The Binance hack exposes crypto’s biggest communications problem
The Binance hack exposes the cryptocurrency industry’s reliance on confusing security jargon and demonstrates that exchanges must adopt clear, transparent communication in plain English to rebuild investor trust, says Tim Focas
Who would have thought that it would have taken billions to vanish in a matter minutes due to a cyber hack on the world’s largest bitcoin exchange to lift the lid on the way some crypto venues have historically communicated with their customers.
There are few things more likely to test investor confidence than discovering that $6.3bn has been stolen except, perhaps, being told your money is perfectly safe while withdrawals are suspended.
The trouble is that, for years now, cryptocurrency exchanges have competed not only on who has the lowest trading fees, the best liquidity and most sophisticated technology, but also on bold claims about who is the safest. Terms like cold storage, multi-signature wallets and proof of reserves have become synonymous with crypto discourse which may well be understood by those in the know, but most people trading on these exchanges don’t have a Scooby, let alone whether the words being used guarantee their money is safe.
The Binance hack has proven that there is a big difference between jargon used to describe security in a press release and how safe a crypto exchange is in reality. The initial look into Binance’s hack suggested that an employee’s laptop had been stolen, before then later findings showing that additional security breaches had taken place. While the exact sequence of events is still being looked into, the more technical the explanation the more baffled investors are likely to be. After all, if one of the world’s biggest exchanges can suffer a multibillion-dollar breach, why should they believe another exchange’s assurances?
Bamboozled
The last thing customers want is to be bamboozled, they just want to know as soon as possible whether or not their money is safe and if they can access it. They also want to know as soon as withdrawals are suspended because rumors spread at the speed of light across social media and analysts can track stolen funds in near real time.
When something as serious as a hacking incident occurs, exchanges want to avoid the risk of creating the impression they are either withholding information or, worse, don’t fully understand what has happened. While Binance has frozen $3bn of affected client assets and said it would cover any customer loses, rebuilding confidence requires more than promises. In their press strategies, exchanges must distinguish between what they know, what they suspect and what remains unknown. Customers need clear explanations of exactly how their losses will be covered and which assets were most affected.
Rival exchanges will naturally be templated to capitalise on Binance’s woes. Cue a flurry of Linkedin and X posts around industry-leading safeguards and institutional grade security over the coming days. But these exchange rivals are successful for a reason and are smart enough to know deep down that claiming to be safer than a competitor is a dangerous comms strategy, especially when the industry has just witnessed the security limitations of a crypto exchange with a roughly 35 per cent market share.
A more pragmatic approach is to use communications to answer a series of questions like what proportion of customer assets are typically held offline? Who can authorise transfers? Are security arrangements tested by an independent body? These are questions that deserve clear and concise answers in plain English as the stakes extend beyond retail cryptocurrency investors. Investment banks and asset managers currently dipping their toes into the digital assets water will demand the standards of accountability, operational resilience and financial transparency that underpin traditional financial markets.
The hack presents cryptocurrency exchanges with a stark choice of either continuing to compete over who makes the boldest security claims, or start competing over who provides the most clear and convincing evidence by using language that actually resonates with their customers. Ultimately, in financial markets, good communications around trust is built by demonstrating what happens when a customer’s hard earned money isn’t safe.
Tim Focas is head of capital markets at Aspectus Group