Cheap, fast, and (mostly) reliable, BNB Chain’s activity exceeds Ethereum by far: over 3 million transactions processed daily on BNB Chain vs 1 million on Ethereum, according to Nansen. Even if a part of these transactions can be attributed to bots, which tend to proliferate in cheap environments, it is true that BNB Chain has become popular with projects that have been priced out of Ethereum. 

Arduous efforts deployed by Binance to develop its ecosystem (notably with the help of $1 billion ecosystem fund) also bear its fruit, inciting more and more developers to build DApps on BNB Chain.

However, it’s not all sunshine and roses. 

What happened?

On October 7, an attacker found a bug in the bridge between BNB Beacon Chain and BNB Smart Chain (previously known as BSC), which together form the BNB Chain. By exploiting the bug, the attacker could forge the proof of deposit on the former and create an equivalent of $570 million of BNB on the latter.

BNB Smart Chain is a Proof-of-Stake blockchain, which relies on validators to process transactions and add blocks. Shortly after the hack, Binance contacted the validators, which agreed to halt their activities and freeze the funds that the attacker did not manage to convert into other cryptoassets – the equivalent of $460 million. By contacting a larger crypto ecosystem, the company also managed to freeze over $7 million of stablecoins related to the attack. 

All in all, the hack did not leave any dramatic consequence apart from several hours’ halt: $100 million worth of BNB that the hacker did steal were newly created coins, which did not belong to any particular person. Binance CCO Patrick Hillman announced that the BNB community would consider including $2 million worth of BNB in its upcoming burn this year, so as not to dilute the supply. The company will also collaborate with law enforcement to try and track down the hacker(s).

Is everything fine then? The crypto community might still have several questions.

Two chains of BNB

BNB Beacon Chain was launched in 2017 with a native coin BNB. However, the blockchain was not getting enough traction, and in 2020 Binance decided to piggyback Ethereum, launching BSC, initially an Ethereum’s ERC20 token. BSC has since been transformed into a separate blockchain, fully compatible with Ethereum Virtual Machine.

In the beginning of 2022, two blockchains have officially merged in one, the BNB Chain, with BNB Beacon Chain used for staking and voting, and BNB Smart Chain – for most of the usual DApp activity. 

The two blockchains use a bridge to communicate with each other, and bridges are famous for being the most vulnerable piece of crypto architecture, regularly falling prey to hackers.

BNB is the only major blockchain that uses a bridge within its own system, and this creates a single point of failure, making the blockchain vulnerable.

Fears of centralization

The two-chain structure, however, may not be the main problem. When recounting the events that followed the hack, one couldn’t fail to notice a worrisome sentence: Binance contacted blockchain validators and made them halt the blockchain. 

While totally normal in the traditional software world, this situation is contrary to the very reason the blockchains exist, and it has rekindled the already on-going debate about BNB Chain’s centralized nature and possible censorship issues.

In a truly decentralized environment, no single entity can influence the others, but for BNB Chain this seems to be the case. Out of 41 validators, 21 are known and elected (on a few criteria, including the amount of staked BNB), and the others join by staking BNB. Blocks are being added by a validator set of 19 elected validators and 2 runners-up, randomly chosen.

This system is already an improvement comparing to the previously rigid set of 21 elected validators, but it is still quite centralized, and it allowed Binance to halt the blockchain by contacting only 26 validators. 

The larger crypto community is rather divided when it comes to BNB: some are ready to pardon its centralization in exchange for a (mostly) steady service and its connection to the many ventures Binance has launched: crypto exchanges, launchpad, NFT marketplace… Others are growing seriously concerned that a blockchain with a $44 billion market cap can be centrally stopped in a matter of hours.

Written by D.Center