Syscoin: Suspicious blockchain activity unrelated to Binance trading anomaly

Syscoin (SYS) cryptocurrency saw a series of odd patterns on its blockchain on Tuesday. After a detailed investigation, the company has now offered an explanation of what transpired that day.

“Syscoin blockchain has not been hacked or compromised in any way,” Syscoin team said in a document sent to Hard Fork. “What took place on [July 3]  was a combination of events that made the situation more sensational than it needed to be.”

The situation first escalated after some users noticed the network had processed blocks with output values larger than Syscoin’s entire token supply, raising suspicions its blockchain might’ve been compromised. At the same time, it was discovered that 1 SYS unit is trading for 96 BTC ($634,560 at the time of writing) on cryptocurrency exchange desk Binance. Given how closely these two events occurred, there were speculations that these were correlated. But Syscoin team now explains that this wasn’t the case.

The large output value blocks came due to miners’ policy. More than a week ago, Syscoin released a mandatory update to fix a governance superblock fee calculation bug for its masternodes, miners, and software client. July 3 was the last date for the miners (and others) to upgrade to the new version. If they didn’t, they couldn’t be mining anymore.

The large miners that upgraded to the new version set higher fees above the usual rate, and the smaller miners were left picking up transactions when they won a block at a lower fee. This led to hundreds of transactions bunched up in large output value blocks. While Syscoin says this is expected behavior, they did notice some suspicious activity.

A wallet with 46 million SYS (which Syscoin) started sending withdrawal requests during this period. This withdrawal chained as unconfirmed transactions on the blockchain, and quickly added up to a large amount — possibly resulting in either of the two largest blocks we saw. This is when the Syscoin team decided to ask exchanges to temporarily halt SYS trading on their platforms. Bittrex and Poloniex immediately complied – but Binance tried to identify the problem first.

The Syscoin team says that — once their investigation concluded the unusual activity did not originate from a glitch in its blockchain — it went on to ask exchanges to resume the trading of SYS.

This is where things get interesting: While the Syscoin team chalks up the anomaly with the unusually large blocks to its recent software update, the company said it has no knowledge what could’ve caused the odd trading activity on Binance.

Binance reset its API keys following the incident. Syscoin points out that Binance users reported 7,000 BTC were moved out of the exchange at the same time as the unusual trading of its coin. It also states that some users in its community reported that their Bitcoin balances on Binance were negatively affected during that time. However, the company said that it can’t verify if the two activities were related.

It is worth noting that while Binance has acknowledged its role in the Syscoin debacle and launched a user security fund in response, it hasn’t given any details on how the unusual trading of Syscoin actually happened. We’ve contacted Binance, but no representatives were available for comment at the time of writing.

It’s time Binance speaks out.