FCoin, a Chinese cryptocurrency exchange that’s been embroiled in controversy after implementing a new revenue model, has now been blamed for clogging the Ethereum network through a voting system that “incentivizes Sybil attacks.”
According to MyCrypto, a service founded by the creator of MyEtherWallet, a cryptocurrency exchange it chose not to name implemented a voting system that sees users vote for tokens to be listed on the platform through deposits, meaning one deposit equals one vote.
As a result, various tokens and the communities behind them have been filling the Ethereum network with small transactions to get their tokens listed on the cryptocurrency exchange, clogging the network.
4/ Yup….you heard that right. 🤦♀️
Not one vote via poll = one vote.
Not one person = one vote.
Not one token = one vote.
One deposit = one vote.
You'll never believe what happens next!!!1!
— MyCrypto.com (@MyCrypto) July 3, 2018
According to MyCrypto, the exchange’s system was abused so that a token that is “literally a scam-token capitalizing on the symbol of a real, highly-anticipated token that recently ICO’d” managed to get listed.
The move forced gas prices up, to the point the average transaction on Ethereum’s network had $5.5 worth of fees attached to it, before these began to subside. Transaction fees got so high that crypto exchange Binance had to temporarily increase gas prices on withdrawals to 180 Gwei.
#Binance has temporarily increased Gas price on withdrawals to 180 Gwei until the congestion on the $ETH network reduces.
Withdrawal fees will remain the same during this period. pic.twitter.com/LP4rwmIhxB
— Binance (@binance) July 2, 2018
While the service denouncing the exchange’s actions didn’t actually name it, various other reports and data analysis point to Chinese exchange FCoin. Founded by Zhang Jian, a former chief technology officer at Huobi, FCoin was the first to introduce a “trans-fee mining” revenue model, that sees it reimburse users who pay trading fees on the platform with its own FT token.
As CryptoGlobe covered, this helped the cryptocurrency exchange see trading volumes of over $5 billion in 24-hour periods, as high-frequency traders flooded its orderbooks to get a piece of what Binance CEO Changpeng Zhao called a “disguised ICO.” Presumably to incentivize hodling, FCoin distributes dividends to FT token holders.
In an interview on the controversy surrounding the exchange, Jian argued that the revenue model is merely a misunderstood invention. Its token, per Jian, shouldn’t be a security as it would be regulated according to current rules, while being a “future stock.”
The “trans-fee mining” model recently saw various cryptocurrency exchanges top Binance in trading volume, presumably thanks to high-frequency traders. CoinEx, an exchange owned by Chinese mining pool ViaBTC, saw its 24-hour trading volume balloon 24,000 percent after adopting it.