2018 appears to have been a pretty plentiful year for notable events and records in the crypto economy. Despite the breaking records in ICO funding, totaling $7,5 billion raised up to date, the total crypto market capitalization lost about 60% from year’s start. About 120 new crypto exchanges created in 2018 found their way to popular ranking resources, but the estimated total number of newborns trading platforms exceeds 200. To gain experience and prepare for the upcoming year, we are to analyze the ups and downs as well as issues and achievements of the industry members to learn on them. Therefore, in this article, we will review the hottest trends of crypto exchange industry of 2018 including Cybersecurity, Trade Volume Manipulations, and Transaction Fee Mining.
Since the beginning of the year, over $800 million has been stolen accounting of about a half of all funds stolen from crypto exchanges since 2009. On January 26, 2018, Coincheck confirmed the loss of over 520 million NEM worth of 58 billion Japanese yen ($530 million), which became the biggest reported digital currency theft in history, breaking the previous record of the notorious Mt.Gox $460 million loss. On February 10, Italian based BitGrail reported the unauthorized withdrawal of Nano worth $170 million. The exchange failed to resume its activities and declared bankruptcy. On June 10, the Coinrail exchange announced a theft of crypto assets allegedly worth of $40 million, but the official numbers were not disclosed by the exchange. On June 20, one of the largest cryptocurrency exchanges in South Korea, BitHumb, was reportedly hacked. The attackers managed to steal 35 billion Korean won (about $31 million) in cryptos. But later BitHumb managed to reduce the loss to $14 million by accepting the return of vast portions of stolen funds with the cooperation of other trading platforms.
All these cases directly spotlight the fact that security levels in the crypto industry are very low. We hope that in 2019, there will be new security standards and requirements globally accepted and implemented for better protection of user’s personal data and assets. In turn, the CER team will do its best to facilitate this process and take a step closer to ensuring the maturity of the market.
Fake Volume Manipulations
Due to the large number of new exchanges created in 2018, competition in the field increased sharply. In the struggle to attract new users many crypto exchanges, especially newly created ones, resorted to using volume manipulation in order to climb higher in popular rankings and get more attention. In our earlier investigations, we revealed multiple signs of volume manipulations on a number of crypto exchanges including OKex, ZB.com with its subsidiary ZBG, along with the recent discovery of malpractice among three South Korean exchanges: Bithumb, Coinbit and GDAC.
And for now, we can confidently say that it’s considered the normal state of the market when the majority of exchanges (approximately 83%) manipulate their trade volume. We hope that in 2019, the community will take serious measures to eliminate such activity as it is harmful to the development of the field and limits new investments.
Transaction Mining – The Hottest Trend of the Year
The Transaction Fee Mining Model (Trans-Fee Mining) has proven to be the most prominent trend of the year among crypto exchanges. This controversial reward program of offering trade fee reimbursement in the form of the exchange’s native token proved to be a kind of ICO in disguise, boosting the trading activity and incentivizing volume manipulations. The model created by FCoin exchange was launched in June 2018 and shortly adopted by other crypto exchanges striving to stake their claim on a place in the sun. Most of the model’s adopters, including the exchanges from our earlier Trans-Fee Mining investigation, experienced a huge boost in trading activity that decreased significantly over time. Furthermore, the native tokens from 4 out of 5 investigated exchanges lost from 73% to 95.5% of their value (opening price) in BTC as of the date of this writing. The exception is CoinEx token CET which gained as of today 22.7% from its initial price in BTC because it was issued a few months before the large scale adoption of Trans-Fee Mining and because, unlike others, it was not created solely to be used as a controversial incentive model. During the Trans-Fee Mining hype, CET surged about 2000% in two weeks but eventually slid down to pre-hype levels (see fig 1).
Notably, the token of the Trans-Fee Mining pioneer suffered the most: it lost 95.5% of its value in BTC from the start up to date (see fig 2).
2018 brought many record-breaking numbers and new trends in the crypto world but not all of them were good ones. Besides the tumbling crypto market capitalization and stagnating ICO funding, there were also a number of huge crypto exchange hacks and widespread trade volume manipulations driven by tightening competition among crypto trading platforms.
CER team will continue to analyze trading activities and will do its best to reveal and fight the crypto exchanges malpractices. Moreover, we will strive to set fair standards and improve the cybersecurity and transparency of the crypto trading market. Huge announcements are coming soon…