Binance CEO Spurs Outcry by Suggesting Blockchain Rollback

(Bloomberg) -- The cryptocurrency world was shaken to its foundations Wednesday after Binance’s Zhao Changpeng suggested that the Bitcoin network may not be as immutable as advertised.

The chief executive officer of one of the world’s largest cryptocurrency exchanges said -- in a video as well as several tweets -- that he considered making a push to rewrite a chunk of the digital ledger than underpins Bitcoin to invalidate the overnight theft of about $40 million of the digital coins.

To do that, Zhao would consider asking so-called miners, whose computers verify and record transactions in the distributed ledger, to reverse the hacker’s transaction and to take the $40 million for themselves. Ultimately, Zhao said he decided against the idea.

“Talk of forking or reorganizing the blockchain is close to heresy," Michael Novogratz, the billionaire founder and head of crypto company Galaxy Investment Partners LLC, tweeted.

The strategy could prove to be successful. It’s possible for miners who together hold more than 51 percent of the computing power on the network to conspire to change past transactions. That’s long been known as the network’s main security vulnerability, and Bitcoin supporters have gone to extra lengths to make sure no mining collective ever had that much power. If bounties were posted to provide incentives for miners to act together, it could shake the very foundation of trust that Bitcoin sits on.

Bitcoin’s “immutability is weak," and a rollback "is totally possible,” Emin Gun Sirer, an associate professor at Cornell University, said in a series of tweets. That “rests entirely on the say-so of a small group of miners."

Blockchain transactions have been reversed before. When the so-called DAO software running on Bitcoin competitor Ethereum was hacked for about $50 million, Ethereum’s blockchain was tweaked to effectively erase the transaction. But at that time Ethereum was only a few months old, and "we never even considered actually rolling back the chain to undo the hack," Ethereum co-founder Vitalik Buterin said in a tweet Wednesday. "The collateral damage from that (reverting a day of *everyone’s* transactions) would have been huge and possibly fatal."

Zhao was hailed as one of the pillars of the Bitcoin community just a few weeks ago, when Malta-based Binance delisted a coin called Bitcoin SV. Sentiment can shift quickly.

"One day you are the lord and savior of crypto, the next you’re the demigod -- such is the crypto space," said Nick Cote, chief investment officer at Redacted Capital.

Binance said hackers withdrew 7,000 Bitcoins in a single transactions in a security breach. The largest digital tokens including Bitcoin slid 3 percent on the news, but then recovered. The exchange will use its Secure Asset Fund for Users to cover the incident in full, and no user funds will be affected, Binance said.

"In fact Bitcoin’s value proposition relies on the fact that miners don’t collude -- if they could easily coordinate they could selectively censor, invalidate, or otherwise interfere with transactions," Nic Carter, a partner at investment firm Castle Island Ventures in Boston, said in a Telegram message. "More to the point if this kind of behavior becomes mainstream -- deep reorgs to reverse valid transactions -- then Bitcoins settlement assurances are impaired. People will lose confidence in Bitcoin’s ability to settle large transactions."

To contact the reporters on this story: Olga Kharif in Portland at okharif@bloomberg.net;Alastair Marsh in London at amarsh25@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Brendan Walsh

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