Binance Insurance Fund Reached $1 Billion For Hacks Protection


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Money laundering and cyber threats of all kinds have troubled the crypto space for a long time. While cryptocurrencies are relatively safe from forging and counterfeiting, cyberattacks are a major area of concern for both individual crypto holders and cryptocurrency exchanges.

Keeping in mind the inherent risks associated with storing value in an entirely digital format, various cryptocurrency exchanges take many steps to secure the funds of investors. The availability of APIs at Binance is also a step towards security for users who create their own Binance trading bots.

Binance, the world’s largest cryptocurrency exchange by volume, also announced its Secure Asset Fund for Users (SAFU) back in July 2018. After more than three-and-a-half years, the total value of the Secure Asset Fund for Users stands at $1 billion.

According to Binance CEO Changpeng Zhao, ‘funds are safe’ with Binance at all times. He added that the present insurance valuation will further help strengthen the exchange’s safeguards against any possible threat.

Binance, along with many other crypto exchanges, has repeatedly faced dangers from cybercriminals. According to a recent report from CNBC, hackers collectively stole $14 billion in cryptocurrencies through different cyber attacks. The amount is 79% more than that of 2020. Of this, the major share of losses comes from DeFi (Decentralized Finance) protocols.

The two most common money laundering techniques are scams and theft, according to analytics firm Chainalysis.

Defi protocols often lack secure frameworks owing to their decentralized nature, making them particularly susceptible to all forms of cyberattacks, including thefts.

More than $3.2 billion were lost to crypto thefts in 2021. Cryptocurrency scams account for $7.8 billion worth of losses. While there are a range of reasons behind these losses, including weak system security on the part of DeFi protocols and cryptocurrency exchanges, the most common cause is a lack of investor awareness.

Beginning in 2018, Binance decided to allocate 10% of its earnings from trading fees for the creation of the Secure Asset Fund for Users. Changpeng Zhao added that Binance will continue to monitor the size of its insurance fund to make necessary changes.

Binance’s insurance fund does not comprise fiat currency. However, one of its constituents is BUSD or Binance US Dollars. It is a stablecoin from Binance that is pegged against the value of the US Dollar, meaning that the value of 1 BUSD is equal to that of 1 USD. This price stability makes stablecoins a great option for protection against market volatility. Other notable stablecoins in the crypto space are USDC and Tether.

While stablecoins have a consistent price, cryptocurrencies do not. Apart from BUSD, the Binance SAFU comprises BNB (Binance coin) and BTC (Bitcoin). When the price of Bitcoin or Binance coin goes up, the value of the SAFU will increase.

Similarly, a bearish market will result in a reduction of the insurance fund’s value. It is worth noting that the value of the SAFU reached $1 billion according to the market’s opening prices on January 29, 2022.

Since the cryptocurrency market had been relatively bearish in November 2021, the value of the insurance fund is expected to increase in the future. Bitcoin was trading at around $37K on January 29, 2022, which is significantly less than its all-time high value of $68K.

Bitcoin has acted as the overarching leader of the crypto space and any fluctuation in its price has had ramifications on all other cryptocurrencies. If the prices of BTC and BNB double in the coming year, we would be looking at an insurance fund of more than $2 billion. However, the composition of BUSD will prevent such rapid growth and also any rapid fall in prices.

Binance investors had taken to social media platforms to share the news of this development. Many believe that a comprehensive insurance policy will encourage more retail investors to enter the crypto space.

Since cryptocurrency exchanges have a long history of hacks and thefts, many investors are reluctant to use these platforms. However, the alternatives involve far more complications.

For example, every investor needs a crypto wallet to store their coins. These wallets are referred to as either hot or cold. A hot wallet stores the crypto keys on servers that are accessible by the wallet owners. However, hot wallets are not immune from hacks.

Crypto exchanges like Binance use hot wallets, which demands better security protocols. Cold wallets, on the other hand, are much safer. Since the data is not stored on the internet, it is virtually hackproof. However, cold wallets are not feasible for most people for two reasons.

One, they tend to be expensive. Two, the responsibility and risks associated with a hardware device are often more than an online wallet. If someone loses their cold wallet, their money is essentially lost. They can also get damaged in disasters like fire. While cold wallets are undoubtedly better from a security perspective, they’ve failed to garner widespread adoption due to their inherent complexity.

Binance is not the only cryptocurrency exchange focusing on insurance funds. Bittrex, another well-known cryptocurrency exchange, reported an insurance fund of more than $300 million in 2020.

Similarly, Gemini and Coinbase reported insurance funds worth $200 million and $255 million, respectively. Binance’s closest rival also has insurance worth $750 million. It was extremely useful for the cryptocurrency exchange when it recently lost $30 million in stolen BTC and ETH. It is one of the biggest cyber attacks that has faced and the first major crypto exchange hack in 2022.

In the personal memo regarding SAFU that Changpeng Zhao shared, he urged for global cooperation to combat cybercrimes against cryptocurrency exchanges and investors, saying, “We call on all centralized exchanges to do the same [regarding insurance funds]” to send a message to government and regulators about the integrity of the cryptocurrency ecosystem.

The global crypto community has expressed optimism at the news of Binance’s SAFU reaching a new milestone. It also cements Binance’s position as the top cryptocurrency exchange in the world ahead of Coinbase and