Ever since the massive Mt Gox debacle that took place earlier this year, Bitcoin exchanges have been subjected to high scrutiny by active traders in Bitcoin market. The collapse of Mt Gox was a serious deterrent to Bitcoin’s image in the mainstream media. The exchange that once conducted 70% of Bitcoin trading volume was a scam after all. Who’s to say that there isn’t another Mt Gox in the making?
A number of Chinese exchanges sprouted up to replace Mt Gox and eventually take over a big share of the market. Among those exchanges, Houbi, OkCoin and BTCCHINA were at the forefront. The global trading volume of BTC/CNY has been over 70% for months with highs up to 89% on some days. Their huge volumes have been the linchpin of debate over their validity and legitimacy. One notable reason, out of many, that may explain the sudden rise of volume in these exchange is that several of these exchanges have 0% trading fees on their platform. This has stirred a lot of controversy and suspicions about what’s really going behind the doors. Out of these three big exchanges, one reddit user criticized OKCoin:
“They say “making money is not their focus”, but that’s awfully hard to swallow coming from a company with so much money invested into it. When they do finally decide to profit, how will they do so?”
To be precise, his concern is a fair one. When the world’s largest Bitcoin exchange claims that making money is not their focus, something seems fishy. Admittedly, OKCoin is currently a leader in trading volume.
Following the accusations of faking trade volume, OkCoin conducted auditing of their balances which resulted into positive proof of reserve outcome by 104%.
Now, how do customers verify that this audit was indeed a real one and not another smart tactic by the company to keep the scam going? A reddit user made a statement:
“Proof of reserves is a useless audit tactic that sates idiots. There is no way for your users to validate any of it, and no way to validate your fiat reserves and cryptocurrency reserves are 100% all at once. Unfortunately this is a difficult problem to solve, but maybe something that could be done by a REAL auditor from one of the top firms in the world, like Ernst & Young, etc.”
Another point to note here is Okcoin provides a peer to peer funding option that enables leveraged trading (upto 3x). Combine this with 0% fees, the liquidity provided by being the worlds largest exchange, the artificial stability of the Chinese Yuan, and its easy to see why they’ve become so dominant.
While OkCoin poses as a market leader in trading volume, Bitcoin users are growing wary of centralization. It also become very clear that a decentralized technology can not and must not survive within the hands of central entities. OkCoin is yet another intermediary and users must conduct due diligence before trading on their platform.
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