Bybit finds 16 blockchains with power to freeze user funds
News Summary
Bybit's security research team, Lazarus Security Lab, has released a report identifying 16 blockchain networks out of 166 analyzed that are technically capable of freezing or restricting user funds. The report outlines three distinct protocol-level freezing mechanisms: hardcoded freezing (or public blacklist), configuration file-based freezing (or private blacklist), and onchain smart contract-based freezing. Specific examples include BNB Chain, VeChain, Chiliz, Viction, and XinFin's XDC Network, which have freezing capabilities embedded directly in their source code. Aptos, Eos, and Sui utilize config-based freezing, managed through local configuration files accessible to validators and core developers. The Heco chain manages a blacklist via an onchain smart contract. Furthermore, the report notes that 19 networks, including those in the Cosmos ecosystem, could potentially introduce freezing capabilities with "relatively minor protocol changes." Bybit researchers warn that these mechanisms, even when intended for security, raise significant concerns about censorship and centralized control, fueling the ongoing debate about the true decentralization of blockchain networks. This finding follows Bybit's own $1.5 billion cold wallet hack, where coordinated efforts led to the freezing of millions in exploited funds.
Background
The foundational principles of blockchain technology revolve around decentralization, censorship resistance, and immutability, aiming to provide users with complete control over their assets. However, as the cryptocurrency ecosystem matures and becomes more complex, many projects have begun integrating emergency controls, compliance modules, and admin-level privileges, often in response to security incidents, regulatory pressures, or specific governance objectives. This evolving trend has ignited a broader debate about whether decentralized networks truly uphold their core tenets in practice. Centralized control points, even if implemented with good intentions, introduce risks of censorship and potential abuse of power. These concerns were amplified following Bybit's earlier $1.5 billion cold wallet hack, where coordinated efforts successfully froze approximately $42.9 million of the exploited funds, demonstrating both the 'efficacy' of freezing capabilities in asset recovery and their 'compromise' to decentralization principles.
In-Depth AI Insights
What are the deeper implications of the identified blockchain freezing capabilities for the core ethos of decentralization and investor trust? - This fundamentally challenges the promise of "decentralization" in blockchain, indicating that many prominent networks retain significant centralized control at the protocol level. For investors seeking absolute sovereignty and censorship resistance, this could lead to a crisis of trust, potentially driving capital towards more genuinely decentralized protocols. - The existence of freezing capabilities, even when intended for crime prevention or compliance, opens the door to potential censorship and governmental intervention. Under President Donald J. Trump's administration, the U.S. government is likely to seek stronger digital asset regulatory frameworks, and these built-in freezing functions could become an entry point for regulators to exert pressure and cooperation, further eroding the definition of "decentralization." How might the increasing prevalence of fund freezing impact the competitive landscape among blockchains and the broader crypto market? - This will accelerate market segmentation. True decentralization (chains without freezing capabilities or with high-threshold governance mechanisms) will become a key competitive advantage for some chains, attracting users and developers who prioritize censorship resistance. Chains with freezing capabilities, while potentially gaining an edge in institutional adoption and compliance, will do so at the expense of some decentralized reputation. - Regulatory arbitrage is likely to intensify. Projects and users may choose blockchains based on their preferences for centralized control versus regulatory compliance across different jurisdictions or design philosophies. This could push some projects towards more complex on-chain governance to manage freezing functionalities, attempting to strike a balance between "security" and "decentralization," often with limited success. Given the Trump administration's stance on financial regulation, what long-term policy trends could this report foreshadow for the crypto sector? - The Trump administration consistently emphasizes national security and combating illicit financial activities, making this report a potential additional argument for strengthening crypto market regulation. Freezing capabilities could be seen as a "controllable" tool to assist law enforcement in recovering funds or stopping illegal transactions when necessary. - This could lead the government to push for a "two-tiered" market in digital assets: one segment comprising highly regulated chains and projects with compliant freezing features, designed to attract institutions and regulated financial entities; and another segment of more innovative, decentralized protocols that might face higher regulatory scrutiny. Investors should closely monitor policy developments, especially post-U.S. election, as the Trump administration may accelerate its strategic positioning in digital asset regulation to ensure U.S. dominance in the global financial system.