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How social consensus saved Bitcoin’s integrity after Binance hack!

Binance, world’s largest crypto exchange by adjusted volume, reported it was hacked on Tuesday, May 07, 2019. Hackers stole about 7000 BTC valued at over $41 million.

“Hackers were able to obtain a large number of user API keys, 2FA codes, and potentially other info. The hackers used a variety of techniques, including phishing, viruses and other attacks. We are still concluding all possible methods used”

Binance announced

The stolen BTC, which was about 2% of the exchange’s BTC holdings, and were deposited in a single wallet. Binance took full responsibility for the hack and announced to cover the complete loss from their emergency fund, popular as #SAFU fund.

However, after the hack, an idea was floated by Jeremy Rubin, who has contributed to Bitcoin and Stellar’s core code, to “reorg” the transaction by getting a majority of miners on board to change the transaction history. “[Changpeng Zhao] if you reveal your private keys for the hacked coins… you can decentralized-ly at zero cost to you coordinate a reorg to undo the theft.”, Rubin tweeted.

The idea created panic in the crypto community on Twitter as the very discussion was against the core principle of Bitcoin, immutability – a transaction once done cannot be reversed. In principle, if a powerful company or individual could ‘pay off’ the miners to reverse a transaction, it is a question of Bitcoin’s integrity.

Much was discussed with various thought leaders, developers and business leaders responding to the idea of a “reorg”. The general opinion led to the fact that such a reorg would not be feasible because the cost involved to get the miners on board would far exceed the reward of 7000 BTC.

Even then, many cynics pointed at the fact that this could be done. It is feasible, not impossible. Technically, yes. It is not impossible. Finally, Binance CEO, Chanpeng Zhao, dismissed the idea with a resounding no. They had dropped the idea of a reorg.

The reason why this was done was that Binance is equally invested in Bitcoin and hence Bitcoin’s integrity is paramount. This is where Amir Taaki, a thought leader in crypto space tweeted, “… Strongest evidence yet that crypto is based on social consensus, not purely technical. Majority hashpower miners could easily reverse the main chain for a cut of Binance’s 7000 BTC. I’ve been saying this for years. Binance decided not to though this time.”

While Binance CEO quoted four reasons for not considering such a reorg, the prime reason is that such an action would harm Bitcoin’s reputation and thereby everyone who is invested in it – Binance, Binance’s users, crypto community and the hackers.

Game theory dictates that the best outcome in such a situation is to let go. It was Binance’s security flaw and they will have to bear the brunt of this “expensive lesson” in the words of their CEO. Social consensus prevented Bitcoin being stripped of its integrity even when technically the transaction could be reversed. 

About the Author: Pareen Lathia writes about crypto for various publications and for clients based in US and Canada. He handles social media content for some of the leading crypto companies in India as well. He is reachable at [email protected]

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