Share this article
45% of bitcoin exchanges fail, study finds
By Doug Watt
Updated Sep 10, 2021, 10:42 a.m. Published Apr 25, 2013, 3:29 p.m.
Make us preferred on Google
Investing in bitcoins can be risky. So it's probably not surprising that starting a bitcoin currency exchange is risky too.
Online bitcoin exchanges have a failure rate of 45 percent, with customer balances often wiped out, a new study has found.
STORY CONTINUES BELOW
Don't miss another story.Subscribe to the Crypto Daybook Americas Newsletter today. See all newsletters
"Bitcoin is expressly designed to be completely decentralized with no single points of control," says Tyler Moore, one of two US computer scientists who worked on the research study. "Yet currency exchanges have become de facto central authorities, and their success or failure drives bitcoin's success or failure."
Moore and Nicolas Christin looked at 40 bitcoin exchanges, examining the risk bitcoin holders face from exchange failures. (Click here to view a video of Moore discussing the research.)
Eighteen of the exchanges studied have gone out of business. Nine experienced security breaches from hackers or other criminal activity, forcing five of them to subsequently close. Another 13 closed without any publicly announced breach.
Of the 18 exchanges that closed, there were 11 where the authors found evidence of the customers having been reimbursed. Five exchanges have not reimbursed customers while six claim to have done so.
"The risk of losing funds stored at exchanges is real but uncertain," the study states. "Fraudsters are sometimes to blame, but not always."
The median lifetime of exchanges is just 381 days, Moore and Christin found. They also discovered that currency exchanges that buy and sell higher volumes of bitcoins are less likely to shut down, but more likely to suffer a security breach.
"(T)he continued operation of an exchange depends on running a high transaction volume, which makes the exchange a more valuable target to thieves," Moore and Christin write in their study.
The most popular bitcoin exchange, Mt, Gox, has been breached multiple times.
Moore and Christin's study, "Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk," was accepted as a paper to be featured at the 17th International Financial Cryptography and Data Security Conference held in Okinawa, Japan, earlier this month.
More For You
Pudgy Penguins is building a multi-vertical consumer IP platform — combining phygital products, games, NFTs and PENGU to monetize culture at scale.
What to know:
Pudgy Penguins is emerging as one of the strongest NFT-native brands of this cycle, shifting from speculative “digital luxury goods” into a multi-vertical consumer IP platform. Its strategy is to acquire users through mainstream channels first; toys, retail partnerships and viral media, then onboard them into Web3 through games, NFTs and the PENGU token.
The ecosystem now spans phygital products (> $13M retail sales and >1M units sold), games and experiences (Pudgy Party surpassed 500k downloads in two weeks), and a widely distributed token (airdropped to 6M+ wallets). While the market is currently pricing Pudgy at a premium relative to traditional IP peers, sustained success depends on execution across retail expansion, gaming adoption and deeper token utility.
More For You
Rollercoaster bitcoin price moves end up liquidating $1.7 billion in bullish crypto bets
More than $1.7 billion in leveraged positions were liquidated in 24 hours as bitcoin fell to $81,000, with long bets accounting for nearly all the damage amid macro jitters and Fed chair speculation.
What to know:
- More than $1.68 billion in leveraged crypto positions were liquidated in 24 hours, with about 267,000 traders forced out of trades.
- Long positions accounted for nearly 93 percent of the wipeout, led by roughly $780 million in bitcoin and $414 million in ether liquidations.
- Analysts say the sell-off was driven less by new bearish sentiment than by overcrowded leverage unwinding, flushing out speculative excess and reducing forced flows in the market.
Top Stories
