Crypto Exchange Bitstamp Gets Acquired by European Investment Firm NXMH

Siamak Masnavi

On Monday (29 October 2018), Reuters reported that Belgium-based investment firm NXMH had acquired an 80% stake in Bitstamp, the largest crypto exchange in the European Union by trading volume.

This is how Bitstamp announced the news on Twitter:

Although the exchange’s chief executive officer Nejc Kodrič did not provide any details about the terms of the deal (struck last December, but signed on 25 October 2018), he did say that this was "an all cash deal." According to Fortune, "the purchase price was rumored to be around $400 million".

The Brussels-based NXMH is an investment firm with more than 2 billion euros of assets under management. It is owned by South Korean conglomerate NXC, which invests in digital technologies, and also happens to own Korean crypto exchange Korbit. It is worth pointing out, however, that the two exchanges will continue to operate independently.

Kodrič told Reuters:

“The sale wasn’t planned. There was no active effort to go around and solicit buyers. The vibrant industry last year sparked potential interest from buyers to make a footprint in the industry. We started to get approached by buyers in the middle of last year."

In a letter to customers over on the Bitstamp website, Kodrič explained the reason for the sale to NXMH:

"The reason why we finally decided to sell the company is a combination of the quality of the buyer, the quality of the offer and the fact that the industry is at a point where consolidation makes sense. A major factor in agreeing to the sale is that the mission, leadership and vision of the company remains the same."

He also told customers there was no need to worry about the change in ownership of the company:

"I want to assure you that Bitstamp remains Bitstamp. We will continue to innovate with the goal of giving our customers the absolute best trading experience. It is business as usual here. We do anticipate that this acquisition will strengthen Bitstamp’s positioning for growth, which will provide opportunities to better serve our customers. Customers should not have any concerns about their accounts or changes to the way we operate."

Kodrič retains 10% of Bitstamp's shares and will continue to work as its CEO.Dan Morehead's Pantera Capital Management, which had made a $10 million investment in Bitstamp company in 2014, "also sold part of its stake in Bitstamp to NXMH." Morehead is the Chairman of Bitstamp's Board of Directors.

Bitstamp was founded in August 2011 by Nejc Kodrič and Damijan Merlak (who "sold his entire 30 percent stake in Bitstamp with the deal and has not been active since 2015"), with the company initially "based out of a Slovenia garage with just a server, a couple of laptops, and a thousand euros in capital." It currently has over three million users.

Kodrič told Reuters that falling crypto prices had affected business, with trading volume down between 60-70 percent, but pointed out that "Bitstamp remained profitable in 2018 because current cryptocurrency prices were still much higher than they were for most of last year."

Kodrič and Merlak founded Bitstamp in August 2011. Kodrič says the company "started in a garage with two laptops and EUR 1000 seven years ago."


Featured Image Courtesy of Bitstamp

CZ Explains How Binance Dealt With Aftermath of $40 Million Theft

On Sunday (May 19), Changpeng Zhao (aka "CZ"), the Co-Founder and CEO of digital asset exchange Binance, told the crypto community what he and his team had been up to since the May 7 security breach that resulted in a theft of over 7,000 BTC from their Bitcoin hot wallet. 

What Happened on May 7?

According to CZ, the hackers involved in the security breach somehow managed to get control over a number of user accounts and structured large withdrawals from these accounts in such a way thay managed not to be detected/noticed by Binance's "pre-withdrawal risk management checks." Their "post-withdrawal risk monitoring system" only noticed something was wrong after the hackers had moved the stolen BTC off of the exchange via a single transaction, at which time it immediately suspended all "subsequent withdrawals." 

At first, the Binance team was not exactly sure what had happened, and so they decided that the safest course of action was for CZ to send out a tweet to say that the "withdrawal servers" were in "unscheduled maintenance mode" while the team was investigating the incident. 

Communication With the Crypto Community

Once the team had confirmed that the exchange had been hacked, information about the security incident was broadcast to the outside world via all of Binance's communication channels (such as Telegram, Twitter, and Medium). 

Since the team could not be sure which user accounts the hackers had access to, it was decided that it would be too risky to allow further withdrawals to be made until the team had the chance to make "significant changes" to the platform (to make it more secure). Binance's announcement on May 8 estimated that the exchange needed to do "a thorough security review" and estimated that this would take about "ONE WEEK," and that during this period, "deposits and withdrawals" would need to "REMAIN SUSPENDED."

By being fully transparent in their communication with Binance users, they were able to receive "tremendous support" from them.

CZ's Periscope AMA Session on May 8

Seeing CZ live put much of the Binance community "at ease." Unfortunately, because CZ had been up all night, he was not in an ideal mental state when he did the AMA. Just before the AMA, his team told him that a Bitcoin Core developer had suggested that it would be technically possible to roll back the single Bitcoin transaction carried out by the hackers by "hugely incentivizing the miners." CZ made the unfortunate mistake of mentioning this "reorg" idea (which he now realizes is a "taboo topic") during the AMA, for which he took a heavy beating (especially from hardcore Bitcoin maximalists) on Twitter (and elsewhere). 

CZ's Mental State Right After Being Told About the Bitcoin Theft

Although he was in a "F***, F***, F***” state" for around 10 seconds, a few moments later, he "began to come to terms with it," and a quick mental calculation told him that the theft of around 7000 BTC (equivalent of around $40 million at the time) could be fully covered by their SAFU fund. Meanwhile, his team had already gone into "War Mode", and their professionalism and support cheered up CZ. 

Support From the Crypto Community

Binance received support from many sources: people defending him and Binance on social media platforms, and helping to answer questions; the Binance Angels (who are all volunteers) "addressing questions" and "reassuring" users on "multiple communities"; analytics firms helping with the tracking of the stolen funds; exchanges and wallet services offering to help by blocking "any deposits associated with the hacker addresses"; and "numerous offers for help from law enforcement agencies around the world."

A Blessing in Disguise?

"Speaking with various team members, and as correctly analyzed by community members, such as Gautam Chhugani, this incident may actually be a good thing for us in the long run. Security is a never-ending practice. There are always more things to do in security, and we have implemented many of them in this last week and will continue to implement more in the future. Given this incident, Binance has actually become far more secure than before, not just in the affected areas, but as a whole."