The largest crypto exchange is pausing its blockchain – thus exposing itself

Binance is the largest crypto exchange in the world. But not only that, Binance also has its own blockchains. So-called blockchain bridges exist so that transactions can take place between them. Just like in real life, these are a relatively simple goal.

A few days ago, a hacker managed to exploit a security flaw in such a blockchain bridge. He was able to use it to generate new Binance tokens (BNB) worth more than half a billion ($590 million). The good thing is, no rightful owner of BNB tokens has been robbed. The bad news: there are now an additional 590 million BNB tokens in circulation (if any at all).

The real drama of the story has not yet been told.

To mitigate the damage, Binance shut down its BSC blockchain. Crypto savvy people will frown at this sentence. Users who are less secure in their records will simply ignore the phrase. So a quick reminder of why blockchains exist/need to exist at all:

A blockchain makes it possible to exchange digital assets between multiple parties without depending on a centralized service provider such as a bank. The lack of a centralized service provider is the core idea of ​​a blockchain – and its fundamental value. This is referred to in technical jargon as “trustlessness” – “lack of trust”.

Instead of a centralized service provider, numerous hubs, so-called nodes, are taking over the work of validating transactions in a “real” blockchain. Bitcoin has more than 10,000. They are spread all over the world. The network is considered decentralized because it cannot be brought to its knees by a power outage in North America, a revolution in South America or an energy crisis in Europe. Other blockchains also have a dense node network.

Not so Binance. Your smart contract blockchain (BSC) has only 21 nodes. Binance can apparently stop this if necessary. This means nothing less than that it is a centrally controlled system. In other words, the very core benefit, the basis of existence, is becoming obsolete. It’s like building a car that has an exciting interior but can’t get from A to B.

The centralization problem is not new. The IOTA project, founded in 2015, already used a so-called “coordinator” as a tool. Maintaining the network would not have been possible without this centrally managed server. Despite its obvious shortcomings, IOTA has long been one of the 10 most valuable crypto projects.

Solana, which has been trying to position itself as a so-called “Ethereum killer” in recent years, has also been shut down time and time again (albeit for different reasons). Since 2020, the network has been outaged at least five times, three of which in 2022.

And then there are countless projects that offer a fundamentally centralized service under the label “DeFi” – decentralized financing.

Decentralization is a problem. It slows down the system. That is why it is often ignored by new, ambitious projects. This is despite the fact that it was actually the origin of the blockchain idea.

Many new projects no longer have much to do with the original idea. Unsurprisingly, then, Binance can just shut down its blockchain without the entire crypto scene screaming. Investors weren’t worried either. Binance coin has not lost even 5 percent in recent days.