Binance freezes $3 billion following a security breach and confirms it will compensate affected customers
Binance reportedly froze $3 billion worth of digital currencies after it was hacked and between $3 billion to $5.8 billion was robbed.
This step came after quick action by stablecoin issuers, such as Circle and Tether, who moved to freeze assets tied to the event shortly after a cyberattack was suspected late last week.
Binance guarantees users that they will be compensated for any damage caused by the event, and the platform announced that deposits and withdrawals will be frozen until investigations are complete.
Nonetheless, the retrieval of digital assets owned by customers and the calculation of financial damages are two very different processes that are both highly complex and technical.
How can frozen funds on the blockchain be recovered?
Ari Redbord, Head of Policy at TRM Labs, said that digital assets can be frozen to prevent the assets from quickly flowing elsewhere, but any recovery of the assets is purely a legal process.
In most situations, investigators work together with law enforcement to get a court order. Once this has been done, stablecoin issuers re-create the coins and deliver them to their last owner.
"Stablecoins such as USDT and USDC are much simpler to retrieve as the issuing company has greater control over the underlying smart contract, and they can freeze or burn the tokens before reissuing it themselves," Redbord said.
On the other hand, it's orders of magnitude harder to recoup stolen assets such as Bitcoin or Ethereum. Because there is no central power that owns custody of the funds, the assets must be traced across exchanges and intermediary services-in this case, transfer points- before they arrive in the hands of an entity willing to cooperate.
Figures and Indicators Regarding Frozen Funds
Nearly $2.4 billion of stablecoins was frozen immediately by the exchanges, but the remaining bitcoin and ethereum remained in the possession of the hackers and had no such option for erasing them, estimates suggest.
According to Chainalysis, investigators involved in the case have to date recovered over $5.9 billion worth of assets, the size of which is one of the biggest since the sector was created.
Market Consequences and Repercussions
Although the timely intervention of issuing companies in freezing customer assets avoided further significant loss, it has not addressed worries about the delay in compensating clients.
"In fact, it can take minutes to freeze an asset, but they can be frozen for long periods of time-possibly months, even years- until investigators, law enforcement and a central exchange work in concert to return them to the proper owner," said Eric Jardine, Head of Research at Chainalysis.
On the other hand, Bitcoin tanked more than 4 per cent – again. It decreased to below $78,000 citing the incident's fallout and unpredictable market circumstances, coupled with mounting uneasiness regarding comparable breaches and the limited nature of digital recovery solutions in decentralised systems.
Why is it difficult to recover all funds?
It comes down to the stablecoin issuers having the ability to administratively control their assets, and act by bringing whatever legal force is necessary to bear. Decentralized crypto currencies like Bitcoin, however, cannot do this.
The investigators are trying to catch the suspicious transactions before they go through cooperative centralized exchanges – sometimes taking longer for the recovery.
Experts say the freezing of accounts is a method to limit loss, but a mechanism that can only succeed if the legal process is also settled and if there is an official consent from the government to unfreeze and return the funds to the user.