Binance, the world’s largest crypto exchange with over 28 million users, said early Monday that it had temporarily suspended all crypto withdrawals on its website. The exchange attributed it to “a large backlog.”
We have temporarily disabled all crypto withdrawals on https://t.co/QILSkzx7ac due to a large backlog.
Rest assured our team is working on it with top priority.
Thank you for your patience and apologies for any inconvenience caused.
— Binance (@binance) November 1, 2021
It resumed about 30 minutes later. The resumption notice had barely brought a sense of relief to anxious users when Binance suspended it again, without any explanation. The service was restored more than two hours after the crypto exchange first suspended the withdrawals.
A Binance spokesperson told Business Insider that the temporary halt on withdrawals was due to a glitch in the database system. The company assured users that their funds were not at risk. However, it wasn’t enough to reassure users, who criticized the company’s poor customer service and the lack of proper communication. The temporary suspension was a stark reminder that users are not in control of their funds.
Binance is the world’s largest crypto exchange by trading volume, so any disruptions could have serious consequences for the broader market as well as users.
“Custodians and trust centralized third-parties holding your crypto is not the same as true ownership. Not your keys, not your coins isn’t just a meme. Censorship resistant, peer-to-peer trade is the pillar on which the future of crypto adoption depends,” said Portal executive chairman Dr. Chandra Duggirala. Backed by Coinbase, ArringtonXRP, and other notable investors, Portal is building censorship-resistant DeFi on top of the Bitcoin blockchain.
Binance has had numerous disruptions in the past, often in times of high price volatility. During an outage in May, many users suffered heavy losses because they couldn’t sell their coins when they wanted to.
Are DEXs there yet?
Centralized exchanges such as Binance and Coinbase dominate an industry that is obsessed with decentralization. They have their own infrastructure and servers to facilitate transactions and store information, funds, and users’ private keys. The centralized exchange transactions are not recorded on the blockchain.
They have proven vulnerable to hacks and regulatory risks. In fact, due to their centralized functioning, hackers see them as honeypots. Also, the centralized exchanges can suspend any user’s account anytime they want.
There are decentralized platforms such as Uniswap that promise greater transparency, accessibility, and security by operating their functions directly on the blockchain. They are permissionless, meaning anyone can access them and trade without intermediaries.
Users on decentralized exchanges maintain full control over their funds. Transactions are executed with open smart contracts, and there is no single point of failure. However, liquidity remains a major concern for DEXs.
Decentralized exchanges have struggled for years to offer liquidity similar to centralized exchanges. They have adopted the Automated Market Maker (AMM) model, where users provide passive liquidity to generate yield, to resolve the liquidity issue. However, the AMMs haven’t yet been able to match the performance and precision of centralized order books.
Whether it’s Binance, Coinbase, or Gemini, centralized exchanges have full control over users’ funds, but users themselves don’t. That’s the irony. The regulatory setbacks, hacks, and outages that CEXs encounter has a direct impact on users’ coins. The latest Binance episode was a gentle reminder that users need to have full control over their assets.