The crypto world has been watching how one of the world’s largest blockchains responds to a hack last week and the questions it raises about the state of decentralization in the industry.
Binance Global Inc., operator of the world’s largest cryptocurrency exchange, said it will run a hard fork on its BNB Smart Chain (BSC) network on Wednesday to address a weakness that led to the theft of US$100 million worth of the network’s native token BNB on Oct. 6.
The network that supports two of the top ten cryptocurrencies by market capitalization was due to undergo the fork at around 4 p.m. Hong Kong time, according to Binance. While the move is to improve security, it also raises perennial questions and debate about decentralization vs centralization in the crypto industry.
A hardfork is when a blockchain protocol is changed, typically to address a problem on the network, creating a new chain and rendering older versions invalid. Controversial hard forks have happened before, including on Ethereum, the world’s largest blockchain after Bitcoin.
“Forking the network on this kind of basis [has] very, very big trade-offs because it to a certain extent [does] undermine the principles of a ledger that is immutable — and immutability is a really important function of these decentralized networks,” said Jonathon Miller, Australian head of the U.S.-based cryptocurrency exchange Kraken, in an interview with Forkast.
Binance was quick to suspend transactions on the network once it was revealed that hackers had extracted 2 million BNB tokens worth US$572 million at the time from the cross-chain bridge, BSC token hub. About US$100 million actually made it off the network before the shutdown, and of that US$7 million was frozen.
BNB has fallen 7.7% in the past seven days and was trading at US$271.48 at 4:15 p.m. in Hong Kong.
While BSC’s swift action was generally applauded, it was able to shut the network down so quickly because it uses a centralized system of 44 validators, of which 26 were active and able to quickly coordinate the action.
Narek Gevorgyan, founder and CEO of crypto portfolio manager CoinStats, told Forkast via email from an incident management perspective, the exploit was handled well, but it also highlighted weaknesses in the network.
“In such an unfortunate situation, both the decentralization and security of the BNB chain were put into question,” he said. “It revealed the network has a single point of failure and the trust of few people is needed to keep the network running.”
The same cannot be said for Bitcoin — widely regarded as the gold standard in decentralization — Gevorgyan said, or Ethereum, which is supported by over 440,000 active validators, according to Ethereum data aggregator beaconcha.in.
Advocates argue that BSC was deliberately designed this way, to focus on simplicity for the sake of efficiency.
That central question
Given the size of Binance in the industry, BSC’s popularity is not surprising, Ben Caselin, head of research and strategy at Seychelles-headquartered crypto exchange AAX Ltd Inc., said in an email.