Binance, one of the largest cryptocurrency trading exchanges has taken actions to protect users after an incident on Tuesday.
In a blog post the Binance team outlined plans for a Secure Asset Fund for Users. Starting from 14/07/2018 Binance will set aside 10% of all trading fees to a separate cold wallet, which will be used to reimburse users in “extreme cases”.
It follows an incident on Tuesday where irregular trades were detected from API users by Binance’s internal risk management system. The platform shut down, suspending trading activities and withdrawals while a team investigated.
Binance is now operating as usual once more, although API users will need to re-establish their keys. The blog post details that all users will receive a 70% rebate for all trading fees from 05/07/2018 to 14/07/2018, paid in BNB, as a way of apologizing.
While some are commending Binance for the fast reaction and forward-thinking step in creating a backup wallet for future emergencies, the incident has rekindled concerns regarding centralized exchanges.
With all traders funds centralized in one place, exchanges like Binance present a huge target for hackers. We have already seen disastrous hacks this year – $30m was stolen from South Korean exchange Bithumb just two weeks ago. Meanwhile, the fallout from the largest hack in history, Mt Gox, is still ongoing. Legal proceedings are underway, with victims still awaiting compensation for the 800,000 Bitcoin stolen in 2014.
Many have called for decentralized exchanges to take over, where users do not have to hand over their private keys and so remain in control of their funds at all times. Interestingly, Binance has itself recently revealed plans for a decentralized exchange, known as Chain.
But decentralized exchanges have until now not been able to position themselves as a viable alternative. Not only can anyone list any coin, leading to less trader security, issues such as low liquidity and high fees have stopped early iterations in their tracks.
Although it is reassuring to hear that Binance will protect traders with SAFU, the underlying issues of centralized exchanges have not been addressed. As 2018 progresses and exchange hacks likely become more and more frequent, these issues must be addressed as a priority.