Inside the Binance and Bitcoin Blockchain Reorg Drama: Random Tweet Stirs Up Community Frenzy
When Binance revealed that somewhere in the region of $40 million dollars worth of Bitcoin was stolen from them, it caused the usual reactions from the community. News articles were written Binance's security was questioned, but overall it was just another hack – and not even a significant one compared to some in the past.
The point is that it did not really shake the community in the manner that Mount Gox did. Binance took a hit, no customers lost their coins and everything continued on as normal… or it would have if not for a tweet by Jeremy Rubin.
Rubin, who has worked on both Bitcoin and Stellar's core code, made the point that if Binance reveals the private keys for the hacked coins, they could use the miners to reorganize Bitcoin to the detriment of the hackers.
What this would do, is allow the miners to send the money their way. It would cost the network, but the benefit would be to get the Bitcoin out of the hands of the hackers, as well as not being considered a true rollback. It would not be a large scale reversal of transaction history, just an adjustment.
CZ AMA gives definitive answers
The Binance CEO held a regular AMA, where the question was repeated to him whether Binance would undergo such drastic action. The question caused an eruption of speculation in the community but the idea was dismissed with finality by the Binance CEO.
Zhao did clarify the position that Rubin had in a tweet saying that the construction of such a transaction would not be reverting the money back to Binance or rolling back the transaction. It would simply be done to redistribute the coins to miners.
Zhao also clarified during the AMA why he thought it would not be a good idea. His first reason was that Bitcoin is as close as we have to a credible cryptocurrency and that an action like this undertaken by a private company would harm that credibility.
He also mentioned that there was the distinct chance of a massive split in the community, unlike anything seen before. This would also be damaging to the long term future of Bitcoin and as one of the leading exchanges, controlling just under 40% of Bitcoin trading volume, it would hurt Binance as much as the entire ecosystem.
He was also very introspective about the event saying that the hackers used previously unknown methods to break into their wallets and that while this was an expensive lesson, it was a lesson nonetheless.
The weaknesses in the design of Binance that had caused user confusion were not seen before the hack and were now in the open. Anything that can make Binance better has to be used to its full potential.
Community backlash to idea shows where the community stands
While the crypto community is no stranger to forks and reorganizations, many in the community believe that it should only be kept for the direst of circumstances. Many are also of the opinion that a stable, credible cryptocurrency should avoid it at all costs.
While proponents of the reorg used Ethereum as an example of a “good” cryptocurrency that underwent a reorg, others were quick to point out that when that happened, Ethereum was barely 5 months old and a relative baby compared to the industry behemoth it became later (and remains today).
Others pointed out that the overall loss to Binance would be around 7250 BTC just to incentivize the miners to work for them. That's not even taking into consideration that mining costs 1800 BTC a day. The economics of a reorg on this scale simply does not make sense for such a (relatively) small sum.
It would have been far more interesting to see if someone had attempted to do this in the larger breaches such as the Mt. Gox incident. However, the vast majority of the community is against the idea due to the principle that it is against the philosophy of the technology.
Adam Back, CEO of Blockstream, explains this perfectly. He doubts that anyone int he industry from miners to developers has ever even thought about it. He gave several examples of hacks that were greater and even recent ones such as the Bitfinex hack where the company lost $72 million.
All in all, what would have been a normal day in the business of cryptocurrency turned out to cause a severe storm of opinions and has the community on edge.