The Loopring Solution: Ultimate Security Via Decentralization and Open Protocols. It uses a decentralized transaction network that reduces counterparty and exchange risks – it is able to do this because it does not require traders to deposit or lock in any asset for a trade, resulting in absolutely zero third-party custody risk.
The Binance Crisis – An Overview
Chaos erupted in the cryptocurrency market on Wednesday March 7 when users of Binance, a China-based cryptocurrency exchange that handles over $1bn in crypto-transactions daily – reported abnormal and unverified activity on their accounts. Initial reports stated that a number of alternative currencies – among them Viacoin, a relatively low-cap coin with less than 2% trading volume on Binance – surged to record highs over the last two days, with the overall trade volume jumping from a few million to hundreds of millions of dollars. Initial investigations suggested that unsuspecting Binance users were phished by a fraudulent website that obtained their account information. The hackers tried to manipulate Viacoin’s market price by pumping and dumping,but fortunately they failed this time. Only a number of users’ account information were stolen, and the alt coins held were exchanged to btc for the pumping. They almost lost all they have in their accounts.
According to Binance reps, the scam was not a hack of Binance’s system itself, but a coordinated phishing attack that was eventually caught by Binance’s automatic risk management system. As of now, the culprits have been unable to withdraw any of their illegally-obtained Viacoin, and all illicit Viacoin deposits have been frozen. Changpeng Zhao, the CEO of Binance, has stated that the accounts of all of the victims of the attack will have their balances restored to their pre-attack levels. Binance has since started the process of reversing all suspicious transactions in order to restore customer funds.
Crypto-Exchanges – Not Really Decentralized After All
Binance’s quick response to the crisis gave users a huge sigh of relief, but the fact that such an attack was even possible does little to ease the minds of investors. The entire cryptocurrency market has been negatively affected by this event, and the price of Bitcoin dropped more than 10% – over $1,000 – within two days of the attack, and countless other cryptocurrencies also dropped significantly. This brings us to the following question: how could an advanced exchange with risk management protocols in place even suffer such an attack? How can we fix a system that seems to be broken? Can decentralization of cryptocurrency exchanges help avoid such attacks in the future?
Many traders question the security of modern centralized exchange platforms that use exchange wallets to hold trader assets. If malicious actors can try to scam the system by using public information on the platform for personal benefit, then the system is always open to attack. The Binance crisis is proof of the possibility of this concern.
The Loopring Solution: Ultimate Security Via Decentralization and Open Protocols
However, what makes Loopring different is that it uses a decentralized transaction network that reduces counterparty and exchange risks – it is able to do this because it does not require traders to deposit or lock in any asset for a trade, resulting in absolutely zero third-party custody risk. Under the Loopring protocol, tokens are always stored in their respective blockchain addresses – even throughout the execution of transactions. Traders can even transfer their tokens after orders are submitted, and Loopring automatically adjusts trading balances accordingly.
Although many cryptocurrency companies are quick to endorse the use of decentralization for exchange transactions, actually implementing it is harder than it sounds. This is another thing that makes Loopring different – it is more than just a crypto token or an exchange; it is a matured, decentralized, and open-source protocol that eliminates counterparty risk, executes trades at the optimum prices, and keeps asset custody with actual owners at all times. In this way, the Loopring protocol can be used to create a zero-risk token exchange.
In addition to the above, Loopring even allows orders to be broken into small pieces which can then be traded on the right exchange at the right time with other buyers and sellers. Using game theoretic logic to optimize trading results (combined with the fact that tokens or other crypto assets never even need to leave the private wallets of traders themselves), the inherent risks of centralized exchanges are completely eliminated.
Even though some people have gone so far as to suspect this entire fiasco to be a self-directed rumor that was created and orchestrated by Binance itself, the fact remains that a centralized approach to running an exchange always leaves the platform open to future attacks. It also necessitates higher security requirements on digital assets at all times. These facts make it clear that only truly decentralized trading platforms can really solve the problems that exchanges face today.
Loopring’s technology provides a high level of transparency (because all trades are recorded on the blockchain), security (because trader funds never leave traders’ private addresses), and efficiency (because trades are executed at the right time and at the right price). This means that implementing the Loopring protocol not only secures trader assets from outside attack, but it can also save exchanges from bad press and accusations of malicious insider activity. Every part of the system – from wallets, relays, liquidity-sharing blockchains, order book browsers, miners, and asset tokenization services – can all operate together as distinct yet interconnected modules using the Loopring protocol, and this promises an entire new level of safety and security for exchanges of the future.