Binance Hack Brings Back Talks of Decentralized Exchanges
Topical talks about decentralized exchanges (DEXs) have resurfaced yet again following the recent hack on the world’s top crypto exchange.
Malta-based Binance was hacked on Tuesday May 7 with about $40mln worth of Bitcoin stolen from its vault.
Everything has since been back to business as usual even as the market shrugged off any sign of the hack almost immediately, seeing Bitcoin rise over $6000 for the first time in six months by the next day.
Hacks like this have a negative impact on the reputation of the crypto industry. It supports the narrative that genuine concerns over security and ongoing threats have to be addressed as it shows (again) the susceptibility of all centralized exchanges to an attack.
Though Binance has demonstrated it wields influence on the overall market in the past, the breach puts the top exchange on the spotlight despite its CEO, Changpeng Zhao (CZ), had received offers of support from the likes of TRON’s Justin Sun and security expert, John McAfee.
.@cz_binance – if I can help at all please let me know. Underneath my clown suit is still one of the most experienced cybersecurity experts on the planet. I've been doing it for 51 years. I am at your service.
— John McAfee (@officialmcafee) May 8, 2019
— Justin Sun (@justinsuntron) May 8, 2019
It has been dubbed a honeypot for hackers in some quarters. According to the Technical Product Manager of a blockchain-based institutional trading and settlement platform, PR9 Network, Tara Annison, Binance is “one of the biggest honey pots for hackers” since it has “an abundance of altcoins which are easier to liquidate, plenty of trading volume, and lots of retail users who could fall foul of social engineering attempts.”
She noted that the effect of the hack could have been worst if the exchange, which reportedly keeps a 2% of its funds in hot storage, had not put a number of attack mitigations in place.
A turning point?
DEXs have been cited as instrumental to crypto mass adoption. After the hack, CZ hinted on DEXs in quite an admissive way. He stated openly that the cost of running a DEX is much lower, supposedly than a centralized exchange. But he didn’t make any commitment other than continuing to promote some projects that have started to migrate to Binance’s new decentralized platform, BinanceDEX as well as to join the Binance Chain.
While DEXs is a known alternative to centralized exchanges, Annison notes the impediment before their use in the market: “Traders have continued to put their trust in exchanges, primarily due to convenience and need, but also because decentralised alternatives are not yet a mature proposition.”
Jay Zhou, CMO of Loopring, the open-source protocol for building DEXs, adds another layer to the view:
“Hackers target the world’s largest exchanges and now it’s Binance’s turn as they expose their vulnerabilities to the world. Nevermind making Binance Chain and the Binance’s DEX open source, it is time for centralized exchanges to integrate onchain settlement with offchain order management, so that these risks can be fundamentally resolved.”