Security and decentralization are essential elements associated with the functioning of blockchains. These realities sometimes conflict in certain cases, such as when hidden code allows the freezing of users’ funds.
Blockchains capable of freezing their users’ funds
The cryptocurrency sector is constantly torn between a long-standing desire for decentralization and an increasingly necessary need to strengthen user security. This latter requirement can sometimes take rather unexpected forms, according to the latest report from the cryptocurrency exchange platform Bybit.
Experts at its Lazarus Security Lab have just released a comprehensive report on the ability of certain leading blockchains to freeze their users’ funds. An in-depth investigation conducted using AI on 166 different blockchains reveals some surprising findings.
At issue is the “ability to intervene in user transactions to contain security incidents such as hacks or exploits,” which reportedly takes several distinct forms, divided into three categories:
- A freezing capability built directly into the blockchain code;
- An option managed via validator or foundation settings;
- A freeze executed using on-chain contracts.
In practice, the analysis tool developed by Lazarus Security Lab analyzed the code bases of these different blockchains in search of modules enabling blacklisting, transaction filtering, or dynamic configuration updates. The data was then analyzed by experienced developers to ensure its accuracy.
Greater transparency is needed
The results of this report highlight 16 popular blockchains that have the ability to effectively and operationally freeze their users’ funds, including five with a feature directly integrated into their code. Nineteen others have the potential to implement this feature in the future.
According to Bybit’s head of risk and security, David Zong, only true transparency can create the necessary trust. That is why he wants to “encourage open dialogue and better governance across the industry” on this specific issue.
Blockchain is based on the principle of decentralization — yet our research shows that many networks are developing pragmatic security mechanisms to respond quickly to threats. As crypto becomes more professional, clearer and more transparent mechanisms will help build lasting trust between users and institutions.
David Zong
According to the study’s conclusion, clearer communication around these emergency response mechanisms should “become a central pillar of blockchain governance.” Indeed, it seems essential to have effective visibility into the capacity and resources available to blockchains to intervene in on-chain activity.
