by Jeff John Roberts, Fortune.
Just when things were starting to look up for the cryptocurrency industry came the news that Binance, the world’s largest exchange, suffered a major hack on Thursday night.
The details are still confusing, but the short version is that a hacker was able to exploit the so-called “bridge” and hijacked Binance’s 2 million BNB cryptocurrencies.
These are worth about $560 million, although Binance claims that it may be able to get much of it back.
The consequences of this disaster are twofold. First of all, the Binance hack is yet another reminder that bridges, which have been the target of numerous massive attacks, are a glaring “hole” in the cryptocurrency ecosystem.
Bridges serve as an automated way of exchanging cryptocurrencies that have incompatible technical standards, but, as Ethereum creator Vitalik Buterin warned earlier this year, they can be fundamentally unsafe.
In the case of the attack on Binance, the hacker basically tricked the bridge into becoming an ATM with no limits. The upshot is that the industry needs to find an alternative to bridges soon, before investors lose confidence completely.
The other lesson of the hack is that Binance’s blockchain, known as the BNB Smart Chain, is far from decentralized.
The company went on as if the blockchain, which was released in 2017 with an initial coin offering, was similar to Bitcoin – a loosely unified collection of global nodes that no one can control.
But now that the hacker has struck, Binance has announced that it will “disable” the blockchain to help control the damage.
Can you imagine someone announcing that they would shut down the Bitcoin blockchain for a few hours?
Binance tried to reflect the uncomfortable situation in a series of tweets suggesting that the interference occurred as a result of rapid cooperation between independent node operators, but an earlier tweet from the company probably leads to the conclusion that this is all wrong.
This combination of poor security and centralization is a “bad look” for both Binance and the cryptocurrency industry as a whole.
The only positive from this story is that it’s not the first time a major blockchain has used its centralized power to fix a hack – Ethereum split its blockchain in 2016 to recover investor funds. And such steps don’t mean decentralization is a lie.
Rather, as Ryan Selkis noted, “Every new idea is by definition centralized to begin with. So yes, they need protection. Early BTC and ETH were no different.”
The Binance hack taught the industry another painful lesson about bridges and decentralization. Hopefully, those in charge will learn something from it.
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