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Two Thirds of Korean Crypto Exchanges Fail Government Security Check

Only a third of cryptocurrency exchanges inspected got a full pass in a recent government security audit.

The Ministry of Science and ICT, the Korea Internet & Security Agency and the Ministry of Economy and Finance inspected a total of 21 crypto exchanges from September to December 2018, examining 85 different security aspects.

Notably, only 7 of them – Upbit, Bithumb, Gopax, Korbit, Coinone, Hanbitco, and Huobi Korea – cleared all the tests, CoinDesk Korea reported Thursday.

The remaining 14 exchanges are “vulnerable to hacking attacks at all times because of poor security,” the Ministry of Economy and Finance said, though it didn’t name the platforms. The agencies put down the security failures to “insufficient establishment and management of security system such as basic PC and network security.”

The exchanges were inspected in a review that looked different aspects of administrative, network, system and operational security, as well as database backup and wallet management.

South Korea has lost many millions of dollars in cryptocurrencies through hacks at exchanges such as Coinrail (over $40 million) and Bithumb (over $30 million).

Back in February, the country’s officials said that they believed North Korean hackers were behind the attacks. Indeed, North Korea’s infamous hacking group, Lazarus, has been reported to be behind the theft of $571 million in cryptocurrencies since January 2017, according to a report from cybersecurity vendor Group-IB.

In the wake of the security breaches, South Korea’s Financial Services Commission, in July of last year called on politicians to pass a bill regulating domestic cryptocurrency exchanges with urgency in order to counter lax security in the industry.

Test fail image via Shutterstock 

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Coinbase Gears Up for Biggest-Ever Expansion of Crypto Asset Listings

Coinbase has revamped its policy for listing new cryptocurrencies, replacing an ad hoc process with one the startup hopes will rapidly expand the range of assets traded on its exchange.

Announced Tuesday, the new system allows almost anyone to submit a cryptocurrency through an online form for evaluation under the company’s digital asset framework. Those that meet the criteria may be listed, although not necessarily available right away to all Coinbase customers.

That’s because listings will be added on a jurisdiction-by-jurisdiction basis, rather than supporting all assets globally as Coinbase has done up until now. As a result, some coins won’t be available for Coinbase customers to trade in places where local regulations either expressly forbid them or are unclear about their legality. It’s not unlike Netflix streaming certain movies in one country but not another for copyright reasons.

Previously, there was no formal mechanism to request a listing, and some organizations would reportedly lobby Coinbase to support their assets. As such, the change represents a welcome mat of sorts to crypto development teams from a company whose mainstream popularity potentially offers unparalleled exposure.

“We’re now actively reaching out to asset developers with this,” Coinbase CTO Balaji Srinivasan told CoinDesk. Referring to the creators of the first two digital currencies the company listed, bitcoin and ethereum, he added:

“Satoshi and Vitalik [Buterin] were not Coinbase customers. But all future and current asset creators and developers are. So it’s like we’re becoming a two-sided marketplace.”

In this marketplace, Coinbase will charge an application fee and an additional fee to list approved assets. Srinivasan would not say how much they will be but said they wouldn’t be prohibitive.

Further, the application fee is only meant to deter spam, he said, and the listing fee will cover the cost of due diligence. “We do not want that to be a burden that deters people from listing new assets with us,” Srinivasan said.

In the meantime, Srinivasan confirmed Coinbase is still evaluating cryptocurrencies such as ada, lumens, and zcash, which may be rolled out globally or selectively depending on specific regulatory requirements.

Yet aside from regulatory and technical considerations, the main listing criterion for Coinbase is market demand.

“We want to make sure that our customers are there,” Srinivasan said. The three big questions are “A) is it legally compliant? B) Is it technically secure and innovative? C) Do our customers want it?”

Worldwide compliance

Coinbase may be breaking ground here, as jurisdiction-by jurisdiction asset listings appear to be a rare practice among crypto exchanges.

“It’s actually an approach I’ve been advocating for a long time,” said Stephen Palley, a partner at the Washington, D.C.-based law firm Anderson Kill, who often pokes fun at crypto entrepreneurs’ naivete about legal requirements.

“If you’re Ford or you’re Apple or you’re Google and you want to sell your stuff worldwide, you actually do worldwide compliance,” he said, noting that such brands tend to customize their terms of service for specific countries.

While it’s “a smart play” that minimizes legal risks while allowing a company to engage in selective market testing, Palley added:

“It’s a pain in the ass and it’s expensive.”

Indeed, putting this policy into practice is likely to add a layer of complexity to Coinbase’s operations, as the company will have to make sure that customers are not trading assets that their local regulators don’t allow.

Crypto exchanges have already faced similar challenges in preventing their sites from being accessed in U.S. states where they aren’t licensed to do business.

“While geoblocking may help prevent crypto companies from inadvertently becoming subject to certain rules and regulators, even that precaution may not be enough,” said Justin Steffen, a litigation partner at Jenner & Block LLP. “The New York Attorney General’s recent report on crypto exchanges, for example, noted the lack of exchanges that limit VPN access.”

When asked about this, Srinivasan said Coinbase “will do whatever is necessary to remain compliant with local law. This may mean using [customer identification] details in addition to or as a supplement to IP address. (I.e., enforcing restrictions based on a customer’s country of residence/bank account).”

Unanswered questions

There are still many questions to be answered about how this switch will impact Coinbase users.

For instance, will moving from California to New York mean a customer loses access to assets she purchased on Coinbase? Also, if Coinbase does block VPNs, that could be a turn-off for privacy-conscious users, or, say, Americans traveling to countries like China or Iran with restricted internet service, where “tunneling” is the only way to access regularly visited sites.

Further, a handful of people at the company are responsible for evaluating these assets, and Srinivasan declined to specify what benchmarks they will be expected to hit or how internal policies will prevent insider trading. Accusations related to such alleged conflicts of interest plagued the company in the past when it came to assets such as bitcoin cash and litecoin, the latter of which was created by former Coinbase employee Charlie Lee.

Finally, it remains to be seen how the crypto community will react to the idea of Coinbase charging teams a fee for listing, given that high fees at some exchanges have sparked controversy in the past and charges of “pay to play” practices.

But Marshall Swatt, founder of the institutional crypto asset exchange Swatt Exchange, told CoinDesk that listing fees are a standard part of running an exchange.

“Every major exchange of financial instruments — such as the equities industry — charges listing fees. It is extremely costly for an exchange to onboard a new instrument, and there is no way to avoid that cost,” Swatt said, adding:

“Every new blockchain adds risk to an exchange’s operations. I’m wholly in favor of an exchange charging a listing fee, and I don’t see any ethical or other issues with doing so. Whether they let the market decide the fee, or set a flat fee, or some other reasonable arrangement is completely appropriate.”

Balaji Srinivasan image from Consensus 2018

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Binance Offers First Look At Planned Decentralized Crypto Exchange

Cryptocurrency exchange Binance unveiled the platform’s first look at its upcoming decentralized exchange (DEX) on Thursday.

Binance, one of the world’s largest cryptocurrency exchanges by trading volume, announced back in March that it plans to launch a new public blockchain for the purposes of developing the Binance Chain, a platform to transfer and trade different crypto assets without a centralized operator. This week, CEO Changpeng Zhao provided the first demonstration of the Binance Decentralized Exchange and the Binance Chain.

“Today, I have something really exciting to share with you guys. This will be the first demo for the Binance Decentralized Exchange, the Binance Chain,” Zhao told viewers.

Zhao explained that his team of developers is ahead of schedule, saying in the demonstration that “I thought this would happen one to two months later or more but again, the team delivered early.”

While the majority of the demo is footage of a command line terminal voiced over by one of the Binance Chain developers, the various activities depicted outline the basics of issuing, listing and trading crypto assets on the decentralized exchange.

Zhao insists the product remains in “early stage development,” adding that:

“There’s still a ton of work to be done to turn [it] into a final product. The team’s working on it very aggressively. Nevertheless, this is a major milestone for Binance Chain.”

Indeed, other competitors to Binance such as cryptocurrency exchange Huobi announced similar plans in June to fund the creation of an open-sourced blockchain protocol aimed at one day evolving into a standalone decentralized exchange.

And while there are decentralized exchanges currently in existence in the crypto markets, data by analytics firm Alethio reports that most have varying degrees of centralization built into their model.

In fact, sentiment as of late around the security of decentralized exchanges as a whole has taken a hit with one decentralized crypto exchange by the name of Waves being hacked of funds almost immediately after launching from a year-and-half-long beta period.

Changpeng Zhao image via YouTube

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Huobi Launches Service to Build Crypto Exchanges in the Cloud

Huobi, the world’s third-largest cryptocurrency exchange platform by trade volume, is now offering a business arm to help customers build their own digital asset exchanges.

Dubbed the Huobi Cloud, the service is set up to provide clients “a one-stop solution … [to enable] its partners to build secure and stable digital asset exchanges quickly,” according to the official press release, though it did not provide specifics on what it will offer these partners.

The company goes on further to explain:

“Over the past five years, Huobi has accumulated rich and valuable [research and development], security, compliance and operational experience through its digital asset trading platforms … Huobi is looking to share its expertise and experience with the entire blockchain ecosystem and through this, develop the industry further to achieve mutual benefits for all stakeholders.”

As such, Huobi Cloud is envisioned to strike up new global partnerships in an attempt to “promote the rapid and healthy development” of the blockchain space worldwide.

The announcement comes a day after the exchange announced it was making efforts to deepen alliances within the industry through the establishment of the “Huobi Blockchain Plus Industry Alliance.”

The Alliance will focus on “community-based operations” to bring together experts and academics in the blockchain field to work together and leverage Huobi’s “ecological resources.”

These resources give members access to “jointly building blockchain labs with partners free of charge, sharing the research capability, technical capability and Blockchain Plus practical experience accumulated by Huobi Group over the past five years,” among others.

Indeed, the cryptocurrency exchange giant has been making efforts to build stronger networks for the blockchain industry in recent months. In June, after launching a new investment option for retail investors, Huobi revealed they would be facilitating an investment fund envisioned to raise $93 million for blockchain startups in both China and South Korea.

Huobi image via Piotr Swat / Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.