Bancor’s centralized failure (why we built Ethex)

Last month $23 million USD was stolen out of a Bancor smart contract. This incident comes after the DAO hack and the Parity failure. I wrote about Bancor when it launched and felt there were some issues. I even suspected it might be the next DAO.

Unlike the DAO and Parity, the Bancor theft was caused by a centralized system, not a flaw in an open source protocol or smart contract. Bancor has a deposit or token wrapping contract that has centralized features such has ‘shutdown’, or ‘change owner’. This allowed someone with a key to irrevocably destroy or transmit funds.

If you create a smart contract that encourages people to pool (deposit/withdrawal) funds, and you have control over those funds, you have created a digital bank and should probably be regulated as one. The only nice thing about this sort of blockchain bank is that everyone knows when someone has stolen the funds. It’s continuously audited but not trustless.

Ethex is designed to be as trustless as possible. No one trader has any advantages including the creators. No one is able to shut the system down including the creators. Users download and use all the software on their own computer without being identified, tracked or monitored.

These properties are new and only possible with blockchains. They provide uninterruptible digital trade across the world from user to user. This is why we built Ethex.