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Bitcoin Reorg: Could Binance have pulled it off and recovered hacked funds?




Bitcoin Reorg: Could Binance have pulled it off and recovered hacked funds?
Source: Unsplash

One of the world’s largest exchanges, Binance, was hacked. According to an official statement, about $41 million worth Bitcoin [7,000 BTC] was lost in this hack. According to CZ, the hackers were careful and patient in executing the hack, which let them get access and details to multiple user accounts. All the Bitcoins gathered from these accounts were sent out in one transaction.

A very small percentage of the Twitter community suggested that CZ could reorg [chain reorganization] the Bitcoin network to recover those stolen BTCs. Jeremy Rubin tweeted,

A few hours later, in a previously scheduled AMA, CZ addressed this tweet and said that he would consider doing a reorg. Subsequently, most people in the community objected to a reorg. Subsequently, CZ tweeted that he would not be going forward with the reorg idea.

What is a ‘Reorg?’

According to Bitcoin forums, “A blockchain reorganize (or reorg) happens when one chain becomes longer than the one you are currently working on. All of the blocks in the old chain that are not in the new one become orphan blocks, and their generations are invalidated. Transactions that use the newly invalid generated coins also become invalid.”

In this hypothetical scenario, CZ/Binance would incentivize gathered miners/mining pool by paying them BTCs to reorg the chain, i.e, manually create a second chain and invalidate the chain which recorded transactions of the hackers.

A Brief History of Bitcoin’s reorgs

There are have been other instances in Bitcoin’s history where reorgs have reared their heads,

  1. August 15, 2010: Value Overflow/Integer Overflow Bug caused the software to think that the transaction contained only a small amount of BTC, while in reality the outputs together had thousands of times more than the 21 million that should ever exist. A new version of the Bitcoin software had to be published, the blockchain was forked, and a new, valid chain overtook the old one at block 74691 – 53 blocks after the original fork.
  2. March 11, 2013: When Bitcoin upgraded from version 0.7 to 0.8, it caused the chain to split into two and the chain went on until 25 blocks. The reorg was spotted and reverted back. This is considered as the biggest reorg in Bitcoin history.
  3. August 2016: Reorg was suggested by many in the community when Bitfinex suffered a hack of 120,000 BTC. However, the reorg suggestion failed.

Can Binance execute a successful reorg?

The reorg to recover the stolen or hacked funds gets more expensive as more blocks are mined after the hack. Moreover, the reorg also depends on the incentives the miners need to receive, which in turn, depends on the mining reward. Additionally, the security model of Bitcoin rests on economic incentives which prevent miners from working on large reorgs. Further, these economic incentives tend to cease when the possibility of gain is much higher than the usual miner rewards, and if this was possible,

  • it would require massive hashrate to execute a reorg.
  • it would put a dent on/in Bitcoin “decentralized” network.

Due to these reasons, the community opposed the reorg of the Bitcoin network and it is the same reason why the community is set against reorg for Binance’s loss of 7,000 BTCs. Also, organizing a cumulative hash power of 51% or higher is easier said than done. Jimmy Song, a well-known Bitcoin developer, put out a thread on Twitter detailing how expensive and tedious a reorg would be.

Assuming that CZ would be able to gather the hashrate required for the reorg, he would still need to make sure that every miner is informed and coordinated to know which “new” block to build on, which otherwise, would risk eruption of many chains. According to Song, it would take CZ/Binance 24 hours or 144 blocks to arrange for the hash power. Others were more pessimistic, with some even suggesting that reorging is only theoretically possible and under the present circumstances, it would take more than at least 75% of the hash power to even begin the reorg.

The hacked transaction was witnessed in block 575,012, whereas at press time, the ongoing block was 575,114, i.e., a difference of 102 blocks.

Even if he managed the above, the reorg would also face a challenge as the hackers could sweeten the deal for miners and thus, prevent the reorg from happening. Plus, it wouldn’t be economic for CZ.

The bottom line is, even if the reorg took place successfully, the idea of a “decentralized and immutable network” would be lost forever. Additionally, every exchange could undergo a reorg, if hacked, which would also destroy the chances of Bitcoin becoming a “store of value.”

Crypto Community Reacts

People from all around the crypto community, from Peter Wuille and Vitalik Buterin to Mike Novogratz, voiced their opinion on CZ’s idea to reorg the Bitcoin network. Most of the people in the community were outraged by the idea of a reorg. However, CZ clarified in subsequent tweets that reorg was an outlandish idea and that the exchange would not consider it.

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Bitcoin will likely be valued at $100,000 with a market cap of over $2 trillion before the end of 2021





Bitcoin [BTC] will likely reach $100,000 with a market cap of over $2 trillion before the end of 2021
Source: Unsplash

The entire cryptocurrency market seems to be on the brighter side of the market since the beginning of the year. A majority of the coins have recorded significant recoveries from their 2018 slump, a period during which most coins lost over 90 percent of their value, when compared to their all-time highs. Among all the coins in the market, Bitcoin [BTC] aka the digital gold, was noted to be making a massive comeback as the coin breached the $11,000 mark after nearly 15 months. The coin however, soon retracted to settle below the $11,000 level.

According to CoinMarketCap, at press time, Bitcoin was trading at $10,887.27 with a market cap of $93.549 billion. The coin recorded a 24-hour trading volume of $20.757 billion for the past 24 hours and saw a massive rise of over 17 percent over the past seven days.

Anthony Pompliano, Co-founder of Morgan Creek Digital Assets, predicted that the largest digital currency could rise to reach $100,000, before the end of 2021. Pomp added that he was around 70-75 percent confident in this prediction. He stated,

“As I have previously said, making predictions is difficult […] Part of my process as a professional money manager is forming a thesis (price target), identifying a timeline (date), and establishing a confidence level. And then constantly re-evaluating those three aspects of my thought process as I receive new information.”

Pomp however, listed six pointers that have to be understood beforehand. First, this prediction is not an investment advice, and people should do their own research before investing in the digital currency. The second is with respect to Bitcoin’s volatility, with Pomp remarking that since it was a highly volatile market, the coin could witness a significant fall before being valued at $100,000. He stated,

“I anticipate that there will be numerous 20-30% drawdowns from new all-time highs as the asset continues to appreciate in value. These mini-boom/bust cycles should not cause panic, but rather need to be understood as natural market dynamics whenever an asset gains significant value in short periods of time.”

Further, the partner of the investment firm stated that the rise would be driven by several catalysts. This includes institutional adoption, exchange-traded funds and retail product approvals, global instability, governments all across the globe manipulating currencies, markets and economy. He went on to state,

“The market cap of Bitcoin will reach $2+ trillion when Bitcoin is worth $100,000. This is less than 1/3 the market cap of gold and less than 1/40 the global money supply.”

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