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Binance CEO CZ Is Suing VC Giant Sequoia for Reputational Damages

Binance founder and CEO Changpeng Zhao is taking a unit of Sequoia Capital back to court after the VC investor’s case against him was dismissed.

The crypto exchange mogul, nicknamed CZ, claims Sequoia Capital China hurt his reputation and prevented him from raising money at favorable valuations and wants the VC giant to compensate him.

According to a filing submitted on May 20 to the High Court in Hong Kong and obtained by CoinDesk, Zhao has sent an application via his attorneys for a hearing before the court chambers on an order for “immediate summary of assessment of damages.”

A hearing for the case, HCMP 2770/2017, will take place on June 25, according to information available on the court’s website, between Zhao and SCC Venture VI, a company incorporated as a special purpose vehicle of Sequoia Capital China.

The application demands an inquiry be held to determine if Zhao “has sustained any and what damages” resulting from the injunction order Sequoia obtained on Dec. 27, 2017, which prevented Zhao from raising capital from other investors until March 1, 2018.

If it’s decided that “any such damage has been sustained,” Zhao asks that Sequoia pay him the amount determined at the inquiry. (He did not suggest an amount.)

Zhao stated in the new filing:

“The injunction order has caused loss to me for which I am entitled to reasonable compensation by Sequoia. In particular, I have suffered i) a loss of chance to raise capital through successive rounds of financing at increasing high valuations; and ii) damage to my reputation.”

Sequoia Capital China has not responded to CoinDesk’s request for comment as of press time.

Zhao’s punch-back follows a December 2018 decision by the Hong Kong International Arbitration Centre, which dismissed all of Sequoia Capital’s claims that Zhao had breached an exclusivity agreement when negotiating Binance’s Series A equity financing.

‘Abuse of process’

The case began when Sequoia Capital obtained the December 2017 injunction order in an ex parte or unilateral procedure without notifying Zhao and subsequently filed a notice for arbitration in January 2018 as a claimant against him.

Sequoia accused Zhao of breaching exclusivity by talking to IDG Capital when still in discussions with Sequoia for the Series A round.

Three months later, following an April 11 hearing, a Deputy High Court Judge ruled in a judgment on April 24 that Sequoia “was wrong to pursue the ex parte application without notice to Zhao,” since there was no explanation or evidence as to why no efforts were made to involve both parties.

“I agree that the use of the ex parte procedure without notice to D. [Defendant, Zhao] was an abuse of process,” the judge said. “If the Injunction were not already spent, I would have set it aside on that basis alone.”

The parties then proceeded with the arbitration in the following months in 2018 with the submission of various evidence before a three-member tribunal at the Hong Kong International Arbitration Center.

According to a final decision made on Dec 12, 2018, the Tribunal dismissed Sequoia’s claims that Zhao had breached exclusivity based on the findings that the discussion with IDG Capital was, in fact, for a Series B round financing.

“The Tribunal finds that that the negotiations with IDG were not in respect of a ‘rival transaction’ to the Series A Financing but were in respect of a proposed Series B financing transaction which was not in competition with the Series A Financing and which did not become a Series A Financing,” the Tribunal stated in its decision.

Changpeng Zhao at Consensus: Singapore 2018, image via CoinDesk archives.

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Hacked Crypto Exchange Binance to Resume Deposits and Withdrawals on Tuesday

Binance CEO Changpeng Zhao has announced that the crypto exchange plans to resume deposits and withdrawal services on Tuesday.

He wrote in a brief update:

Our team is making progress and has been working through the weekend. In the past few days, we have made some significant overhauls to our system, with a large number of advanced security features added and/or completely re-architected. We will share details on some of the changes later.

We aim to fully resume deposits and withdrawals on Tuesday. The time will be communicated at a later stage, depending on how the testing goes. This upgrade will require a trading halt. We will update you again tomorrow.

Currently, all withdrawal and deposit actions are marked “Suspend” and cannot be carried out on the exchange. However, at least one user has said on social media that they were able to send deposits to the address by way of previously identified addresses.

In previous announcements the exchange announced upcoming support for hardware-based 2FA devices like YubiKey.

Binance announced the breach last week, saying that unnamed hackers made off with 7,000 BTC (worth about $41 million at the time) from the exchange’s hot wallet. The hackers accessed both user API keys and two-factor authentication codes to withdraw the crypto.

The exchange stopped withdrawals and deposits but allowed intra-token trading on the site. The hackers quickly moved the stolen bitcoin, causing some to speculate that they are preparing the launder the money through multiple exchanges.

Image via Coindesk Archive.

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‘Shocked He Went There:’ Crypto Takes Sides On Binance’s Alleged Bitcoin Reorg Plan

Cryptocurrency’s best-known figures continue to debate exchange Binance’s handling of its $40 million hack amid claims executives planned to undo past Bitcoin transactions. 


Binance CEO Rejects Reorg

In a lengthy debate still playing out on social media, Binance received mixed reviews after CEO Changpang Zhao appeared to suggest there was a plan to conduct a reorganization (‘reorg’) of the Bitcoin blockchain. The step would theoretically allow the transactions involving the bitcoins hackers stole from Binance May 7 to no longer fall under their control.

At the same time, an entire day’s worth of user transactions would become void.

Reorgs to fix erroneous transactions are extremely difficult to do for decentralized blockchains — and, in the case of Bitcoin’s, de facto impossible due to the consensus demands required.

As Bitcoinist previously reported, more centralized blockchains can conduct similar activities more easily. EOS, for example, reversed transactions late last year in an episode which likewise attracted negative attention.

While Zhao subsequently explained that the idea remained hypothetical following discussions and that Binance would not pursue any form of the reorg, some reactions criticized him for mentioning the topic.

Mike Novogratz, the Galaxy Digital CEO and major Bitcoin bull, vented rare comments on the topic after Zhao drew a comparison between his plan and efforts by Ethereum (ETH) developers several years ago.

“I am shocked that (Zhao) even went there. Talk of forking or reorganizing the blockchain is close to heresy,” he wrote on Twitter. “When the (Ethereum) community did it the project was like 5 months old. A baby. Bitcoin now has $100 (billion) market cap and is a legitimate store of wealth.”

Back: Reorg ‘Not Happening’

Ethereum co-founder Vitalik Buterin also added a rebuttal, arguing Ethereum’s actions did not constitute a reorg.

“Ethereum did a surgical irregular state change. We never even considered actually rolling back the chain to undo the hack; the collateral damage from that (reverting a day of *everyone’s* transactions) would have been huge and possibly fatal,” he tweeted.

Binance’s back-up fund will cover losses endured by users, while the event appeared to have little impact on buoyant cryptocurrency markets, Bitcoin price shedding $200 but subsequently rebounding.

Mentioning the press handling of the hack as complicating perceptions, veteran cryptographer and Hashcash inventor Adam Back meanwhile took the opportunity to reiterate the difficulty of manipulating the Bitcoin blockchain.

“A Bitcoin reorg is just not happening, and I doubt any Bitcoin industry, miners nor developers considered it either,” he summarized, referencing previous, considerably larger, exchange hacks which came and went without such measures coming to pass.

What do you think about Binance’s remedial measures? Let us know in the comments below!


Images courtesy of Shutterstock, Twitter.

The Rundown

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Hackers Steal $40.7 Million in Bitcoin From Crypto Exchange Binance

Hackers stole more than 7,000 bitcoin from crypto exchange Binance, the world’s largest by volume, the startup reported Tuesday.

Binance announced that a “large scale security breach” was discovered earlier on May 7, finding that malicious actors were able to access user API keys, two-factor authentication codes and “potentially other info,” the exchange’s CEO, Changpeng Zhao, said in a letter. As a result, they were able to withdraw roughly $41 million in bitcoin from the exchange, according to a transaction published in the security notice.

The disclosure comes hours after Zhao tweeted that the exchange was undertaking “some unscheduled server maintenance,” writing that “funds are #safu.” After the disclosure announcement, Zhao tweeted that the exchange would “provide a more detailed update shortly.”

The exchange may not yet have identified all impacted accounts, he said. And according to Binance’s statement, the breach only impacted Binance’s hot wallet, which contains roughly 2 percent of the exchange’s total bitcoin holdings.

“All of our other wallets are secure and unharmed,” he said, adding:

“The hackers had the patience to wait, and execute well-prepared actions through multiple seemingly independent accounts at the most opportune time. The transaction is structured in a way that passed our existing security checks. It was unfortunate that we were not able to block this withdrawal before it was executed.”

The withdrawal triggered internal alarms after it was executed, and Zhao said the exchange froze withdrawals following the discovery. While deposits and withdrawals will remain suspended for the next week, trading will be re-enabled, though he cautioned that “the hackers may still control certain user accounts.”

Binance will conduct “a thorough security review” encompassing its systems and data during the next week.

The exchange will use its Secure Asset Fund for Users (SAFU fund) to cover the loss, which won’t impact users, according to the notice.

The fund consists of 10 percent of all trading fees absorbed by the exchange, and was initially launched to protect Binance’s users “in extreme cases,” according to a previous notice. It is stored in its own cold wallet.

“In this difficult time, we strive to maintain transparency and would be appreciative of your support,” Zhao said Tuesday.

He concluded the note by saying he would participate in a previously scheduled Twitter “ask-me-anything.”

Markets react

Prices have so far responded with bitcoin, the world’s premier cryptocurrency, dropping $290 alongside most other cryptocurrencies, which are down between 1-10 percent at press time.

Litecoin and ether both experienced between 4-6 percent losses while bitcoin managed to resume in the green, thanks largely to its bullish rally yesterday that saw prices reach as high as $5,972 on the Coinbase exchange.

Binance’s native crypto, Binance Coin (BNB), is also down 8.05 percent and unable to escape the controversy from today’s news.

BNB’s price is continuing to search for a bottom after it broke from a range it had held for 18 days between $22 and $25.40, with a new all-time high at $26.44 on May 3.

Sebastian Sinclair contributed reporting. 

binance image via Shutterstock; charts via TradingView

CZ image courtesy Binance

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Hackers Withdraw 7,000 Bitcoins in Binance Crypto Exchange Security Breach

Hackers gained access to Binance crypto exchange and took 7,000 bitcoins.

Binance, one of the largest cryptocurrency exchanges by daily trade volume, has experienced a major security breach on May 7, according to a statement shared with Cointelegraph on May 7.

Per Binance, hackers employed a variety of tactics including phishing and viruses to obtain a large number of 2FA codes and API keys in addition to other information.

According to the exchange, there was one affected transaction, wherein hackers were able to withdraw 7,000 bitcoins (BTC) worth $40,705,000 at press time.

In a letter on Binance’s website, CEO Changpeng Zhao states that the bitcoins were withdrawn from its hot wallets, which contain only 2% of the exchange’s total bitcoin holdings. Zhao states that Binance’s other wallets are unaffected.

Binance will suspend all deposits and withdrawls while it conducts a security review on its systems, which Zhao estimates will take up to one week. Trading will still be active and traders will be able to adjust their positions. Zhao states:

“Please also understand that the hackers may still control certain user accounts and may use those to influence prices in the meantime. We will monitor the situation closely. But we believe with withdrawals disabled, there isn’t much incentive for hackers to influence markets.”

Zhao adds that he will conduct a Twitter AMA in a couple of hours to field questions from the community.

Binance will use its Secure Asset Fund for Users (SAFU) to cover the incident. The exchange created the fund in July 2018 as a type of emergency insurance. Binance allocates 10% of its total trading fees to finance SAFU.