The Binance hack exposes crypto’s biggest communications problem

The recent Binance hack has highlighted the need for cryptocurrency exchanges to improve their communication about security, using plain English rather than confusing technical jargon, says industry expert Tim Focas. The hack, which saw $6.3bn vanish within minutes, has underscored the importance of clear, transparent communication in rebuilding investor trust.

For years, crypto exchanges have competed not only on fees, liquidity, and technology but also on bold claims about safety, using terms like cold storage, multi-signature wallets, and proof of reserves. However, these often misunderstood terms may not accurately reflect the true safety of an exchange. The Binance hack demonstrated the significant difference between the jargon used in press releases and the actual safety of a crypto exchange.

After the hack, it initially appeared that a stolen laptop was responsible, but further investigations revealed additional security breaches. While the exact sequence of events is still under investigation, the technical explanations are likely to confuse investors. Customers want to know as soon as possible if their money is safe and if they can access it, especially when withdrawals are suspended.

The rapid spread of rumors on social media and the ability to track stolen funds in near real-time make clear communication crucial. While Binance has frozen $3bn of affected assets and pledged to cover customer losses, rebuilding trust requires more than just promises. Exchanges must distinguish between what they know, suspect, and what remains unknown, providing clear explanations of how losses will be covered and which assets were affected.

Rival exchanges may attempt to capitalize on Binance's situation, but it's essential to recognize that claiming superiority in safety is a risky strategy, especially given the industry's recent security limitations. Instead, exchanges should focus on answering key questions using plain English, such as the proportion of customer assets held offline, transfer authorization, and independent security testing.

The hack has presented cryptocurrency exchanges with a choice: continue competing on bold security claims or focus on providing clear and convincing evidence using language that resonates with customers. Ultimately, effective trust-building in financial markets requires demonstrating what happens when customers' money is not safe.

Tim Focas, head of capital markets at Aspectus Group, emphasizes the need for exchanges to choose clear communication over bold security claims.