Why the OAX Platform Has the Potential to Shake up Centralized Exchanges
By Byungwoo Sohn
In the span of less than a month in July, two of the biggest exchanges in the world were either hacked or shut down. Bithumb, which regularly comprises around 25% of the world Ethereum trading volume, was hacked for billions of won. In the process, Bithumb users not only lost their money, but also had their names, phone numbers, and email addresses exposed.
Around three weeks later, BTC-e, one of the oldest digital currency exchanges, was effectively shut down by the U.S. government. The U.S. Financial Crimes Enforcement Network (FinCEN) laid down a $110 million USD fine against BTC-e, and a separate $12 million dollar fine for Alexander Vinnik, one of the operators of BTC-e.
More upsetting news came out when the U.S. Department of Justice (DOJ) released a link between BTC-e and the infamous Mt. Gox hacking, stating that BTC-e accounts “received substantial proceeds” from Mt. Gox, and netted funds from Cryptowall, one of its biggest ransomware attacks. The U.S. DOJ condemned BTC-e, stating, “BTC-e was an international money-laundering scheme that, by virtue of its business model, catered to criminals — and to cyber criminals in particular.”
Upon reading this news, I wasn’t sure which was more disturbing; the fact that Bithumb lost large sums of customer funds/private information, and is still somehow one of the largest exchanges in the world, or that BTC-e was running a giant money-laundering scheme right under our nose. BTC-e at least got shut down, but the Bithumb hacking didn’t really seem to affect the exchange at all. Besides the outraged customers who were hacked, everyone else pretty much seemed to move on, business as usual.
It seems like everyone is just used to exchange hackings now. They’ve become a part of the crypto industry. When there’s a hacking, most people just think “Whew, glad I didn’t have funds in there” and move on. When massive security breaches aren’t met with much surprise anymore, there has to be a deeper underlying problem.
The main problem, I believe, is that there really are no viable alternatives to centralized exchanges at the moment. If I hear Bithumb got hacked and want to move my funds away, where would I go? I’d probably go to another centralized exchange in Korea, like Coinone. The same problem still exists however. No one really knows how or why Bithumb got hacked, as the system is centralized, opaque, and closed. If I moved my funds to another centralized exchange, does any of that change? How do I know that the new exchange I sent funds to has better security protocols?
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God forbid the OAX platform ever have a security breach, but if one were to occur, there are clear protocols in place. First of all, unlike centralized exchanges which hold both crypto and fiat private keys, Asset Gateways in the OAX platform will only have custody of a single set of keys. For example, with a fiat gateway, the gateway will only hold onto the fiat currency in a transaction, and the user will retain crypto custody. The vice versa applies for crypto gateways.
Asset Gateways will also have transparent collateral levels, so that users can determine the amount of risk that they want to take on in a trade. The whole system will be open-sourced and transparent, so that everyone can check if there are potential loopholes. If the platform were to get hacked, it won’t be just us knowing why it happened. Everyone would be able to see why the system got hacked, and make changes accordingly. Essentially, if we were running a giant money-laundering scheme like BTC-e, you’d know about it. If thousands of our users had their funds and private information hacked, you’d know how and why it happened.
At this point, you’re probably wondering about liquidity. Liquidity is the main reason why centralized exchanges are still popular even with all of the recent hackings. As mentioned previously, the Bithumb hacking barely made a dent in the overall business of the exchange, and its liquidity rankings are still consistently one of the best in the world. OAX hopes to solve the liquidity issue for decentralized exchanges by lowering entrance barriers for Asset Gateways and aggregating order books, which you can read more about in detail here.
We here at OAX believe someone, or some team, has to take charge and create an ecosystem that people can put their trust in. It doesn’t have to be only OAX that leads this charge, even though we do believe strongly in the project. There seems to be some glimmer of a hint that regulation may be coming.
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At OAX, we just don’t want to see crypto users bouncing around from exchange to exchange, hoping their funds don’t get hacked or frozen. Our platform aims to solve these issues, and finally give everyone a viable alternative to the centralized exchanges we’ve relied on for so long.
For a more detailed explanation of the OAX platform, please read our White Paper at