t address the decentralization critiques but outlined how Bancor would make available its internal tools to assist in tracking the stolen funds.

“This incident, while troubling, will not divert us from our goals. If anything, we will now redouble our efforts and accelerate our roadmap so that criminals will not prevent Bancor and the industry from achieving our most important of missions — to enable freedom of currency,” he wrote.

USB stick image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Bancor Creates Crime-fighting ‘Crypto Defenders’ as Scorn Over $12 Mln Hack Escalates

Self-styled “decentralized” exchange platform Bancor pledged to tackle cybercrime threats to cryptocurrency entities in a blog post July 12 as it resumed operations following a $12 mln hack this week.

Summarizing the platform’s future plans in the post, co-founder Guy Benartzi also announced that Bancor’s internal tools that helped tracked its hacked funds would be made available to a wider audience.

This move will form a precursor to a major crime-fighting initiative which Benartzi hopes will result in contribution of “resources and capabilities to fight criminals together.”

The initiative, described as a “coalition of crypto defenders,” will involve the platform and other as yet unnamed cryptocurrency industry businesses. Benartzi explained in the post:

“Members will collaborate on mechanisms to warn and assist each other in times of peril, coordinate around shared blacklists, and contribute open-source tools aimed at creating a safer world for all stakeholders.”

Bancor’s handling of the hack drew criticism from well-known industry figures and community members. The platform’s freezing of a smart contract containing almost $11 mln in its native token BNT runs contrary to decentralized principles, critics argued, while others claimed the fact that the attack was successful at all proved Bancor’s inferiority.

“An exchange is not decentralized if it can lose customer funds OR if it can freeze customer funds. Bancor can do BOTH. It’s a false sense of decentralization,” Litecoin co-founder Charlie Lee wrote on Twitter July 9.

Lee subsequently focused attention on Bitcoin and Litecoin’s Lightning Network implementation, which he said would eventually be the “ultimate” decentralized exchange arena.

Other commentators were less reserved, trader Tone Vays calling Bancor an “ICO scam” and Bitcoin developer Udi Wertheimer describing claims user funds were safe as a “meme.”

“Users funds aren’t safe,” he continued on Twitter, adding:

“The stolen 25,000 ETH belong to BNT holders. They were stolen from a reserve managed by a smart contract to fund BNT liquidity, and they were put there by BNT token buyers.”

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Bancor Urges Industry Players to Collaborate After $23.5 Million Hack

On July 9, the decentralized crypto platform Bancor was compromised. The hackers managed to drain over $23 million worth of crypto, part of which has allegedly already been converted into fiat via the instant exchange service Changelly. While the Bancor team is collaborating with other industry players to track the stolen funds, the recent security breach shows how decentralized platforms deal with security breaches, even though some community members have started to question whether Bancor can be considered a decentralized service at all.

What is Bancor?

Bancor was launched in June 2017 after one of the most successful Initial Coin Offerings (ICOs) in history: It gathered around $153 million in Ethereum (ETH) in just three hours during the crowdfunding stage backed by renown investor Tim Draper, among others. Named after a supranational currency conceptualized by economists John Maynard Keynes and E. F. Schumacher aimed to be used for international trade after World War II, the Tel Aviv-based Bancor is a decentralized cryptocurrency platform that essentially allows users to launch their own tokens.

In more detail, the Bancor protocol enables users to issue so-called “smart tokens,” which can hold one or more tokens in reserve and convert them into other tokens with no counterparty. Bancor integrates its own self-titled token (BNT), which can be traded for any of the other tokens supported by the network, and vice versa.

Thus, the smart token contract is its own market maker. As a result, it automatically provides price discovery and liquidity to other coins. In other words, Bancor is an outlet for selling any digital tokens it lists, even if there is no available buyer for them. It is a decentralized system, and, therefore, does not require KYC procedures and — unlike centralized crypto-trading platforms that recently attracted the harsh criticism of ETH creator Vitalik Buterin, who went as far as to wish them to “burn in hell forever” — does not store all user funds in one place, which potentially might attract hackers.

How did it get hacked?

Nevertheless, on July 9, it became subject to a heist, during which the hackers managed to steal roughly $23.5 million worth of crypto — 3,200,000 BNT (worth $10 million), 24,984 ETH (worth approximately $12.5 million) and 229,356,645 NPXS (worth roughly $1 million). The Bancor team confirmed the theft on its Twitter and swiftly froze the stolen BNT tokens, as such an ability was built into the Bancor protocol “to be used in an extreme situation to recover from a security breach,” limiting the total damage to approximately $13.5 million.

As to what caused the attack to be so successful, Bancor team reported the morning of July 9 that “a wallet used to upgrade some smart contracts was compromised.” All operations were halted, and the platform went offline — Bancor representatives assured Cointelegraph that the service will be up within 24 hours, around 10 hours ago. The platform has also reassured that “no user wallets have been compromised in the attack.”

The heist provoked some community members to question if the platform can be seen as decentralized at all. For instance, Charlie Lee, the creator of Litecoin, wrote on his Twitter:

“A Bancor wallet got hacked and that wallet has the ability to steal coins out of their own smart contracts. An exchange is not decentralized if it can lose customer funds OR if it can freeze customer funds. Bancor can do BOTH. It’s a false sense of decentralization.”

Community collaboration as the key to dealing with hacks

Now, Bancor hopes to track the stolen funds, part of which have been exchanged via the instant conversion service Changelly, as CEO Konstantin Gladych told Cointelegraph in an elaborating statement:

“Afterward, the tokens were frozen by the Bancor Foundation in our contract. Now we are helping track the stolen funds.”

Moreover, Bancor’s head of communications, Nate Hindman, informed Cointelegraph that the service is coordinating with a number of industry players to come up with tools and technology that would help the industry cooperate more effectively when hacks occur:

“These mechanisms include a real-time blacklist that tracks offending addresses and stolen assets, as well as an emergency fund that compensates projects when thefts occur. There is plenty more to do here and we look forward to working with our peers across the industry to make everyone stronger and smarter as we move forward together. Collaboration is not just a concept, it’s a practice — and we are grateful for the support and assistance.”

When asked whether it is possible to completely prevent these kinds of security breaches, Hindman argued that hacker attacks are becoming more sophisticated — along with the industry, however. Hindman also stressed that crypto platforms can outmaneuver hackers through collaborative effort:

“Together we stand in our efforts to create better tools that prevent thieves from committing crimes and utilizing stolen funds, and better processes for analyzing situations and informing users and relevant parties when they occur.”

Meanwhile, the BNT token is down 15 percent, trading for $2.43, according to coinmarketcap.com.

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Here Is Why Tron’s (TRX) Price Drop Is Only Temporary

The cryptocurrency markets have lost a staggering $20 Billion in the last 24 hours. The total market capitalization of the crypto markets stood at $273 Billion only yesterday; now it is valued at $253 Billion. The King of Crypto, Bitcoin (BTC), has somewhat held its own with a drop of 6% in the same time period and now trading at $6,392. BTC has since increased its market dominance to 43.2% as more traders prefer BTC in times of turmoil.

It is with the latter act of preferring BTC that the price of Tron (TRX) has also been dealt a major blow in the last 24 hours. TRX has lost 9.5% of its value in 24 hours and is currently trading at $0.033.

However, this is only temporary.

Initial reports indicate that the loss in market value has come as a direct effect of the Bancor Exchange hack that has resulted in the loss of digital assets worth $23.5 Million. The crypto market reaction follows a similar trend after the last 3 hacks (Coincheck, Coinrail and Bithumb) were announced in the crypto verse. What then proceeded, is a market recovery only a few days later. Therefore, all the TRX HODLers have to do, is to keep holding their TRX.

Another reason why the value of TRX will not be so low for too long, is that Binance plans on resuming withdrawals and deposits on the exchange sometime this week. This means that TRX holders can now move their TRX around to their wallets and cold storage thus decreasing the circulating supply available for trading. The influx of TRX into exchanges for the token migration, was a contributing factor for the decline in value of TRX by increasing the supply in exchanges whereas the demand was low.

Thirdly, the Tron MainNet has been working flawlessly since the Genesis Block was released on the Tron Independence Day. With a capability of 2,000 transactions per second, it is only a matter of time before the Tron Network decentralizes the web as well as the entertainment industry. Ethereum World News had earlier hinted that the Adult Film industry might be willing to tap into the Tron Blockchain and offer DApps for its viewers.

In conclusion, the current price decline of TRX is temporary due to the Bancor hack as well as the lack of liquidity of TRX from the numerous exchanges still facilitating the token migration. Once that is done, and the market recovers after the hack, it is all systems go for an increment in the value of TRX.

Disclaimer: This article is not meant to give financial advice. It is an opinion piece. The opinion herein should be taken as is. Please carry out your own research before investing in any of the numerous cryptocurrencies available.

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Hackers Steal $23.5 Million From Decentralized Cryptocurrency Exchange Platform Bancor

Bancor, a decentralized cryptocurrency exchange project has become the latest victim of cryptocurrency hackers. The company announced on Monday (July 9, 2018) that it experienced a security breach forcing it to shut down its operations. Bancor was one of the high profile ICOs of 2017, raking in $153 million during its token sale event.

Details of the Hack

Issues began yesterday when the platform announced a security breach. A few hours later, Bancor released a follow-up statement revealing that suspected hackers had stolen $12.5 million in ETH. The hackers also took BNT and NPXS tokens to the combined tune of $11m making the total loss to be $23.5 million.

According to the Bancor, the breach came via an online wallet being used to effect upgrades to certain smart contracts. The hackers were able to gain control of the wallet using it to siphon the stolen coins.

The Bancor team also announced that they were able to freeze the stolen BNT tokens – BNT is the native token of the Bancor platform. However, there is no way to freeze the stolen ETH and NPXS. Thus, the company plans to work in tandem with other exchange platforms in tracing the stolen ETH and preventing the cybercriminals from liquidating them.

Effect on the Bancor Cryptocurrency Price

Since the news of the hack became public, BNT token price has taken a significant tumble. At the start of yesterday’s trading, the BNT price was $3.15. By the end of the day, the price fell to $2.50. The decline has continued into its second day, today (July 10, 2018), dropping to $2.45. BNT has lost more than 20 percent since the attack.

The theft is yet another snag in the Bancor project development roadmap. Despite its fundamental premise and the successful ICO, the project has many doubters. Bancor is a decentralized exchange platform that employs a fluctuating price system for selling virtual coins even when there is no demand.

In 2017, Kyle Samani of Multicoin Capital said that Bancor didn’t provide any utility for the market. According to him, if exchanges decline to list any token, it is because that token isn’t good enough. He summarized his critique of the Bancor project thus:

For assets that actually have value, there will be a market. For assets that people don’t want to buy. Why should there be some pity-based programmatic market maker to provide liquidity? My inner capitalist is just dumbfounded by the concept of Bancor.

Will this latest hack adversely affect the prices of cryptocurrencies, especially Ether? Does this hack show that decentralized exchanges are just as vulnerable as their centralized counterparts? Keep the conversation going in the comment section below.

Image courtesy of Coinmarketcap.

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