Bancor Hack Reveals Dubious Claims

Jen van Lier - July 11, 2018

Bancor Hack

Bancor confirmed on July 9th, 2018, that their systems were compromised and that indeed they had been hacked. Bancor subsequently closed trade for the day. This hack took place, despite advertising their virtues as a decentralized exchange. The hack occurred when a wallet used to upgrade smart contracts was compromised. Hackers stole different kinds of altcoins. 24,984 ETH was stolen which equates to roughly $12.5 million USD.  Others affected were 229,356,645 NPXS valued at $1 million USD and 3,200,000 BNT which is worth $10 million USD.

Bancor announced that it was able to freeze its own BNT, because of a mechanism built into the Bancor Protocol, which helped stem further negative backlash for the company.  Bancor had built this ‘freeze’ aspect into their original protocol to minimize the exact thing that happened.

Bancor Scrambling to Recover the Funds

Bancor is continuing to work with a wide network of cryptocurrency exchanges to try and ensure that the thieves are not able to liquidate the coins. However, some of the stolen coins have been exchanged via Changelly already. Bancor has taken a 14% dip since news of the hack came out.

How has the Crypto Market been affected by hacks up to this point?

Hacking has been a prevalent concern of late for many cryptocurrency users. One of Blockchains major assets is to ward off cyber-attacks, which it has done well, especially in the case of Bitcoin, the most robust blockchain out there. Nevertheless, the issue with cryptocurrency is that users must be responsible for their own funds. There are no banks or fail-safe mechanisms that can be reliable enough when people trust a third party to be the custodian of their funds.

Around $15 Billion USD has been stolen from exchanges and buggy wallets since 2009. 2018 has seen seven sizable hacks on various cryptocurrency exchanges so far, which is three times the amount we saw in 2017 over the same period of time. Decentralized exchanges often escape these attacks because of their nature.

Is Bancor in Fact Decentralized and what do other industry players say?

It is believed widely among the crypto guru’s that an exchange cannot profess to be fully decentralized if it can lose or freeze customer funds. According to Charlie Lee, founder of Litecoin, the fact that Bancor can do both proves that they are not a decentralized bank and it creates a false sense of decentralization. Udi Wertheimer, Bitcoin developer and consultant, thinks that the fact that Bancor can recover stolen coins shows it has a back-door.

Bancor’s Response

While not directly addressing the back-door issue, Bancor has given an explanation that being able to freeze tokens is a preventative measure that is essential to all tokens. Bancor has come out to say that they believe that the protocol allowing them to freeze token transfers will save networks and token holders in “a state of emergency”. Bancor went on to thank the community for the “healthy debate on the balance between security and decentralization that has ensued.”

Bancor is not Decentralized

The reality though is that decentralized exchanges are safe by virtue of being decentralized and allowing their users to keep their own private keys except for when they actually perform a trade. Following Lee’s and Wertheimer’s comments, it is hard to believe that Bancor is indeed a truly decentralized exchange. That is only another misleading claim that this project has made since its inception.

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