Binance Hack: The Cons of a Bitcoin Blockchain Reorganization

It is currently making the rounds in the news sections of the crypto pages: Binance has lost $ 40 million. In an attack, strangers stole more than 7,000 BTC from one of the largest trading centers for cryptocurrencies. Immediately afterwards, there was a dubious idea of ​​Changpeng Zhao. So thought the CEO of Binance (he has the idea now discarded) to arrange a block Chain Reorganization. So, Zhao hopes, they could reverse the 7,000 BTC issue, reorganize the Bitcoin Blockchain , and neither would Binance touch the “SAFU funds,” nor could Justin Sun heroically step in and settle the damage in Tether. But is that easy?

Blockchain Reorganization

To understand how a bitcoin blockchain reorganization might work, we need to look into the depths of the blockchain and its internal security mechanisms.

One of the big advantages of the blockchain technology, which lies under the crypto-currency Bitcoin, is its immutability. In other words, it is immutable. What was once chiselled into the blockchain can not be removed from there. Thus once spent Bitcoin are spent forever, so you can not undo transactions. Except for two related exceptions.

The 51 percent attack

One way to break Bitcoin Blockchain would be a 51 percent attack. This would require attackers to own more than half of the hash power. You would have the right to vote, a new, valid version of Blockchain to write. Especially in view of the increasing centralization by individual mining pools (keyword: Antpool ), it has been in the past again and again to concerns of the community that larger players can break the blockchain.

One has to remember the consensus mechanism in Bitcoin: Using SHA 256, miners agree on the currently valid version of the blockchain and can attach this “chain of blocks” only a new valid block when they calculate a valid and correct new block ” “.

If a group of hard-working miners succeed in controlling more than half of the total hash rate, they could play a new version of the blockchain in the system, they would have the majority (over 50 percent) and manipulate the consensus in their favor , So they would be able to spend Bitcoin twice, this is called the double-spending problem.

Blockchain Reorganization – the reorganization of the “block chain”

Bitcoin Miner follow – this may sound logical – the currently valid version of Blockchain or the highest degree of accuracy radiates. According to Blockchain logic, this is the one with the most blocks, the version of the blockchain whose chain is the longest. Actually, this is the version that has the highest difficulty and the highest number of blocks. With each new block being added to the chain, the workload gets higher as well, this is called Work Done .

Now if two miners find a matching new block at the same time, they are competing for the latest version of the Blockchain. So it comes to a short-term Fork. They then compete for the right version of the blockchain; So if you find the next correct block, you can claim the right version of Blockchain for yourself. The rest decays, if one wants to speak in crypto-pictures, and remains in the ether of ones and zeros. One then speaks of an “orphan block” – in German: “orphan block.” In this case, the nodes reorganize and link with the new, valid version of the blockchain.

United (evil) forces: Reorganization by 51 percent attack

Now, if a single attacker has enough hash power to make a 51 percent attack, he can also fake such a reorganization of the blockchain. So he could durchboxen so his valid version of the Blockchain and on top of Bitcoin spend at will. For this he would first mine privately new blocks, to later transfer this to the other miners.

Why Binance can not and does not dare to reorganize Blockchain

The idea of ​​Changpeng Zhao to reorganize the Bitcoin Blockchain for Binance gives the impression of technical ignorance. Either the Binance boss is unaware of the technical effort required to reorganize the blockchain, or grossly overestimates the importance of his business.

No question, Binance is one of the largest exchanges in the crypto-ecosystem. But because of the theft of 7,000 bitcoin to arrange a reorganization of the blockchain, can not and must not. Because that would be the basic idea behind Bitcoin corrupted and the idea that brought Satoshi Nakamoto ten years ago in his white paper to the public, ad absurdum out. Because of the technical failure of a single institution can not overturn the entire ten-year history of Blockchain.

Besides, and at least as importantly: as so often in the history of cryptocurrency and blockchain technology, a single institution has failed. Neither Bitcoin nor the blockchain technology made this security leak possible. It was the infrastructure of a single player, that infamous single point of failure, which may have been a reason to start the Blockchain.