How ‘decentralised’ is Bancor, anyway?

TL;DR Bancor was hacked but the team were able to freeze BNT tokens, suggesting there’s more to this platform than first meets the eye.

Bancor was one of 2017’s most successful ICO, raising $153 million in crypto for a decentralised exchange. More than that, it’s a particular kind of exchange: instead of trading peer-to-peer with other users, you trade with a smart contract. You send one token to the Bancor contract, and it sends back another token from its reserve. That means you’re not restricted by the offers being made by other traders – in other words, liquidity is guaranteed. It’s a brilliant idea.

Bancor was recently hacked (see https://twitter.com/Bancor/status/1016420621666963457). One of the wallets used to upgrade the project’s smart contracts was compromised, which enabled the hacker to transfer out just under $13 million in ETH from the reserve, plus another $10 million in BNT, Bancor’s native currency. No customer funds were stolen.

It’s not a huge amount by the staggering scale of previous crypto hacks (here at Inferno, we don’t raise an eyebrow at anything under $50 million any more). But the interesting development here is that the Bancor team were able to freeze the stolen BNT to prevent them being cashed out, as the ETH already has been.

This is a feature built into the BNT smart contract, and the creators make no apology for it. In fact, they advocate it for other tokens. ‘We firmly believe that this ability is a preventative measure essential to most tokens and necessary to protect the network and token holders in a state of emergency.’

This has shocked a few crypto purists, who have rightly drawn attention to the fact that Bancor have influence over all BNT trading. There is centralised control of BNT, and a single point of failure. No other tokens can be controlled in this way, of course, hence the reason they couldn’t freeze the stolen ETH.

As a result of the measures built into its smart contracts, Bancor was able to freeze $10 million of BNT. But at the same time, they showed that they cannot be considered decentralised, and that there is therefore a major vulnerability in their platform.

Did they win the battle but lose the war?

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