Kraken CEO: "The Only Way to Know What’s Really Happening Is to Get Inside the Exchange"By Jonathan Joe Morgan
Jesse Powell, co-founder and CEO of the Kraken cryptocurrency exchange, has called for the crypto community to remain true to the vision of creating an open and transparent alternative financial system in the wake of the QuadrigaCX mystery and #DeleteCoinbase movement.
Quadriga Fintech Solutions Corp. has CAD $190 million (USD $143 million) of client funds missing after the death of Gerald Cotten, the founder of QuadrigaCX. Cotten had sole access to the password for client funds of the exchange held in cold storage.
“These cases reflect poorly on the entire space and are a setback to adoption,” Powell told LongHash in an interview. “It’s up to the community to self-police and investigate these cases.”
Cotten, who ran the Vancouver-based exchange from his laptop, took sole responsibility for handling the accounting and banking side of the business. His untimely death, culminating with the mysterious disappearance of client funds, has thrown into the spotlight the inherent risks of trading on smaller cryptocurrency exchanges. Kraken is offering up to $100,000 (fiat or crypto) as a reward for tips that lead to the discovery of the missing QuadrigaCX funds. All leads collected by Kraken will be provided to law enforcement organisations that have an active interest in the QuadrigaCX case, including the US’s Federal Bureau of Investigations (FBI).
“We have the experts and a little work on our side can go a long way toward helping law enforcement. Kraken has thousands of mutual clients with QuadrigaCX and we would love to be able to help these people, and the rest of the creditors, recover as much as possible,” Powell told LongHash.
Powell is vocal in his belief that people holding cryptocurrencies need to take responsibility for the safe storage of their holdings and be mindful of the risks of using exchanges. In January 2019 he had a spat on Twitter with Changpeng Zhao, the CEO of Binance, who had encouraged users to store crypto on exchanges, the best option in his opinion being decentralized exchanges (DEXs).
“Only use the most reputable, proven secure, exchanges," tweeted Zhao. Powell countered in a tweet: “PLEASE do not store more coins on an exchange (including @krakenfx) than you need to actively trade. Use @LedgerHQ or @Trezor. DEXes are not a panacea -- look at The DAO. Open source just means exploits will be discovered sooner (probably not by good guys).”
Kraken, which employs about 800 people, has sophisticated wallet management systems and responsible continuity plans, according to Powell. Kraken offers trading in a variety of cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple (XRP) and Stellar. Trading can be executed between digital assets, and between digital assets and fiat currencies such as USD, EUR, GBP and CAD.
Powell declined to provide any commentary to LongHash on Kraken’s DEX plans, as rival exchanges such as Binance and Coinbase have begun building out decentralized exchanges to complement their services.
“Yes, it is possible that in the future most assets will be exchanged outside of centralized exchanges,” said Powell. “Why? If DEXes live up to the promise, they won’t be blocked by regulation which might limit participation and liquidity.”
In the meantime, the role of centralized exchanges in the ecosystem continues to fall under scrutiny, amid allegations of distortions in exchange trading volumes. Tie, an on-chain crypto data analytics platform based in New York, conducted analysis of the internet traffic on the top 100 crypto exchanges’ websites and found nearly 90 percent of the exchanges’ volume was suspect.
“There are several methods that have been used [to gauge volumes on exchanges],” he said. “Generally, they agree on which exchanges are faking volume and which are not. The only way to know what’s really happening is to get inside the exchange. It will never be possible to know with certainty from the outside what is happening on the inside.”
Meanwhile, Coinbase has been mired in controversy after the go-to exchange to purchase Bitcoin earlier this year acquired Neutrino, a blockchain analytics company that’s run by former senior executives of Hacking Team, an Italian spyware firm accused of helping oppressive regimes. A backlash against Coinbase among sections of the cryptocurrency community resulted in the #DeleteCoinbase movement on Twitter, where users urged others to shutdown accounts with the San Francisco-based exchange.
“Coinbase has acquired a company that’s run by the former CTO/COO and other senior members of a spyware firm that helped oppressive regimes (such as Ethiopia, Sudan, Bahrain, Venezuela, Kazakhstan and Saudi Arabia) monitor journalists and activists who disagreed with them, in some cases leading to the regimes imprisoning or murdering these people,” stated a Kraken press release.
Coinbase announced in a company blog on March 4 that members of the Neutrino team who previously worked at Hacking Team "will transition out of Coinbase."