The native chain of the crypto exchange Binance was suspended Thursday after an exploit led to millions of dollars of crypto being exposed.

The incident obviously sent shockwaves through the crypto world, but for me it also highlighted the dangers of decentralisation.

Don’t get me wrong. Decentralisation is arguably the single biggest pillar of everything upon which cryptocurrency is built. It is a concept which has a genuine chance to upend all that we know about finance, money and the economy at large. It can make the world a better place.

But the Binance incident highlights that in this early stage of cryptocurrency – let us not forget that Satoshi Nakamoto only wrote his Bitcoin whitepaper in 2008 – that decentralisation also poses some very real risks.

What happened with Binance and what has decentralisation got to do with it?

An attacker targeted the Binance chance late Thursday evening, with initial movements on-chain suggesting that two million BSC tokens were in their crosshairs.

BNB Chain estimate that over $100 million of assets were moved, but confirmed that $7 million in assets had almost immediately been frozen, reducing the total losses.

The decision to halt the entire chain is a stunning move from Binance. As I said, blockchains are meant to be decentralised. This episode shows that BNB is quite the opposite.

Obviously, this throws up all sorts of issues. The crypto purists are up in arms about the fact that this is literally one company running the entire ecosystem – the exact same as Web 2.0 and what crypto is supposedly trying to combat.

They have a point. Then again, the ability of Binance to freeze $7 million shows that, despite going against the mantra of crypto, centralisation does have its perks too. $7 million may pale in comparison to the total size of the breach here, but it’s still a hell of a lot of money. And this is still early days – there might be more confiscated by the time you read this.

An exploit on a cross-chain bridge, BSC Token Hub, resulted in extra BNB. We have asked all validators to temporarily suspend BSC. The issue is contained now. Your funds are safe. We apologize for the inconvenience and will provide further updates accordingly.

— CZ Binance (@cz_binance) October 6, 2022

Will Binance’s reputation be harmed?

Binance operates from such a strong position in the market, as well as being marshalled by a highly popular CEO, that I actually believe this incident will be largely brushed under the carpet.

Binance even got hacked one time before. This is also technically a magical production of $100 million of BNB out of thin air, rather than a direct attack on consumers, an important distinction (although still terrible news for any BNB holders).

The previous time, Binance’s customers were targeted. In 2019, hackers stole $40 million in Bitcoin. Binance’s reaction was exemplary, immediately moving to assure customers that anyone affected would be compensated. And that is exactly what happened. They even kicked off an insurance fund since, with the aim of compensating customers should anything like this ever happen again.

With a nascent technology like crypto, these things are bound to happen, unfortunately. With companies like Binance, assuring customers that their funds will always be safe, that perceived risk is obviously mitigated.

But this is only possible with a degree of centralisation. In a fully decentralised world, an exploit like this would go unpunished. Indeed, I don’t need to be hypothetical here – customers have funds stolen from them all the time and there is rarely recourse.

As I said, decentralisation is a beautiful thing. But this episode is an unfriendly reminder that it also poses risks, and while the industry bootstraps itself up, innovates and figures things out as it goes along, customers need to bear that in mind.

Stay safe out there.

Circle is blocking USDC transactions connected to the Tornado Cash decentralised application, a move that is seen by many as a clear danger of centralisation.

Earlier this week, the United States Treasury Department added more than 40 cryptocurrency addresses allegedly connected to controversial mixer Tornado Cash to the Specially Designated Nationals list of the Office of Foreign Asset Control, or OFAC.

Following this latest development, Circle, the issuer of the USDC stablecoin, reportedly froze over 75,000 USDC worth of funds linked to the 44 Tornado Cash addresses sanctioned by OFAC. 

Marius Ciubotariu, the co-founder of Hubble Protocol, commented that Circle’s move shows the danger of centralisation. Ciubotariu said;

“Circle’s decision to follow along with the US Treasury and ban users of Tornado from buying or selling USDC tokens is an extremely worrying development that threatens the integrity of cryptocurrency, and decentralized finance in particular.

An estimated $437 million of assets have been blocked as a result of this decision, one that will surely impact all manner of users of the cryptocurrency mixing service. More importantly, though, it underlines how dangerous it is to have one centralized company managing over $54 billion of assets in crypto.”

Ciubotariu pointed out that the precedent that this could set for the future of Ethereum Virtual Machine (EVM) smart contracts is also alarming. In the future, it could be possible to see these contracts written with an opt-in clause that would allow node validators to decide not to process a transaction due to a black/watchlist. 

Circle’s move is a wake-up call to the crypto industry

Stefan Rust, CEO of Laguna, pointed out that Circle’s action is a wake-up call to the cryptocurrency industry as it shows the danger of centralisation. Rust said;

“Circle’s move to ban users of the Tornado cryptocurrency mixing service from trading USDC sets an extremely dangerous precedent and should be a wake-up call for everybody working in the cryptocurrency industry. While much is being said of Tornado’s links to the North Korean state-backed hacking group Lazarus, the likelihood that North Korean users make up anything more than a tiny fraction of a percent of Tornado’s users is small.”

Rust added that the blacklist capability could be (and is) written into Ethereum Virtual Machine (EVM) token contracts is a huge vulnerability and point of coercion for the industry. 

He added that people warned about the consequences of this feature being added to the USDC contract from day one. Rust added that;

“Now we have a centralized company at the mercy of US regulation running the fourth largest cryptocurrency in the world – and over $55 billion of market cap is on the line. This is truly a scary move. Imagine having a business where your closest competitor could shut you down by adding one row to a database it has complete control over?”

The CEO of Lugana added that while the US Treasury claims their move is due to Tornado Cash allegedly helping to launder $7 billion of money gained from cybercrimes, there are no doubt innocent users caught up in this that have used Tornado for totally legitimate privacy reasons.

Some of the biggest stablecoins, including Tether (USDT), USDC, and BUSD, are issued by centralised entities. 

Dogecoin (DOGE) is many things to many people. For some, it epitomizes everything that’s worrying about crypto: A coin that started as a joke now has a market cap that’s comparable to large companies with thousands of employees.

For others, it’s a curiosity — a popular, memeable coin that’s gone mainstream, even though it doesn’t have a business plan or stated function. Either way, many top cryptocurrency exchanges now trade Dogecoin, which may be a signal that Doge is here to stay.

The Dogecoin community

And for millions of Dogecoin fanatics, who call themselves Shibes, it’s a community. Doge may have been their first step into cryptocurrency investment, and they may see it as a lottery ticket. By not taking itself too seriously, the coin’s fun-loving approach has found its way into people’s hearts. Not to mention the fact that it’s up over 7,500% since the start of this year, according to CoinMarketCap data.

I get it. I love the memes and I love the sense of community. But it also scares me. Here’s why: The people posting in the Dogecoin forums aren’t billionaires with money to lose. These are people struggling to pay medical bills, trying to buy cars, or looking to cover education costs. Some — in fairness, against the advice of other Shibes — have used their life savings to buy Dogecoin. And when people on Twitter are accusing founder and CEO of Digital Currency Group Barry Silbert of attacking investors who “want nothing more than a better life for their families,” just because he shorted Dogecoin, something is very wrong.

Dogecoin may still go to the moon, and I will be happy if it does. But before you put your hard-earned cash on that speculative rocket ship, here are some dangers to consider.

1. You may not be able to sell when you want to

Let’s say Dogecoin goes to $1 next week. That’s the point a lot of Shibes have been hoping for, and so many may decide that is the point to cash out. Some may still hope Dogecoin could go to $10, however, and might continue to hold.

But as soon as people start to sell, the price will fall. Only a small number of people will actually be able to sell for $1. As the recent crypto exchange outages showed, these platforms are not equipped to deal with large volumes of sudden trades. So, not only will the price fall as soon as lots of people try to sell, but some people won’t be able to sell their Doge at all.

This is a risk with any cryptocurrency, and it’s one reason why it’s better to invest for the long term rather than make quick trades. But it’s more of a risk with Dogecoin because Doge — which rises and falls on the back of Tesla CEO Elon Musk’s latest tweets — is more volatile than other cryptocurrencies. And, as with any digital currency, it could fail completely.

2. Dogecoin could get hacked

Cryptocurrencies are secure by design. The decentralized cryptographic nature of the underlying blockchain technology makes them extremely hard to hack. Hard, but not impossible.

Back in 2013, about $12,000 was stolen in a Dogecoin wallet hack. The next year, Shibes lost an estimated $750,000 in a Doge fraud. These were not direct hacks on the blockchain, but they do highlight that Dogecoin is not immune.

Those events, along with disappointment at the “toxic” attitude that had overtaken the community were one reason co-founder Jackson Palmer pulled out of the project.

Since he and co-founder Billy Markus stepped away, Dogecoin has relied on a team of four part-time developers. They’ve done a good job, and they even have a Doge upgrade in the works. But if there is a hack or a technical problem, unlike other cryptocurrencies, there’s no paid team monitoring Doge 24/7. It will be difficult for part-time developers to react quickly and minimize the damage if the unthinkable happens.

And if there’s one lesson we can take from the COVID-19 pandemic, it’s that the unthinkable can happen.

3. There’s one anonymous Dogecoin whale

In February, The Wall Street Journal reported that one person owned 28% of all Dogecoin in existence. There’s been plenty of speculation about who that person is, but as of yet, we don’t know. On top of that, close to 70% of the total Dogecoin supply is held in just 100 wallets.

Why does that matter? It means that Elon Musk is not the only person who can have an outsized impact on Dogecoin’s price (unless he is also the whale). That mysterious Dogecoin whale can influence the price of Doge — in either direction. Whales have the power to make big waves in the crypto waters, and we little fish can get swallowed up in the process.

Consider your investments carefully

Investing in cryptocurrencies is already risky. The prices can swing wildly, the technology is relatively untested, and we don’t yet know how this industry will develop. That said, there’s a good chance that blockchain technology will transform several industries, from finance to manufacturing. But we don’t yet know which coins will deliver, nor what regulations will be introduced.

Dogecoin is a different animal. Its popularity and relatively low price may help it succeed as a true digital currency, which Bitcoin (BTC) has not yet managed to do. But putting money down on that chance is not investing, it’s speculation or gambling. Be honest with yourself about the risk you’re taking before you dive into those shark-infested waters.