Coinbase, Binance or Coincheck down for maintenance? Top 4 scenarios and how to deal with crypto exchange problems
If you have not experienced it on your own skin, you have undoubtedly heard about the infamous phenomenon. Frustrated traders who were blocked from trading and were denied withdrawing their funds from their cryptocurrency exchange and growing concerns are part of the story.
Each software system needs updating and entering maintenance mode is usually a brief and unnoticeable episode. In the brave and new world of cryptos, software changes are quite frequent, but extended periods of maintenance rarely originate from planned upgrades. There are different cases, and the responses should be per these cases.
The system is down due to a surge in prices
When cryptocurrencies are on the rise, many traders log in to buy or to take profit of their investments. The high enthusiasm may catch the exchange unprepared, leading to a collapse of their systems. Rising prices garner media attention which, in turn, increases demand and pushes prices higher and more traders to the exchange.
This virtuous cycle for cryptocurrencies becomes a vicious cycle for exchanges which are not ready to scale up to growing demand and they eventually collapse. The engineers then rush to fix the problem, often putting the exchange in maintenance mode until they add more capacity, improve the performance of the code, or make any other changes to make the system more robust.
During the downtime, you may wish to buy high and sell higher, or take the profits on rising prices, and you just cannot do it. While such a freeze is frustrating, it is the best possible maintenance mode as the system collapses for the right reasons. Once the crypto exchange is up and running once again, you may have made an even more significant profit.
What can you do in such a case? Let the exchange know you ran into a problem. Sure, they probably already know that and may have issued a statement, but it is essential to express the frustration. Apart from that, the other thing to do is just wait patiently, or impatiently. In any case, it is just a matter of time, and the chance of losing a significant amount of money is meager.
Christmas crisis at Coinbase
Heading into the Christmas 2017, the price of Bitcoin and other digital coins soared, reaching a peak close to the holiday. Coinbase, one of the most prominent American exchanges, was the center of attention due to series of service interruptions.
On December 12th it temporarily suspended trading in Ethereum, and Bitcoin trading entered maintenance mode later on. Traders were unable to buy or sell due at this time. The news had its own effect on the prices of cryptos: sometimes pushing them higher on the excitement and at other times weighing heavily on them.
The system is down as the owners are manipulating the money
When prices are not skyrocketing nor plunging, and trading volume is not extraordinary, the suspension of trade may be due to other, not so innocent reasons. It is always important to remember that when you deposit crypto funds at an exchange, you do not have ownership of the money like you would have in your own wallet. The deposit gives you the right to claim the amount you have deposited or traded, but not the actual ownership. You do this to facilitate easy trading.
Once you withdraw the money to a cold wallet, you retain ownership, but as the owner is not you, it can be abused by the exchange. The vast amount of cryptocurrency an exchange gives them quite a bit of power to use the funds as they please, similar to what a bank does with the deposits it has. Most of the money is not waiting for the account holder to withdraw it but instead used in another way.
When an exchange freezes activity and goes into maintenance mode, they can use the funds without any fear of a massive withdrawal. After a few hours or sometimes days, they can compensate the frustrated traders who then feel the exchange has been generous with them. However, this generosity is not genuine, as they may have made much more money.
Professional traders employed at the exchange can make big profits using the funds deposited with them. They have a real influence on the market using these kinds of numbers.
And after things are back to normal, they can be generous with traders and receive positive media attention thanks to the move.
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Coincheck $400 million hack
In late January 2018, Coincheck, a Japanese cryptocurrency, was hacked. No less than 260,000 users were impacted by a robbery of NEW coins. The exchange hurried to announce it would pay $400 million in compensation to the affected traders. The bad news of the hack was replaced with a relief that there was a happy end for everybody.
And then, some were merely impressed that Coincheck was able to cough up $400 million so fast, portraying an image of a vibrant and successful company. And where did that money come from? In any case, it turned into positive publicity for the firm.
What can you do in such a situation? Once again, voice your complaints, and the compensation may be higher. The frustration is naturally higher than in a case where the exchange is down due to higher prices, but at least the loss is not great.
The system is down due to a hack
We mentioned the case of a hack. Unfortunately, hacks remain too familiar in the world of cryptocurrencies. In some countries, regulation has been introduced to require a certain level of security, but that does not guarantee that the exchange is secure at all times.
Entering maintenance mode due to a hack does not only trigger frustration but also fears that the money is gone. The cybersecurity team of the exchange, either internal or external, first needs to stop the hackers from stealing funds and then requires to verify they are already out before enabling trading. Another step which is usually taken is to make an initial assessment of the damage before returning to normal trading operations. The more savvy ones will also prepare a public statement detailing what happened, how it was encountered, and what happens next.
What can you do? As in the other cases, complaining is primary: it will help put pressure on the exchange to get it fixed sooner and will assist in receiving reasonable compensation.
Is it a real hack? If the criminals are found, there is a good chance it is real, and that lowers the chance for proper compensation. If there is a crime without a criminal, perhaps it was a case of manipulation.
When choosing a cryptocurrency exchange, should you rule out one that has been hacked? Not necessarily. An exchange that survived a hack is more experienced in hacking that a competitor that was off the radar for hackers. “What does not kill you makes you stronger” may also apply here.
A user of Binance, one of the significant cryptocurrency exchanges, had 2 BTC stolen from his account. The attacker managed to impersonate the user, receive a SIM, pass the two-factor authentication and enter the account and steal the daily limit.
The system did no enter maintenance mode, but this is a reminder that hacks can be done by other means and can bypass even the two-factor authentication.
The system is down, and it will stay down
The final case of a maintenance mode may be the death knell for the cryptocurrency exchange. With the increase in the prices of cryptos we many new coins around and not all of them survived. The same goes for crypto exchanges: so many are popping up, and some may go out of business, leaving you with no access to the funds nor the people behind the defunct exchange.
What makes things suspicious? If you contact customer support and all you hear is “we are busy, come back later” without having the option to open a ticket, that is an ominous sign. A lack of response for more than 24 hours is also an issue. Another scary sign is that you not only denied access to the trading platform but also that the website is down. And if you do not see any information on the official twitter account or any other channel, it may be time to worry as well.
If you cannot obtain any official information about what is going on, you are probably not the only one. An online forum, frequently on Reddit, may provide some answers or at least parallel experiences with other clients of the exchange. Maybe someone else was lucky with obtaining information. It can also help with your action plan.
What can you do? Voicing your complaint when there is nobody on the other side is not so useful. Complaining to the authorities, the financial services regulator may be a better option. And as you are already familiar with other victims of the exchange, you could organize to file a lawsuit together, making it more powerful and saving costs.
It is easier to recover at least some of the money if the people behind the exchange stole it. It is harder if they were hacked and the money is just gone. In any case, it is still worth fighting to get your money back even in if the maintenance mode is permanent.
When a system holding your money does not work, it is never what you wished for. There is, however, a major difference between a temporary stall due to demand, an abuse by the owners, somebody stealing your money or the exchange going under. For each case, there are different possible responses. Mind the maintenance mode.