With the defi and the yield farming frenzy spreading like wildfire, it appears like the beginning of a bull run. A variety of parallels will be drawn between the upcoming rally and the 2017 bull run.
However are we prepared for the following bull run?
As addressed within the earlier article, there are three elements to reply the query. We’ve got to try:
- The crypto populace
- Blockchain networks
The primary two factors have been addressed in-depth within the earlier article and this text focuses solely on exchanges and if they’re prepared.
The cryptocurrency ecosystem has an excellent many centralized exchanges like Binance, Coinbase…the listing goes on. Nevertheless, nearly all of those exchanges have both suffered a shutdown/outage or a hack. Some have skilled each.
Incidents surrounding cryptocurrency exchanges are various; from Bitfinex’s two massive hacks to the loss of life of Gerald Cotton and the eventual chapter of the Quadriga. Hacks and stolen bitcoins date far again to 2011, with the earliest hack resulting in the lack of 25,000 BTC. The person who saved his bitcoins on a laptop wrote on Bitcoin Discussion board “I simply received hacked“.
To say the least, exchanges have been a degree of failure on the subject of defending funds. The previous is proof that exchanges may but once more be the goal of such hacks, ought to the bull run start in full pressure.
To this present day, most exchanges face downtime when bitcoin turns into risky. This happens regardless of having greater than 2 years to develop and stress-test techniques. Trade shutdown has turn out to be a frequent prevalence. Take, for instance, Coinbase, and its a number of shutdowns even with a small transfer of 10% in bitcoin, or when Kraken and different US exchanges shut down through the weekend crash on 10 May 2020.
In February, Binance, the well-known exchange shut down buying and selling for six hours as a consequence of system upkeep and in March, each Gemini and BitMEX confronted a downtime.
Regardless of being nearly three years into the bear market, exchanges appear to have remained the identical. The decentralized, pseudonymous nature of crypto that makes it interesting to the mass, additionally attracts hackers alike.
As of 2020, illicit cryptocurrency transactions have risen, each in complete value and as a share of all cryptocurrency exercise. In reality, illicit transactions have a small share of all cryptocurrency exercise at simply 1.1%.
Take, for instance, in 2019 the place hackers stole $283 million worth of cryptocurrencies in 11 hacks. Out of the 11 hacks, a Korean exchange, Upbit was hacked to a tune of $48 million.
A person investigation posted by Bitquery confirmed that the hacked funds have been tracked to a number of exchanges however the ones that stood out have been Binance and Huobi. Different exchanges like Kraken, BitMEX, Liquid, and so forth have been additionally concerned in receiving the funds.
Maybe, Binance and Huobi stood out since they’re the favored Asian exchanges with good liquidity. Regardless, the purpose is that exchanges play an enormous function throughout and even after the hacks. Whereas some exchanges agree to dam the hacked transactions others don’t play such an lively function.
Chainalysis’ report additionally arrived on the similar conclusion. The go-to for hackers as of 2019 have been Binance and Huobi. Collectively the exchanges contributed to receiving greater than half of all illicit transactions. That is stunning contemplating each exchanges have KYC laws.
Specifically, Chainalysis said that there have been 810 accounts that acquired nearly $819 million worth of Bitcoin from felony sources in 2019. Though it was recognized that the majority of those accounts are associated to OTC brokers, there’s no manner of shutting them down. In reality, OTCs may facilitate the vast majority of all cryptocurrency commerce quantity as estimated by Kaiko.
Furthermore, the PlusToken rip-off has precipitated a serious affect on the price of bitcoin contemplating the rip-off tokens being dumped on exchanges. The rip-off that siphoned about 20,000 BTC and 790,000 ETH has since been moved to completely different exchanges and bought off.
Along with hacks, there are issues with the throughput of exchanges. BitMEX exchange has shut down on a number of events, with the newest one through the March crash. Though the explanation behind “shut down” may range, the truth that stays is that it’s the brand new norm.
The brand new bull run will stress-test the exchanges on their capacity to,
- deal with and on-board the FOMOing customers
- deal with pumps and crashes
The newest crash on August 2 precipitated Binance and plenty of exchanges to auto-deleverage numerous trades. FTX, BitMEX, and different exchanges additionally suffered the same destiny through the crash.
Therefore, it needs to be sufficiently clear that exchanges have quite a bit to enhance and are presently not able to deal with the following bull run or the following hack, whichever comes first.