Deribit exchange announced on November 2 that bad actors hacked into its hot wallet and stole $28 million worth of tokens. It stated that customer funds were safe and the company will cover any losses with its company reserves. The investigation is still looking into whether the attacker gained access to users’ submitted personal documents at the Know-Your-Customer (KYC) process.
Fortunately, this time, innocent speculators will not be held liable for the centralized exchange’s incompetence. That is not always the case, as BlockQuake Co-Founder and Advisor Chad Anderson and BlockQuake Co-Founder and CEO Antonio Brasse have discussed in previous interviews.
Moving On-Chain is the Only Way
For Anderson, his team always prioritized security, keeping funds safe in both exchanges and wallets. He noted that many exchanges have lax security procedures, such as two-factor authentication (2FA) through text messages that SIM cloning can easily bypass.
Brasse then emphasized their company’s measures in protecting consumer interests, “including hot wallet solutions using MPC technology, third party fiat custodians, and mandatory app-based 2FA.” Drilling down on this point, he said that most exchanges are headquartered overseas, so customers do not know who controls them, allowing owners to steal customers’ money for their own interests.
Because it runs on the BSV blockchain, a public enterprise blockchain that is scalable and secure, BlockQuake does not need to entrust money to malicious individuals running exchanges they control. Moving the exchange to the BSV ecosystem also adds a layer of check-and-balance, allowing it to determine what network changes were made, when they were done, and who did it.
Attackers often prefer deleting logs to cover their traces, allowing them to stay in the network for as long as possible while masking what they did and how they did it. However, the BSV blockchain will log these activities to its immutable ledger and preserve these records, quickly detecting an unauthorized intrusion.
After so many stories about breaches, thefts and hacks, BlockQuake’s move shows that there is a better solution than centralized exchanges like Deribit, and that is going on-chain and using an enterprise blockchain’s Proof-of-Work (PoW).
Proof-of-Stake Blockchains Discount Security and Scalability Potential
Centralized exchanges are a solution to a self-inflicted problem: protocol developers made technical decisions that made BTC unscalable, rendering it useless for anything other than as speculative investment. This was a deliberate decision, and it effectively ended the viability of micropayments, resulting in the rise of alternative blockchains such as Ethereum and other fee-generating centralized exchanges.
Proof-of-work (PoW) blockchains, which is what Bitcoin continues to use, were designed to scale to provide the security and interoperability required to improve and replace conventional currency exchanges. By default, scaling a PoW blockchain allows more transactions per data block per second and dramatically reduces energy consumption.
Ethereum’s Beacon Chain is a proof-of-stake (PoS) network. It is a distributed ledger network that replicates the structure of and functions like real-world blockchains but lacks value, security, and scalability. Essentially, PoS redistributes power back to wealthy stakeholders.
Ethereum continues to forego the comprehensive security system required to secure its users by neglecting PoW. In contrast to PoS, PoW eliminates the possibility of double spending, guards against Sybil attacks, and allows for an external validation system. Changing to a different consensus model means sacrificing security, and in the case of PoS, users get nothing in return.
Although most blockchain experts understand and value PoW’s security, they have overlooked its scalability potential. As a result, Ethereum is turning to The Merge to address key issues that Bitcoin creator Satoshi Nakamoto originally designed the PoW protocol to address.
PoW is not only the best existing currency exchange architecture. It is also a revolutionary system for secure data exchange with infinite utility applications that can prevent even the well-known crypto contagions while fostering competition in miners.