Jack Liu, chief strategy officer at OKCoin, the largest bitcoin exchange, assured customers that bitcoin is still a sound currency, despite the recent hack at Bitfinex. OKCoin keeps 95% of its deposits offline, according to Nikkei Asian Review.
The theft of the 119,756 bitcoins from Bitfinex marks the second-largest security breach on a cryptocurrency exchange since Mt. Gox in 2014.
Bitcoin technology remains safe, Liu said. He compared it to hearing about credit card users having their accounts hacked on the Internet; credit card users don’t assume the Internet is broken on account of hackers.
Liu Unfazed By Price Reaction
Liu offered his comments in response to a decline in bitcoin prices that occurred following the Bitfinex theft, estimated to be worth $65 million. Bitfinex is the largest exchange for USD-denominated bitcoin transactions. It is the third-largest bitcoin exchange after OKCoin and BTC China.
Bitcoin prices dropped by close to 20% to $480, a two-month low early Wednesday, but recovered half the loss by the early afternoon. Trading hovered around $575 Thursday on the Bitstamp’s platform.
Bitfinex stopped trading and withdrawals while investigating the loss. Its operations have been halted ever since, even though the breach was limited to bitcoin wallets and other digital tokens traded were unaffected.
Bitfinex initially said any settlements with customers would be based on trading value before the hacking. The first step is to bring the site online and enable users to log in and view their accounts before settlement of any losses, Bitfinex noted.
Bitfinex has since announced it is considering making all of its bitcoin traders pay the price. In a blog, it said that the company was expecting to “socialize” the loss among its bitcoin users, even those who weren’t originally affected.
Liu Discounts Mt. Gox Comparison
Liu discounted comparisons of Bitfinex to Mt. Gox, the Tokyo-based exchange that collapsed in 2014, losing $500 million in bitcoin. People today are better educated, he said, hence the smaller price reaction.
The Bitfinex hack was about one-sixth the size of the Mt. Gox loss, Liu noted. At the time of the Mt. Gox hack, very few people knew there was a difference between Mt. Gox and bitcoin, causing a lot of panic. People thought that Mt. Gox’s fall meant the same fate for bitcoin.
Liu: Why OKCoin Is Safe
Liu said he is less concerned about cyber attacks for OKCoin since it is adopting a different security system. He noted that OKCoin keeps 95% of user deposits offline, keeping a small amount online for immediate withdrawals.
Should OKCoin experience a hack, the losses will not be significant enough to cause insolvency, he said.
OKCoin’s defense system was put to the test last July when a distributed denial of service (DDOS) attack prevented some users from accessing its platform. Xin Chen, the chief financial architect at OKCoin, told CCN.com the attackers wanted to influence the bitcoin price, which they succeeded in doing for the short term.
OKCoin posted an explanation of the July 2015 attack and the actions it took to minimize the damage on its website. It created a fund to compensate users for losses caused by the attack and also pledged to increase its investment in countering attacks.
Bitfinex Took Precautions
Bitfinex last year partnered with BitGo, a California-based company that uses a multiple-signature security system to store users’ bitcoin online, enabling more transparency and faster withdrawals. BitGo has said that its systems were not breached, and its software functioned correctly during the Bitfinex hack.
Bitfinex utilized BitGo software as part of its security solution even as at the time of the attack.
Featured image from Shutterstock.
Last modified: March 4, 2021 4:50 PM