Opinion: Amid KuCoin’s $150M Hack, Crypto Is Not Yet Ready For Fully Decentralized Systems
A few hours ago, the Asian exchange KuCoin announced that it suffered a hack that caused millions of dollars in losses.
A hacker, or a group of hackers, gained access to the platform’s hot wallet and stole more than $150 million in Bitcoin, Ethereum, and other cryptocurrencies. The funds held in a hot wallet are used to provide the necessary liquidity for users to perform routine operations.
The Big Guys Counter-Attack
Of course, the announcement triggered fear among investors who risked losing their funds and, up to writing these lines, unable to withdraw their cryptocurrency during the investigation by the KuCoin security team.
However, the platform intervened quickly, and its CEO committed to pay all the losses, and Kucoin is about to resume operations soon (at least as it seems). Sentiment returned to normal, Bitcoin didn’t drop, and the KuCoin Shares token (KCS) recovered quickly after a crash following the hack.
Along with the KuCoin announcement, other crypto giants rushed to intervene.
Binance assured that it would block funds received from any address associated with the hack. Tether directly froze 13 million USDt linked to the hack and temporarily banned an address with 20 million as a precaution. Other exchanges committed to tracing the funds, and Silent Notary said they would burn all the robbed SNTR tokens and replace them with new ones.
Our team got notified relatively early for this one. We will do what we can to help.
— CZ Binance (@cz_binance) September 26, 2020
Centralization vs. Decentralization
This episode still shows the importance of having a certain degree of centralization in a protocol. “Happy Endings” don’t usually happen in the crypto-verse.
Just take a few famous cases as examples: Last year, an exploit in the Bisq code caused losses estimated in 250,000 dollars, bZx lost 30% of all its funds, and one podcaster lost his life savings after a phishing attack targeting his BTC wallet.
These three cases could have been easily solved with a little bit of centralization and censorship – as unpopular as this opinion might be. Many go against this idea for considering it incompatible with the philosophy of cryptocurrency in general. Still, many benefit from and might need centralized technologies.
The current financial system is based precisely on this premise. Centralization carries a risk of censorship, but the user has the peace of mind that an entity will look after his interests. In fact, in the event of a problem, the victim can go to court to demand compensation.
This is why many consider the approval of a Bitcoin ETF and the creation of services for institutional investors to be critical for the whole crypto ecosystem. Not because of the money that will come in, but because of the confidence investors will have in knowing that their money is safe.
Many see DeFi as the future of finance, but potential risks must be considered to reach global numbers. And currently, most of them are solved by applying a certain degree of centralization on the protocol:
Maybe nobody has tried this partly because of the early Bitcoin mindset that all funds out of circulation due to being lost or stolen just reduces supply and increase scarcity?
Wouldn’t $DAI be a better stablecoin if you could recover it in a fair way when shown to be lost?
— Will Harborne (@will_harborne) September 26, 2020
Even the Bitcoin blockchain forked after a closed-door meeting of a small group of people.
Perhaps, it’s important to accept that the crypto is young and immature for the time being. The world is not ready to move to a fully decentralized system. The ideas of resistance to censorship, anonymity, and absolute decentralization are usually lovely… until someone is robbed.
But that is what evolution is all about, improving something until it becomes an entirely new, better thing.