When cryptocurrencies first appeared in 2009 with the release of Bitcoin, the ideals of this new generation of digital currencies were clear: empower individuals to manage their own finances without reliance on a centralized force.
Despite these ideals, Binance has risen up to become the de facto emperor of the cryptocurrency industry with the power the sent the entire industry tumbling into a tailspin — should another Mt. Gox-esque breach occur again.
The Binance Problem
Since Binance launched in 2017, its growth has been nothing short of meteoric, quickly rising to become the number one cryptocurrency spot exchange by trading volume.
Binance took just months to secure its position as the largest and therefore most popular cryptocurrency spot exchange platform, and it can be argued that much of this success is a result of its rapidly-expanding feature set.
After all, in the last year alone, Binance has introduced cryptocurrency derivatives, staking support, savings products, fiat gateways, and more, massively expanding on the initial offerings it launched with. Although this sounds appealing, it’s important to remember that Binance isn’t actually innovating in most cases, and is simply adding features that have already existed on separate dedicated platforms for quite some time.
Because of this, while Binance can be considered a jack of all trades, it is also the master of none, since dedicated platforms frequently offer better service, improved security, and a more feature-complete solution compared to Binance. Still, Binance remains a rapidly growing entity, hoovering up users from other small platforms, while providing an arguably worse service in many cases.
This rapid growth has led to a concerning stage of affairs, where a single platform controls or manages a large chunk of all cryptocurrencies in circulation — exactly the opposite of the decentralized maxims the industry was initially launched under. Cryptocurrencies are supposed to be about removing centralized failure points and empowering users to be their own bank, not handing over power to a select few industry titans.
When One Hack Could Cripple the Industry
The risks posed by the over-aggregation of assets under a single platform was made clear back in May 2019, when an unknown attacker was able to exfiltrate $40 million worth of Bitcoin (BTC) from its hot wallet — equivalent to around 2% of its Bitcoin holdings at the time.
Although Binance was able to cover the loss using its ‘SAFU’ fund, it never did reveal exactly how attackers were able to pull off the hack in the first place.