Cryptocurrency Exchange Hacks Compared to the Failings of FIAT
A bumpy 24 hours for the cryptocurrency markets saw the global cryptocurrency market cap fall $3 billion to $284 billion, Bitcoin fell by $75 to $6633 whilst Ethereum gained $7 rising to $526. The slight drops initially are being blamed on the news of another cryptocurrency exchange hack encountered by South Korean exchange Bithumb, announced late last night which led to the theft of approximately $30 million worth of cryptocurrency. Whilst Bithumb did act swiftly, announcing it was halting deposit and withdrawal services whilst they sort the issue out, they were rather clumsy in posting a later deleted tweet stating losses would be compensated by Bithumb. When questioned about the deleted tweet the response was “We are providing compensation, it just has to be a more regulated process”. Compensation by the exchange is of course good news; however the deletion of the original tweet led to a period of panic that saw Bitcoin and a number of altcoins weakening slightly.
We are providing compensation, it just has to be a more regulated process.— Bithumb Support (@BithumbSupport) June 20, 2018
Exchange hacks are of course nothing new, earlier this month saw another South Korean exchange hack involving Coinrail – a much smaller cryptocurrency exchange known to be less compliant with the self-regulatory body in the country. The incident involving Bithumb last night actually goes a long way to disprove the media hype that the Coinrail hack contributed to a significant market dip at the time of their hacking incident. When the Coinrail incident occurred the global cryptocurrency market cap fell by $45 billion to just under $297 billion. Bitcoin suffered a drop of $995 bringing it down to $6693 and Ethereum fell by $76 to $524. When compared to today’s market movements after a similar size of breach but against a much busier exchange we can see exchange hacking events obviously can and do affect markets – but rarely are they the sole reason for downward trends.
The mainstream media and FUD merchants will of course aim to capitalise on the events with headlines of doom, gloom and “told you so” purely to sell newspapers without taking much effort to understand the reality of the situation. Security breaches and theft are a fact of life – no financial institution is bullet proof. Banks get robbed but it doesn’t lead everyone to stop using banks, credit cards or cash. Companies collapse and their shares become worthless (think Enron) – yet people still trade stocks. Financial institutions and banks collapse (irony alert) think about Barings, Lehman Brothers, and Northern Rock – yet no-one stopped using banks or cash. Counterfeit bank notes and even coins are in circulation, when you unwittingly find yourself holding one do declare the entire FIAT system a fraud and turn to trading in goats instead? of course not. Bear in mind there are many more incidents that are never reported, or reported some considerable time after the fact.
Should the latest hacks be a major concern to the investment world? Provided exchanges act quickly and responsibly (1 out a possible 2 points there for Bithumb – and a bonus point for assigning the majority of funds into cold-storage – unlike Coinrail) there should be little reason to panic or deride the industry. Regulation is coming together but it takes time, the cryptocurrency markets have come a long way in a very short amount of time, but even when regulation catches up, there will still be security breaches and hacks, but they will become less noticeable with the rapid growth of the sector. On a personal level, if the recent hacks lead you to sell all your holdings and declare the cryptoworld a scam that is of course your prerogative. However, take a moment to ask yourself how “safe” all the other financial mechanisms you use on a daily basis are…
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Created: Wednesday, June 20, 2018
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