OKEx Resumes Crypto Withdrawals After Over A Month Without Action

November 24, 2020 02:12 PM
Crypto story of the day





Select alt-coins continue to post outsized moves with Ripple (XRP) leading the way. Bitcoin (BTC) traded decisively above USD 19,000 overnight, clearing another milestone on the way to all-time highs.

Crypto Story of the Day

Last week, OKEx announced they were allowing crypto withdrawals after over a month of freezing the action. The situation appears to have been resolved now that a founder and private keyholder has apparently been released from some form of custody. The fact that such a business disruption occurred for a relatively mature crypto exchange highlights one of the unsung, 'elephant-in-the-room' issues in crypto.

On November 19 OKEx’s CEO Jay Hao tweeted the exchange’s announcement indicating that withdrawals would resume on November 27. The announcement noted that, prior to the resumption, the exchange would be conducting “strict security checks to resume normal operations of the hot wallet system.” Blockchain data firm CryptoQuant flagged what appears to be a test transaction of 0.02 Bitcoin (BTC) from one of the exchange’s wallets yesterday. The announcement of the resumption also included assurances that OKEx has maintained 100% of its reserves and that all user funds will be fully available for withdrawal. The exchange also announced new user loyalty reward campaigns with details to be revealed in the next few days.

According to the announcement, OKEx maintained a backup mechanism that would allow other private keys to generate a “backup private key in the event of long-term incapacitation, such as death or memory loss.” However, the exchange noted that they failed to include scenarios such as “private key holders becoming unreachable due to unforeseen circumstances.” Xu Mingxing, a founder of the exchange who is suspected of being the unreachable key holder, posted on Chinese social media that he had been cooperating with an investigation surrounding an equity merger his firm OK Group completed several years ago. Xu claimed that “authorities have clarified the matter and proved me innocent.”

Our initial feeling, that OKEx did have backup systems for private keys in certain events but that this scenario might not qualify, ended up being correct according to the firm. The episode is a black eye to both crypto and OKEx in an otherwise extremely positive sentiment environment for the space. Key-person risk, evidently, remains an unresolved issue in crypto. The baseline trade-off is that for every individual one grants security access to, another attack vector opens up. Furthermore, this is a clear stain for OKEx. Not only will they have to justify to clients that funds are safe and such issues will not happen again, but their explanation, that they did not foresee the possibility of not accessing a keyholder for any reason but death or injury, is not very good. The idea of a crypto exchange not recognizing that detention may be something they should consider, particularly one operating around mainland China, is at best naive and at worst negligent.   

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