Update: Reports suggest that poor security has led to hackers to steal an estimated 58 Bitcoins, which is currently worth $540,000.
FoxBit is one of the leading bitcoin exchange in Brazil, boasting about 400,000 users. Its top rivals in the country are Mercado and Bitcambio. Together the trio represents a fractional of a percent of cryptocurrency trading globally, but they should gain scale as the Brazilian bitcoin market grows. The trading platform is based on open-source Blink Trade, which has proven to come back to haunt them. FoxBit claims to have 43% of the Brazilian bitcoin market.
FoxBit is not a platform for speculative trading, given its singular focus on bitcoin. It’s more of an intermediary to exchange the Brazilian real for bitcoin or vice versa. FoxBit Founder Guto Schiavon explained:
“Our job is basically to provide a middle ground between two people, one who wants to buy and the other who wants to sell. And we guarantee that at the end of the day, one will receive the bitcoin and another will receive the BRL as negotiated.”
· Hot and cold wallet addresses, both of which are transparent
· Supports bitcoin
· Accepts fiat deposits (though only in BRL)
· No deposit fee
· Supports SegWit, which leads to lower withdrawal rates
· Promotes diversity in the workplace
· Partner with US-based Bitgo, a multi-signature wallet
· Altcoins are coming
· Caters to Brazilian locals
· Technology infrastructure issues
· Software issues
· DDoS attacks
· High withdrawal rates
· Customers accuse it of having no backup servers
· Lacks coin diversity (only bitcoin)
· No trading tools (e.g. charts, analysis, etc.)
· No margin trading
· Users complain of interface issues. The exchange argues that most crypto platforms do and that they’re more focused on the backend than the front end. Having said that, FoxBit expects the user interface to improve.
· More demand than they can sometimes handle
FoxBit is meant to reflect agility, speed and intelligence, but trading platform has experienced growing pains from its launch in 2014 through to today. The exchange has been riddled with DDoS attacks, a series of technical glitches and a virus, the latter of which resulted in hundreds of thousands of dollars in lost bitcoin (more on this later.)
There are other headwinds, including pushback from the bank partners that Brazilian exchanges including FoxBit works with. FoxBit is not being singled out, but Banco do Brazil threatened to close the exchange’s account. Banks have taken similar action against competing cryptocurrency exchanges, including Mercado. Foxbit filed a lawsuit against the bank.
FoxBit has a withdrawal rate of 0.0002 BTC, which it is able to offer as a result of the implementation of SegWit, or Segregated Witness, the bitcoin protocol upgrade. Here’s a breakdown of the fees -
BRL deposits must be made by transfer either from one of the supported banks (Bradesco, Caixa, Banco de Brasil and Banco Inter) or via TED or DOC. Otherwise users will be refunded and charged a fee. They recommend users deposit a non-round number for faster transaction times.
Withdrawals with non-supported banks will include a fee of BRL 9.50, which goes to the banks.
Bitcoin deposit durations are based on the validation level of the account. Users who verify their accounts with selfies receive higher limits. For instance, a user who hasn’t verified their account with a selfie is limited to deposits and withdrawals of BRL 5,000 each. Users who have verified their account with a selfie face limits of BRL 25,000 and BRL 50,000 for deposits and withdrawals, respectively, each day.
While FoxBit boasts of a large percentage of funds being stored in a cold wallet, it has not been immune to security breaches. They’ve suffered a series of both technology infrastructure failures and security setbacks. The tech problems appear to stem from the company not being able to manage increased demand for its services, in response to which they’ve had to block newcomers from joining the platform.
The most severe of these incidents occurred in March 2018, when a security incident triggered an upgrade that led to a multi-day outage at the exchange.
Before the upgrade, a virus infiltrated the platform that essentially gave 130 FoxBit users the ability to make double withdrawals. FoxBit lost some bitcoin in the process, to the tune of approximately $270,000, though some of its members have returned the extra BTC, according to reports. It let to a series of cancelled orders to stem the damage.
The company described the incident as a “situation that corrupted the indexes on the Blinktrade database.” Recall that FoxBit is built on Blink Trade’s open-source platform. FoxBit assured its users that it was not hacked and points to its cold wallet storage as proof that the funds were safe. The exchange also said it had sufficient funds to reimburse any losses, pointing to a cold wallet comprised of more than 7,600 BTC (as of March 2018).
Still, rumors began circulating that it could be another failure of Japan’s Mt. Gox proportions, even though the exchange assured otherwise. Users weren’t happy, as evidenced by the following message on the FoxBit Facebook page –
The company also posted the following video message in response to the situation -
Video response -
Meanwhile, FoxBit has experienced multiple DDoS attacks over the years, the most recent of which occurred in May 2017. False reports on social media including Facebook and WhatsApp said that the exchange was headed for bankruptcy. The company responded to those allegations with an emphatic “no,” saying on a forum –
“NO, FoxBit is NOT filing for bankruptcy; there is no reason for that. The company does not operate the fractional reserve; all balances in bitcoins and BRL are kept secure and not used for any other purpose. If all clients decided to withdraw their balances, there is solvency to fulfill that immediately.” -
It wasn’t the first time the platform was hit with this type of attack, as DDoS events appear to date back to 2015 –
On a positive note, FoxBit was early to implement withdrawals via SegWit on its platform, seemingly ahead of major global exchanges including Coinbase.
Meanwhile, FoxBit started automating the identity verification process at about year-end 2017, when the exchange reached overcapacity and had to block new users from joining for a while.
According to a forum poster, the exchange received “exponential growth of more than 500%” in a matter of weeks, in response to which it decided to “suspend the verification of new accounts until the registration, banking and service backlog” was resolved.
FoxBit’s Marcos Henrique confirmed the exchange was overwhelmed, saying:
“Obviously, we have to provide quality services, and we are having a difficult time at our base. It was a difficult decision, but we chose to lock up the registrations to organize our backlog [database of registered and in-process users]. " – Marcos Henrique, FoxBit
As of Q1 2018, FoxBit has a pipeline of 10,000 users waiting to use the platform.
In keeping with Brazilian regulation, FoxBit adheres to the know-your-customer (KYC) protocol, which is a way for the exchange to know who is transacting on its platform for better security. They also support anti-money laundering (AML) rules to protect the exchange and its investors from fraudulent activity.
FoxBit works with several banks, including Caixa, Bradesco, Banco do Brasil and Inter. But it doesn’t restrict its members to accountholders at these banks. Withdrawals must be made by the person whose name the bank account is in.
Users who don’t have account at the partner banks have a couple of options, including using the TED feature or selecting “other bank” when attempting to perform a transaction on the platform.
For deposits, FoxBit recommends using the TED feature as it’s faster than the alternative. Meanwhile, for transactions with Banco de Brasil, there’s a withdrawal limit of BRL 50,000 per transaction.
To verify their identity, new users must perform a series of steps, including uploading documents the following documents –
· Photo ID, such as a passport
· Proof of address, such as a utility bill
· Selfie holding the document
· Sometimes proof of income must also be shown
The default option for signing up involves two-factor authentication for a user’s email address. For mobile, however, users must opt-in to two-factor authentication, which FoxBit recommends.
Once these steps are complete, they can begin funding their account.
FoxBit has its loyalists who defended the exchange through its latest security breach, but it also has angered its share of users. One investor took to Reddit to complain about the fees, pointing to BRL 50 (USD 15) charge to withdraw bitcoin. Others pointed out that the fees are driven by the bitcoin network and are a function of mining. But all of them on this particular thread agreed that BRL 50 was steep in a country where the minimum wage is less than $8 per day.
But most of the comments about FoxBit are on social media platforms such as Facebook and Twitter. Here’s one who forgave the exchange for the multi-day outage –
“FoxBit is the best brokerage in Brazil. Technical problems happen. Problems are being mitigated, fast actions [are] being taken and the community is [regrouping.] Go FoxBit.”
Another user was less forgiving, saying:
“A sample of how fragile and precarious the structure is. They charge high rates, but the quality of the service provided is not up to par.”
Users chastised the exchange for not having backup servers to prevent the problems that surfaced during the upgrade. They also banded together and reminded one another to keep their BTC in an external wallet with a private key rather than at the exchange or with any third-party service provider.
Brazil accounts for 0.02% of bitcoin trading, as of March 2018. Bitcoin trading volume in February 2018 was approximately BRL 120 million, or USD 38 million, compared to BRL 115 million for all of 2016, according to the Financial Times. While trading volume is modest compared to more mature markets such as in the United States, the year-over-year growth reflects a rising tide of bitcoin investors.
As the number of Brazilian investors has grown, so too has the FoxBit team, which ballooned from half a dozen in 2017 to 80 employees in Q1 2018 (most of whom are under 30 years of age). The company aims to have a team of 250 in 2018. This rapid growth led the exchange to relocate to new San Paulo office space. They boast 400,000 subscribers and between 10,000 and 15,000 transactions daily. During market downturns, they maintain volume of approximately BRL 15 million to BRL 20 million daily.
FoxBit has come a long way from when it was just a concept. The management team didn’t even meet face to face at first, instead relying on the convenience of social media, specifically Facebook, Skype and Hangout, to communicate. As FoxBit CEO João Canhada explained in a blog post, there was not even a handshake in the early days.
“Guto in Pompeia, Felipe in Araraquara, Marcos Henrique in São Bernardo, and I in Mogi Guaçu. We founded FoxBit in our rooms in different cities! I only got to know Guto personally on Dec. 9, 2014, one day before everything went live.”
Their unconventional approach has largely paid off, but not without some setbacks. FoxBit is a young exchange, but they’re a leader in Brazil as well as in the Latin American region. Any setbacks are likely to be used as an example in the industry of what not to do.
FoxBit also has growth on its mind, with plans to eventually expand into other cryptocurrencies beyond bitcoin. But first they need to fix the problem of public perception for the exchange to go to the next level.
FoxBit says they are working to improve both their security and technology infrastructure and increase the platform’s capacity so that it can handle the rising demand, all of which is good. But there’s some uncertainty surrounding the exchange that could lead to some reputational and financial fallout, either from regulators, users or both. What the exchange has going for it is transparency and trust among many of its users. How it handles the rest is up to FoxBit.