bitcoin exchange binance hack
Fresh off a $40 million hack, Bitcoin exchange giant Binance "graciously" decided not to nuke the Bitcoin blockchain to swip the funds from the thieves. | Source: Shutterstock

Binance Graciously Decides Not to Nuke the Bitcoin Blockchain

By CCN: Binance CEO Changpeng Zhao discussed the idea of potentially reorganizing the Bitcoin blockchain. In this vision, the 7,000 BTC recently stolen from the cryptocurrency exchange would be redistributed to miners in the form of fees.

A coordinated effort with miners, within a specific time frame, could theoretically make it possible to empty the balances of the Binance hackers.

Binance CEO: “It Wasn’t My Idea.”

The idea didn’t originate with Binance or Changpeng Zhao, and CZ wants to be clear on that. It started with Bitcoin Core contributor Jeremy Rubin:

James Prestwich also chimed in:

BitMEX Research pointed out that this idea had been floated before, in 2016, when Bitfinex was hacked to the tune of 120,000 BTC. The genesis of the concept posits that the financial rewards of reorganizing the chain to thwart the attackers were much higher than the incentives to maintain the blockchain as it was.

“In this case, Bitfinex could promise to pay the miners, say, 25 BTC per block for however many blocks it takes to reorg out the theft transactions and replace them with a spend aggregating the funds off of BitGo and into cold storage. As long as this is less than a few thousand blocks, it makes economic sense for everyone involved, simply because of the enormous size of the theft. […] To be absolutely clear I hope that this doesn’t happen. If it does, I’m not sure what value proposition bitcoin would have left. Uncensorable, nonpolitical money is what bitcoin is about, and without that it is nothing. If this manages to go through, I hope the outrage pushes people to fight for more decentralization and fungibility at the protocol level. Otherwise I don’t know what future bitcoin would have.”

Playing With Fire

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Anyone who believes the Bitcoin blockchain should be rewritten to suit their purposes overestimates their importance. | Source: REUTERS / Darrin Zammit Lupi

The idea that Binance could reorganize the blockchain rests on the notion that it’s technically feasible, and that those with the mining equipment will be willing to cooperate with them. The idea of rewriting the blockchain to benefit one organization brings to mind the infamous DAO hack, in which Ethereum reorganized its chain to restore stolen balances.

A minority group of Ethereum miners and users decided that immutability was more important than a single participant in the economy, and Ethereum Classic emerged.

People believe this would likely happen if Binance or any other exchange were to attempt a similar act with Bitcoin.

Rewriting Bitcoin Would Open a Pandora’s Box

Generally, Bitcoiners operate on two fundamental ideas. First, their transactions are uncensorable. The second is that there is a predictable 21 million unit supply cap for Bitcoin. The psychological damage that a “rollback” would have on the space cannot be understated.

A minimal amount of people in the world actually own the hashpower to achieve a successful rollback. CZ clarified that the goal of the theoretical reorganization wouldn’t be to get the money back to Binance but to get it away from the attackers.

Ultimately he opened a Pandora’s box at a bad time for his exchange. As he said, the idea, briefly discussed as it was, is currently getting more attention on Twitter than the attack itself.

The most relevant aspect of such a move is that it would almost certainly shake investor faith in Bitcoin. We could expect prices to plummet across the board. It’s unclear if money would stay in crypto at all, or if a move to protect one institution would break the entire system.

We’ve learned one thing from this (non) episode. Anyone who believes the Bitcoin blockchain should be rewritten to suit their purposes overestimates their importance.