Regulatory authorities are planning to set up a third-party Bitcoin custody platform

Original title: Regulatory authorities are brewing Bitcoin escrow

China Securities Journal reporter learned that following the interview with the heads of the three major domestic bitcoin trading platforms last Saturday, the regulatory authorities will continue to meet with industry insiders in the near future to discuss the establishment of a third-party bitcoin custody platform to ensure the security of bitcoin transactions. When the bitcoin market adjusted sharply recently, some trading platforms were unable to log in, causing investors, especially leveraged investors, to suffer heavy losses. The regulatory authorities have noticed these conditions in bitcoin.

Seeing a sharp drop, there is nothing to do

On the afternoon of January 5, the price of Bitcoin plunged sharply. At 5:30 p.m. that day, when investor Xiaobei (pseudonym) decided to close his position, he found that he could not log in to his trading platform Huobi.com on his mobile phone, but he had no problem opening other web pages. Xiaobei's Bitcoin QQ group was in a mess, and no one's mobile phone could connect to Huobi.com. This situation lasted for several hours. Xiaobei used the 5x leverage trading service provided by Huobi.com, and he was helpless when the price of Bitcoin plummeted. He called the 400 customer service number, but the line was always busy and he was ultimately unable to speak to the customer service staff. When the Huobi.com trading platform returned to normal, the price of Bitcoin had fallen from 8,000 yuan to around 6,000 yuan.

What Xiaobei didn't expect was that two days later, at around 10 pm on January 7, Huobi.com was again unable to log in. Fortunately, the price fluctuation of Bitcoin was not as drastic as the last time. "Several years of earnings were gone in the blink of an eye." Xiaobei lost millions of yuan twice. After the platform stabilized, Xiaobei withdrew all the remaining funds from Huobi.com.

Coincidentally, at 1 a.m. on January 9, the website of another trading platform , OkCoin China, malfunctioned and trading was suspended for more than 10 minutes.

Investors are questioning

Regarding Huobi’s system failure, some investors accused it of poor technology, while others questioned the moral risks of the trading platform.

Some investors asked why the system had problems during a sharp drop. If the surge in traffic caused the system to crash, why didn’t it crash during a sharp rise? Although Huobi.com had similar problems before, it did have more problems during a sharp drop. Another investor suggested that if the trading platform had subjective intent, it could have cut off the system and interrupted trading during a sharp drop, delaying the time to ease the decline.

In this regard, Wu Xing, the media director of Huobi.com, said that Huobi.com did have two technical failures recently. The failure on January 5 was due to bandwidth congestion caused by a sudden increase in transaction volume, and the system could not respond. The failure on January 7 was a computer room failure. According to the data provided by Wu Xing, the number of new registered users on Huobi.com this year is 10 times that of the same period last year. The recent rise in Bitcoin prices has caused a sudden increase in transaction volume, and the system cannot cope with it.

Wu Xing said that these technical failures were "unpredictable force majeure". The trading platform cannot predict when the system will crash. Huobi did not take any active actions to cause the platform to crash. Huobi is dealing with the consequences of the system crash.

Some investors said that earthquakes, fires, etc. are "unforeseeable force majeure", while the surge in trading volume caused by the hot Bitcoin market is not an emergency, and the resulting overload and crash of the trading system cannot be considered "unforeseeable force majeure". Trading platforms should take precautions in advance, not only to ensure that trading can proceed normally under normal circumstances, but also to ensure that trading can proceed normally when the trading volume exceeds the daily level.

Trading platforms need to be regulated

Three or four years ago, Bitcoin was still a niche "imported product". In December 2013, the People's Bank of China and five other departments issued a document defining Bitcoin as "non-currency" and requiring financial institutions and non-financial payment platforms not to provide Bitcoin with a number of services, including custodial fund accounts.

Bitcoin is no longer what it used to be. Last year, it became the most profitable investment in China, surpassing real estate, rebar and other "star" investment products, attracting a large number of investors. With the surge in traders, some trading platforms have experienced stability issues.

The head of blockchain at an international organization told reporters that the relevant departments had consulted with a number of professionals on the management of Bitcoin before interviewing the heads of the three major domestic Bitcoin trading platforms last Saturday. A blockchain researcher in Shanghai said that the relevant departments will recently convene professionals in Beijing to discuss Bitcoin management and the establishment of a third-party custody platform.

Due to the lack of supervision, Bitcoin trading is in a state of "wild growth" and chaos. As the three major domestic trading platforms, Huobi, Ok-Coin and Bitcoin China do not have third-party institutions to manage them. Once a Bitcoin platform runs away, investors will be caught off guard. According to media reports, at the end of October 2013, GBL, a Bitcoin trading platform registered in Hong Kong, could not log in to its website, and then the customer service staff could not be contacted via QQ or phone. The media finally confirmed that the trading platform ran away with investors' Bitcoin and funds worth about 30 million yuan ( 6.9302 , -0.0047 , -0.07% ) .

The above-mentioned blockchain researcher said that the regulatory authorities have realized the regulatory issues of Bitcoin transactions and will take corresponding measures and consider setting up a third-party custody platform.

Tian Jia, CTO of Future Securities, a global stock index quantitative trading platform and a senior Bitcoin investor, said that even if a third-party custody platform is established, Bitcoin trading supervision cannot be solved once and for all. Many technical problems will threaten the interests of investors, including attacks on trading platforms that lead to trading system crashes and hackers stealing investors' personal information. If the technical capabilities of Bitcoin trading platforms are not up to standard, even if they do not do evil subjectively, they will become "evil guys" objectively. It is imperative to establish technical standards for trading platforms.