The increasing prevalence of sophisticated hacks on digital assets is forcing cryptocurrency’s largest trading platforms to rethink their business models and is laying bare fundamental shortcomings in the mechanics of centralised cryptocurrency exchanges.

Even Binance — the world’s most widely-used centralised exchange — is changing tack in response to the threats posed by hacking, announcing earlier this year that it plans to launch its own decentralised platform. For a company that processes 1.4 million transactions per second and about $1.5 billion in volume daily to announce shifts to its existing trading model, it must be a little spooked. But this move by a market leader is no real surprise, given the recent spate of hacks on centralised exchanges.

“After extensively researching decentralised exchange frameworks and analysing existing implementations, we believe significant improvements can be made in providing Binance users with a level of trading experience to which they are already accustomed.

“Centralised and decentralised exchanges will co-exist in the near future, complementing each other, while also having interdependence,” it said in a statement.

South Korea hacks

The hacking of centralised exchanges in South Korea in recent weeks has, meanwhile, prompted a wild reactionary sell-off of cryptocurrency, with almost $17 billion being wiped clean off the market in 24 hours.

Ranked seventh in the world by traded value, the hack on centralised trading platform Bithumb saw the theft of about $32 million worth of coins. This followed an earlier breach of South Korean venue Coinrail, which wouldn’t provide an exact figure but confirmed that some of its digital currency appeared to have been stolen by hackers.

These latest hacks wipe out gains made during the market’s earlier bear cycle and bring the total value of digital assets stolen to a dizzying $1 billion.

Despite centralised exchanges remaining in common use, users of these exchanges are a prime target for online security hacks, as their digital assets and online information are stored in wallets hosted by the exchange.

The hacker identifies security flaws on the centralised exchange and then copies the database of private keys and customer addresses to obtain control of the user’s wallet.

The case for decentralisation

It is this fundamental vulnerability of centralised platforms that is steering users away from a centrally-controlled trading platform towards one that affords the user greater control over their funds and absolute possession of keys. Decentralisation allows users to remain in full control of their funds, information, and sensitive data, while still providing sufficient liquidity.

The automated process of a decentralised exchange ensures that the trades occur directly between users or through a peer-to-peer automated method or process, meaning user information is far more securely protected as is less exposed to external hacks.

The uptake of decentralised exchanges will also lead to higher levels of liquidity, as users will be more likely to leave their orders open for longer in an exchange environment that offers high levels of security.

New kids on the block

Decentralised exchanges are already starting to secure good market share. Waves Decentralized Exchange (DEX), for example, is currently processing nearly $700 000 worth of cryptocurrency trades per day and is expected to rise as blockchain networks scale to better to handle higher trading volumes.

South African start-up TrustBar is also set to soon join the party. Due for launch in December, TrustBar will become the first global decentralised exchange that will allow secure cross-chain and cross-token trading through a single transaction

Details of the user funds will be protected by individual private keys and will not be stored on the platform, while dynamic pairing allows each user to select the buy/sell pairs, speeding up token exchange and reducing costs

TrustBar’s Initial Coin Offering (ICO), which targets a capital raise of $35 million, will be conducted on the NEO blockchain platform on 31 August. Monthly dividends will be paid to qualifying token holders while early adopters will qualify for a token airdrop.