The day before yesterday I had a feeling that we were half-way through the bear market, that all bad fish had been swept away and that the time to buidl for the next bull market in 1.5-2 years was here.
One day later, I learned that Binance was charged with over a dozen allegations of violating US laws and diverting customer assets in a way very similar to FTX.
A bankrupt business man showing his pockets (I'm an NFT. Own me!)
I never have much stored on CEXs for apparent reasons, but I held some funds on Binance, thinking Binance was too big to fail considering it great performance during the last bear market and its standing in the ecosystem. However, the diversion of customer funds charge and the claim that Binance propped up their balance sheet with Alameda-like market maker methods is something to be very concerned about.
Binance CEO CZ who is known for his cool and his white-vest in the crypto world (just like SBF was... well, maybe not as cool) seems to have taken a hit. If the allegations were false, why does Binance scramble to replace its CEO? Some of the allegations include personal misconduct of CZ, so they could try to direct the charges to his person, while shielding the individual actions behind the corporation.
Digesting all this, I made the decision to withdraw my remaining funds from Binance. But where to withdraw them? Many assets are native to Binance Smart Chain (I know, it is called BNB Smart Chain by now, but we all know what it stands for). I remember hearing that BSC was basically an Ethereum clone with a centralized set of validators, most of which under the direct control of Binance. So if Binance went bust, would there be any point of having withdrawn funds to BSC?
Google didn't deliver clear answers as fast as I would have liked to, so I went and asked ChatGPT. Here are its answers:
Q: When Binance goes bankrupt can BSC continue running?
A: "[It's] important to understand that Binance Smart Chain (BSC) is a separate blockchain network and ecosystem that operates independently of the Binance cryptocurrency exchange. BSC is a decentralized platform that supports smart contracts and runs its own blockchain nodes.
If Binance were to face financial difficulties or declare bankruptcy, it would primarily impact the operations and services of the Binance exchange itself. BSC, being a distinct blockchain network, could continue operating as long as the participating nodes continue to function and the community continues to support and maintain the network.
It's worth noting that the success and viability of any blockchain network, including BSC, depend on various factors, including community participation, developer support, network security, and overall market sentiment. Therefore, the future of BSC would not solely be determined by the financial situation of the Binance exchange."
Q: Who runs the nodes? Can other people take over running the nodes if the Binance affiliated nodes fail?
A: "Binance Smart Chain (BSC) operates through a network of nodes that help maintain the blockchain's consensus and validate transactions. These nodes can be run by various entities, including individuals, organizations, and even other cryptocurrency exchanges.
While Binance initially launched and operated a significant number of nodes on the BSC network, it's important to note that BSC is designed to be a decentralized network. This means that anyone with the technical capability and resources can run a node and participate in securing and validating transactions on the network.
In the event that the Binance-affiliated nodes were to fail or be taken offline, other node operators within the BSC ecosystem could step in to continue running the network. The decentralized nature of blockchain technology allows for multiple participants to operate nodes, ensuring the network's continuity and resilience.
Moreover, the BSC community consists of various developers, validators, and participants who are invested in the success of the network. They can collaborate to maintain the network's operations and governance, even in the absence of specific participants or organizations."
This is somewhat relieving. It means that while Binance going down would have severe impact on the chain, the community could take over control and sort things out to get it back running. But what about the assets? Many assets are wrapped tokens and we rely on the centralized Binance Bridge as a single point of deposit and withdrawal. No good if the chain is still running, but you cannot get your wrapped Shiba Inu out and back to Ethereum, right? So, I asked ChatGPT another question.
Q: If Binance Bridge failed would you still be able to get wrapped tokens from Binance Smart Chain back to their original network?
A: "If the Binance Bridge were to encounter difficulties or fail, it would likely impact the ability to transfer tokens between Binance Smart Chain (BSC) and their original networks directly through the bridge.
However, it's important to note that wrapped tokens on BSC are typically ERC-20 tokens that represent assets from other blockchains. These wrapped tokens are created through a process where the original tokens are locked on their respective networks, and an equivalent amount of wrapped tokens is issued on BSC.
In the event that the Binance Bridge fails, it may hinder the direct transfer of wrapped tokens back to their original networks through the bridge. However, it doesn't mean that the wrapped tokens become inaccessible or unusable.
Alternative solutions could be explored in such scenarios. For example, if the original tokens on the respective networks still exist and are functional, users may need to utilize alternative bridges, exchanges, or services to facilitate the transfer of wrapped tokens back to their original networks.
The availability of such alternatives would depend on the specific circumstances and the existence of alternative infrastructure or services supporting the transfer of wrapped tokens. It's important to stay informed about the latest developments and announcements from Binance, Binance Bridge, and other relevant platforms to understand the available options in case of any disruptions or failures."
As for the chain itself, other parties could step in to provide other bridging solutions as well. I understand that these would have to be developed first (considering ChatGPTs knowledge from 2021 is still up to date) but it sounds like it would be technically possible. Most projects created the wrapped versions of their tokens themselves, so it can be assumed that they would be equally interested in coming up with a solution for the problem.
Bottom Line
Binance failing would probably throw us back to the stone age of crypto and cause a bloodbath in the market. But crypto should not be reliant on a single centralized entity and, as we learned from ChatGPT, it luckily is not. The community can take control over BSC, when the centralized entity fails. And as the history of Hive has told us, community can be powerful. Therefore, it may be wise to withdraw your funds to your own wallet, even if it is a transfer from Binance to BSC.