Cryptopia Dystopia: A Confiscated Coin conundrum
The Cryptopia closure and subsequent liquidation notice was a surprise to some and an eventuality to others. To some extent, it is always expected that a centralized exchange can go the way of MtGox, Poloniex, and others. It is a risk many willingly accept in order to day trade their holdings. Cryptopia holds a special place for the masternode community in particular as it was the de facto indie altcoin exchange, affecting a host of masternode coins.
Normally, the response to loss is one of cavalier indifference. “Not your keys, Not your Bitcoin”, is the mantra repeated to those that fail to take the necessary precautions to protect their assets.
Yet on the other hand, is it fair that an exchange confiscates its users’ funds as a result of their own internal security hole? Most would say no, and many are in a unique position to assert themselves and reclaim their lost value.
What, the Fork?
Forking off and rolling back changes are a bit of a recurring crypto meme, leading to significant events in the history of distributed ledgers. Bitcoin forked into Litecoin -- a yielding faster version of the original. Litecoin forked into Dogecoin -- a faster, funnier meme of the original.
Forks can also set ideological precedent as with the BTC/BCH fork, and the ETH/ETC fork. In the latter, Vitalik showed the world that the virtues of immutability are meaningless when hacks and large amounts of money for large numbers of people are involved.
CZ of the centralized exchange Binance briefly considered a “rollback” (i.e. 51% attack) on the bitcoin blockchain in response to its $40MM hack. Crypto personality Jimmy Song estimates a reorganization can cost up to 7250 BTC. Note that at that point, it actually ceases to be a profitable notion. It is unsure whether the profitability, or the extremely vocal community reactions led CZ to change his tune, but he did. For the time being at least, the idea of a major exchange rolling back the core chain is highly disruptive.
Pirls of wisdom
But what if the shoe were on the other foot? Many smaller and mid-size developers find themselves in a similar situation as a result of the looming Cryptopia liquidation. Notably, the team behind Pirl has framed their dilemma quite succinctly in a message to their community:
effectively distilling the choice down to Coins Seized vs. Coins Burned.
Just what are you implying?
While I am not in a position to tell anyone the best course of action, the nature of cryptocurrency is that precedents are being set every day. It behooves us as a community to consider the implications whatever the course of events to come.
- Ours is one defined by its avoidance of trust toward third parties. Despite that, users trust exchanges to remain solvent, and exchanges trust communities to maintain the stability of the assets they retain. Does one betrayal of trust justify another?
- CZ declined to rollback bitcoin because he at least in part places some value on the esteem of the community. With the introduction of institutional funds and their corresponding institutions, do we expect this idealism to hold through a future potential hack?
- If the only thing stopping a rollback is community consensus, is the current model of chain propagation sufficient for a mainstream mass adoption future?
Let us know what you think in the comments below.