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Binance Hack: Shock, Conspiracy Theories, Ego Pump and BNB

Sead Fadilpašić
Last updated: | 5 min read

After a major breach of Binance’s Bitcoin hot wallets yesterday, which reportedly held 2% of total BTC holdings, and in which the hackers stole more than BTC 7,000 (USD 40 million) and obtained a large number of user API keys, 2FA codes, the crypto community is in an uproar. The whole situation is getting a slew of different reactions, but some aspects of it more than others – like the Bitcoin blockchain reorganization or a number of conspiracy theories that popped up like mushrooms after the rain.

Source: Instagram, binanceexchange

Changpeng Zhao said what?!

In what the crypto community is already dubbing the worst possible idea, Changpeng Zhao, CEO of Binance, mentioned the possibility of attempting a rollback of all Bitcoin transactions in the past few days. The Bitcoin ledger is immutable, in part due to its decentralized nature, and the implication that any one person – CZ included – could be powerful enough to unite enough miners for such an endeavor is disconcerting to many.

As developer and Bitcoin enthusiast Udi Wertheimer points out, not only could miners not coordinate among each other for this, but a great number of them, as well as other users, would be punished by a rollback – and the majority of the users that would see their transactions, possibly huge ones, simply disappear have arguably nothing to do with Binance or its hack, and no incentive to undo it. But the implications of this idea even being uttered are big, and he adds, “I’d argue it [the rollback] would still be impossible, but the drama could be real and painful. That’s why we must learn from this, stay vigilant, and not cut people some slack when making these suggestions in ‘test runs’ like this one.”

Adam Back, co-founder and CEO of Blockstream, a company famed for its Bitcoin satellite, adds, “A Bitcoin reorg is just not happening, and I doubt any Bitcoin industry, miners nor developers considered it either.”

Read more: Could this rollback happen? And what would it truly mean?

Another big aspect is tightly tied to the idea that keeping your funds on an exchange is never a good idea. “Being your own bank” has long been the driving force behind Bitcoin and many other cryptocurrencies, and only recently, the community proposed a Proof of Keys event that would have users move their funds from exchanges to their own wallets under the slogan “not your keys, not your Bitcoin.” The idea is that, since there is no central entity responsible for your funds, should anything happen to them – it is ultimately the owners’ fault for being reckless.

Implications for BNB and ego pumping

Binance claims that it will use the #SAFU fund (Secure Asset Fund for Users) to cover this incident in full and “no user funds will be affected.” In July 2018, Binance started to allocate 10% of all trading fees received into SAFU. However, some users were afraid that this could be the driving force behind a significant drop in price for Binance’s native Binance Coin (BNB).

“BNB is liquid enough that if the payoff is in BNB you can swap it for BTC,” argues the official Twitter account of fund manager Crypto Quantamental, while user @fiege_max replies, “@MessariCrypto [a crypto metrics website, Messari] has on-chain transaction volume at USD 4.5m for the day. USD 40m in inorganic selling pressure is bound to result in significant slippage and subsequent price decline.”

User @CryptoDonAlt also warns, “BNB holders celebrating how Binance is handling this issue while ignoring that a lot of the #SAFU fund consists out of BNB. BNB that might have to be sold for BTC to pay for the hack. If that is true, it’d be kind of ironic that the people paying are the ones celebrating,” but CZ replied that, “We have enough BTC to cover.”

Ryan Selkis, founder of Messari, points out another issue: “Binance hacked for USD 40mm. Not existential, they’ll make that back in 4-6 weeks. What *is* alarming is that they have USD 2 billion in custody… just in BTC. Likely USD 3 billion+ total crypto. Was that a known figure previously?”

For comparison, Bitcoin’s current market capitalization is USD 104.3 billion, which would mean that Binance has close to 2% of all Bitcoin in custody.

And even though Binance is still one of the largest exchanges by trading volume in the world, others major players are trying to make the best of this situation – for themselves. One of them is the OKEx exchange – and their move is being widely regarded as “dancing on the grave of your competitor” by the community.

OKEx is joined by Justin Sun, CEO of TRON, whose recent tweet promising to “save” Binance is considered an “ego pump” and in poor taste.

Conspiracy theories and “told you so”

The official story as to how it happened is explained on their blog: “The hackers used a variety of techniques, including phishing, viruses and other attacks. We are still concluding all possible methods used.” One of the conspiracy theories that have arisen is that the hack was an inside job. People are pointing to the part in the announcement saying that “the transaction is structured in a way that passed our existing security checks”, which the theorists believe could only be done by somebody familiar with the system. Warren Togami, Vice President of Solutions at Blockstream, adds, “If their claim is accurate then the customers bear some portion of responsibility for their own losses.”

Another favorite seems to be hidden among the problems that stablecoin Tether and cryptocurrency exchange Bitfinex are currently facing.

And there is one person who can look at the situation and feel self-satisfaction:

Then there were memes

If something in the cryptoverse happens and the community does not joke about it, that will be a sign that something is seriously wrong – maybe even beyond repair. One of the biggest topics is the fact that this fiasco shows BNB may not be all that great as they’re making it out to be.

“Wow… BNB truly is the money of the future. Since you can’t spend it now,” tweets user @ThinkingUSD, while Marty Bent, a podcast host, writes, “Note well, the hacker stole BTC and nothing else. Not even the “programmable money” that was on the exchange. There’s a lesson here.”

Others see it more simply: “Binance hack is karmic punishment for not implementing segwit yet,” says Bitcoin enthusiast Ti Kawamoto.