The prospect of “reorganizing” the Bitcoin blockchain was rejected as a way to recover the $40 million lost when the Binance exchange was hacked last week. In fact, the idea was so controversial that Binance CEO Changpeng Zhao even publicly apologized for entertaining it.
But, while it wasn’t the right course of action in this instance, a reorg shouldn’t be considered out of hand, Multicoin Capital cofounder and Binance coin investor, Tushar Jain said. And he believes that in the future—as block rewards become less frequent—the option of a reorg as a way to deter hacks will become a viable option.
“It’s controversial—a lot of Bitcoiners are going to hate the idea—because this is an attack on the core value on Bitcoin,” Jain told Decrypt. “But over the next 10 years, as the block rewards get cut in half, and cut in half, and cut in half again, these type of things become easier.”
Jain was careful to point out that a reorg was not a suitable option for Binance in this case, however, because “too much time had elapsed.” But that didn’t mean it should be dismissed as an alternative course of action in the future.
“If you notice [the hack] while the transaction is still in the memory pool and hasn’t yet been confirmed into a block, you can just issue a transaction that is a double spend on that. With a larger fee, yours would get confirmed and the hacker’s won’t,” he explained. “In that case no funds would be lost at all, and you’d be able to reverse it before it gets to the chain.”
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Jain argued that a reorg should still be possible even two blocks in—so long as exchanges get the miners onboard, and the transaction fee provides enough of an incentive.
“A thousand Bitcoin is enough for a miner who makes 12 and a half Bitcoin per block. They have the economic incentive to go back,” he said. “I think if you can can react within six blocks, on Bitcoin, which is widely considered the standard, then that will be considered acceptable.”
Jain believes that reorgs could become standard as block rewards decrease and suggested that the clients of a hacked exchange are likely to sue if it doesn’t have either an adequate insurance policy, or reorg prospects in place.
For other cryptocurrencies suffering a hack, Jain suggested the option of “checkpointing”—essentially saving a snapshot of the application’s state, so that it can restart from a certain point in case of failure. You could write into the code that a reorg of—say—100 blocks won’t be accepted, so you can’t go back more than that, he said. “I do think the checkpointing idea is valid for both proof-of-work and proof-of-stake coins.”
Jain added that, in the case of the Binance hack, there was also a very big positive: “The fact that Bitcoin shrugged it off was a sign of incredible strength in the markets,” he said. And, currently, Binance Coin is doing pretty well too.
A silver lining indeed.