Who controls the Binance Smart Chain?
The response to last week's bridge hack was: a hard fork.
The response to last week's bridge hack was: hard fork. Now the Binance Blockchain is being criticized for being too centralized.
Within a few days, the Binance Smart Chain (BSC) became the victim of a massive hacking attack, halted operations, and eventually rolled out a hard fork. The quick intervention prevented hundreds of millions of dollars in losses. Now the question is: is centralized control of the blockchain the real bad actor?
What happened?
On Friday, a bridge hack occurred on the Binance Smart Chain. The "BSC Token Hub," the blockchain bridge between the BNB Beacon Chain (BEP2) and the BNB Chain (BEP20 and BSC) was hit. An exploit apparently led to the incorrect minting of extra BNB tokens.
The hacker nearly escaped with the full token count, about 2 million BNB tokens, worth nearly $572 million. A race against the clock followed. He ultimately had to settle for just $100 million, of which $7 million was frozen. The reason for his predicament: Binance's rapid action. The network was shut down within a very short time.
On October 12, the hard fork took place. The adjustment to the testnet and mainnet was an "urgent patch to soften the cross-chain infrastructure between the beacon chain and the smart chain," according to the company on GitHub. In other words: the $100 million hack was rendered harmless. After the drastic network update, Binance resumed normal operations.
BSC has only 44 validators
Users pay for this fast and discreet form of problem solving. Not with monthly subscriptions—but in the form of decentralization. The astonishing speed with which Binance could shut down the network and just six days later deploy a hard fork is concerning. Jonathan Miller, head of the Kraken exchange in Australia, agrees:
“In such an unfortunate situation, both decentralization and the security of the NBB chain were called into question. It became clear the network had a single point of failure and that trust from a few people was needed to keep the network running.”
Jonathan Miller on Forkast
Jonathan Miller on Forkast
This sprint was possible because the BSC chain is controlled by just 44 validators. But there were actually only 26 needed to coordinate the action so clearly. By comparison, Ethereum's proof-of-stake network now has more than 442,000 active validators. Miller then compared the Binance Chain to the Solana protocol, which aims for about 3,400 network validators, but isn’t in a good state.
Proponents, on the other hand, say BSC was designed to facilitate intervention in critical situations.
Objections come from Binance CEO
The centralization of big crypto exchanges like Binance is well known. It’s no secret that the blockchain of a market giant like this is centrally managed. The situation becomes worrying when CEO and founder Changpeng "CZ" Zhao discusses decentralization philosophy just three days before a major hard fork.
In a blogpost he describes several examples to illustrate that decentralization is characterized by "many different aspects." He cites, for example, Bitcoin mining pools, which together account for more than 51 percent of the hashrate. Even Ethereum has weaknesses: the blockchain has a clearly assigned founder, according to CZ. He also has an answer to why decentralization matters. “Because we don’t want a few centralized entities to have unlimited power over us, charge us exorbitant fees, dictate how we spend our money after taxes, and so on. We want to give people power, control, and freedom.”
