Bitstamp recently came out that their hot wallet was hacked causing them to lose ~18,866 BTC (~$5 MILLION USD). This incident is bad for the exchange as well as for Bitcoin. What many do not think about is how it can cause issues for other companies. One company that reacted quickly to the situation is BitPay, the largest Bitcoin merchant processor now sponsoring the Bitcoin Bowl. As a company that processes a large volume of Bitcoin transactions for clients, they need timely and accurate exchange rate info. BitPay CFO Bryan Krohn posted on BitPay’s blog reporting how they get their exchange rates.
Their systems BBB (Bitcoin Best Bid rate) system is very nimble, works quite well. and responds quickly to things Bitstamp’s outage.
Because Bitstamp’s exchange rate remained higher than other exchanges, the BBB maintained a price of $276.80 per bitcoin, even as the price on other exchanges dipped. After it became clear that Bitstamp’s reported price was no longer reflective of the market, our business team decided to temporarily remove Bitstamp from our BBB exchange rate calculation. Our merchants experienced no interruption in service over this episode, and bitcoin customers continued to receive the most favorable price available globally.
The system was able to keep BitPay’s customers safe. The information is good for BitPay’s customers, as they can have peace of mind about how BitPay protects their interests. It also shows how BitPay operates to the very strict standards they set for themselves.
BitPay’s BBB rate is based on the order books of bitcoin exchanges that we vet extensively – BitPay adheres to extremely high standards of accounting and regulatory compliance. When considering a relationship with an exchange, BitPay takes into account a number of important factors including liquidity, legal and regulatory compliance, AML & KYC standards, banking relationships, a visible order book, counterparty risk, and our internal auditing requirements. We require both proof of reserves and a BitPay-managed review of trading volume. BitPay is constantly evaluating available bitcoin exchanges for the BBB calculation. The BBB rate is calculated by simulating an auto-routing market sell order, across all exchanges, with zero commission fees. Buyers will always get a better value by spending their bitcoin at a BitPay merchant than by selling them on an exchange. More information on the BBB is available on our Bitcoin Exchange Rates page.
While the news of Bitstamp’s loss to hackers is not good, it is good to see how well businesses like BitPay handle issues like that. A merchant could lose quite a bit of money if a situation arises where their payment processor is accessing Bitcoin at a higher value than it should be at the time of the sale. This situation would cause the merchant to not collect enough Bitcoin, thereby losing money. The same goes the other way, by causing them to take too much causing a loss to their customers. Neither case is a situation any merchant wants.
Also, a good job by Bryan Krohn, who stepped up and posted information about how they handled the situation and how they work to maintain their standards. Statements like these should give both merchants and customers more confidence in BitPay.
Images from BitPay and Shutterstock.