The hack that stole $40 million worth of money from Binance was not among the greatest heists in Bitcoin history. It would have remained a tepid affair had Crypto Twitter not jumped on a tweet that suggested doing a Bitcoin reorg.
@cz_binance if you reveal your private keys for the hacked coins (or a subset of them) you can decentralized-ly at zero cost to you, coordinate a reorg to undo the theft.
— Jeremy Rubin (@JeremyRubin) May 8, 2019
The tweet in question was directed at the CEO of Binance Changpeng Zhao, more affectionately known in crypto circles as CZ. The erstwhile CEO of Binance was asked about the idea during an AMA later that same day and he dismissed the idea with apologies for the idea having even been made an issue. He reiterated that Binance learned about security flaws in its system and the price it paid was high but was considered a cost of doing business.
However, it has been almost a week since the heist and Bitcoin has climbed almost 33% in that time. One of the key arguments against a reorg, from an objective perspective, was that it would simply be too costly even if the Bitcoin was handed over to miners. The price of Bitcoin has not jumped up enough to make the reorg worth the price for Binance but it may happen sooner than many think.
Tushar Jain Weighs in the Debate
Tushar Jain, a large investor in Binance and founder of Multicoin Capital, says that he believes Bitcoin reorgs will be a viable tool against hackers in the future. He knows that the idea is considered heavily controversial right now and the Binance hack was not the right time to broach the subject, but the future could be very different. He believes that as block rewards start becoming less frequent, the option of a reorg will become a viable option to those who want to deter hackers.
Speaking to Decrypt, Jain said
“It’s controversial—a lot of Bitcoiners are going to hate the idea—because this is an attack on the core value on Bitcoin, but over the next 10 years, as the block rewards get cut in half, and cut in half, and cut in half again, these type of things become easier.”
He did stress again that in the Binance case, it was not a viable option right now particularly because too much time had elapsed between the hack taking place and the missing funds being noticed. He then went on to say that it should not be dismissed out of hand as a viable course of action in the future.
If someone were to notice a hack while a transaction is still in the memory pool, he went on to say, then it would be a different story altogether. So long as the transaction has not been confirmed into a block, the party being hacked would be able to issue a double spend transaction. If you made sure your transaction fee was higher then your transaction could be confirmed instead of the hacker's transaction.
It Could done More Blocks in if the Price is Right
Jain went on to argue that even two blocks in a reorg should still be possible. This was, of course, subject to getting miners on board and having a sufficiently large transaction fee to act as an incentive.
“A thousand Bitcoin is enough for a miner who makes 12 and a half Bitcoin per block. They have the economic incentive to go back,”
adding that as block rewards decrease, the viability of reorgs will become a far more standard way of dealing with hacks than shrugging off the loss. If an exchange does not have an insurance policy in place or a reorg contingency (in the future of course) then users could be willing to sue the exchange for negligence. He firmly believes that the market itself will push for reorgs once the block reward is low enough.
It is, however, a good sign that Binance was able to withstand the hack and not lose any of its market position. The markets are still strong and faith in cryptocurrency was not shaken with the hack which is a strong sign.