Polina is an undergraduate student at Belarusian State Economic University (BSEU) where she is studying at the faculty of International Business Communication for a degree specializing in Intercultural Communication. In her spare time she enjoys drawing, music and travelling.
Mark Karpeles has explained how bitcoin exchanges can avoid collapse similar to that of the closed cryptocurrency exchange Mt.Gox.
Mark Karpeles, CEO of the former Japanese bitcoin exchange Mt.Gox, has uncovered his thoughts on the future of digital currency exchanges.
In a new blog post, entitled Didn’t we learn anything?, he proposed several solutions that will help bitcoin exchanges to prevent the possible collapse.
It is surprising too see that despite all that happened #bitcoin exchanges are still holding customer coins, while it'd be possible not to…
— Mark Karpeles (@MagicalTux) June 1, 2015
“As Bitcoin gets bigger, the need for more solid solutions increases. I know how difficult it can be for an existing exchange to switch to a new process in terms of settlement of trades, however the current situation is nothing but another disaster waiting to happen (and that’s the last thing anyone wants),” Karpeles said.
Karpeles has always suspected that it was someone within Mt.Gox who was responsible for the company’s downfall in 2014. The issue is that keeping the customers funds within the exchange will raise the risk of thefts and inside attacks similar to what happened with Mt.Gox.
The businessman believes the creation of decentralized cryptocurrency exchanges could help to avoid such risks and eliminate the possibility of attacks. Last month, the same type of theft happened to BitFinex, which has lost in total $330,000 of its users’ deposits.
“Creating a decentralized exchange is a good idea, except for the fact that you are not able anymore to perform checks to avoid stolen property (funds or coins) to be used (this problem also exists on services like LocalBitcoins or Gyft),” Karpeles noted in his post.
“Based on my own experience the best option for a decentralized exchange would be to allow exchange only between existing crypto-currencies (”alt coins”), which would create a lot of new possibilities in terms of value for said coins while potentially helping offload the Bitcoin blockchain,” he added.
Another solution Karpeles suggested is to avoid holding its customers money, although it may be easier and cheaper to do so. Instead, the funds, including both digital and fiat currencies, need to be handled through third party settlements.
“One entity would be specialized in handling of coins. It would focus mostly on security, and could also offer processing for other things than exchanges. I’m thinking about Lightning, for example. Existing wallet services are probably in a good position to start working on these kinds of solutions,” he explained.
Meantime, Karpeles added that integrating these solutions can imply additional costs and can be time-consuming, still, the current system needs to be enhanced.
“There are various available solutions, so I am a bit surprised no exchange has moved in that direction yet. Securing customers funds has a huge cost, and so much can be gained by providing this kind of services to the whole community,” he concluded.