Crypto Code Is Law Until a $600 Million Hack: Bloomberg Crypto - Bloomberg
Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition, Emily Nicolle exposes the cracks in a key crypto tenet:
Bridge to nowhere
In blockchain, the code that underlies smart contracts is the true ultimate authority: It determines how most of decentralized finance operates and, once implemented, is the law as far as crypto believers are concerned. It’s what you have to live with, there is no “undo” button. But as the amount of stolen wealth from high-profile hacks piles up, this “code is law” ethos is being tested.
An attack on the Ronin crypto “bridge” supporting the play-to-earn game Axie Infinity this month saw the hacker make off with roughly $600 million worth of digital currencies, one of the largest heists in crypto history. Bridges like Ronin help users and companies transfer assets from one blockchain to another, usually by converting crypto into a more easily digestible “wrapped” version of a broadly used token like Ether.
More than $1 billion in cryptocurrency has been stolen by exploiting flaws in such bridges in little over a year, as my colleague Olga Kharif reported on Wednesday, and that figure will only continue to rise as crypto’s multichain universe expands. In the case of Axie Infinity, its developers created a shortcut to help them through a busy period — and then forgot to get rid of it. Though blockchain’s human authors can take preventative measures like paying so-called white-hat hackers to find weaknesses early on, the concept of “code is law” would, at its most basic level, mean the stolen tokens now rightfully belong to the attacker.
Of course, that’s not an argument that many Axie players who have lost their money and their source of income from the game may be willing to accept. For as long as the Ronin bridge remains empty of enough Ether tokens for them to cash out their in-game earnings, the pressure is building on Axie’s operator Sky Mavis to find a solution. An exploit earlier this year of the Wormhole bridge saw its investor Jump bail out the platform with more than $300 million in Ethereum — will Sky Mavis investors like Mark Cuban or Animoca Brands do the same?
As the number of DeFi projects grow in their hundreds, the amount of dollars flowing into platforms that rely on code to execute key functions without intervention — known as decentralized autonomous organizations — is spiking similarly. The total value locked on DeFi projects currently sits at around $83.3 billion, according to data from DeFi Pulse, and topped $100 billion on three separate occasions last year.
There’s only so much financial loss that any industry is willing to tolerate without making some adjustments to keep these incidents from happening again. While the promise of decentralization seems idyllic, the Axie hack is the latest example in why relying on code isn’t always the solution it’s cracked up to be.
Charting it out
Hearing them out
Crypto's leaders say they need more regulation — but setting a framework for an industry that defies the boundaries of existing rules will be a challenge
“My hope ... is that we wind up with a regulatory regime that makes sense, as opposed to one that’s just the result of some sort of turf war.”
Sheila Warren
CEO of the Crypto Council for Innovation, a trade group
What we’re reading (and writing)
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— With assistance by Matt Turner
source: https://www.bloomberg.com/news/newsletters/2022-03-31/crypto-code-is-law-until-a-600-million-hack-bloomberg-crypto
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