Binance has launched a new exchange which they claim is decentralized, but its terms and conditions reveal it might actually be fairly centralized.
We had a quick test-run first of all and the process is quite smooth. You don’t need any username, email address, ID verification, or anything.
You instead receive a file that presumably holds your private key and you get a seed phase to save in addition to creating a password.
That’s that. You’re done. You log in now by either uploading the private key or entering the seed phase with the password and you get a screen similar to the one in the featured image with just one trading pair for now, BNB and the latest IEO from Binance.
There’s no depositing or withdrawing on the exchange. Instead the signing up process is basically creating an address on the new Binance Chain. The exchange just connects to this address in the browser itself.
How it does so isn’t very clear, but Blockchain.info likewise provides a browser wallet for bitcoin. Changpeng Zhao, Binance’s founder, used to work at Blockchain so this wallet creation could technically be trustless to a large extent.
The problem is the Binance Chain itself upon which the DEX runs, where accounts are kept and so on, in addition to how the Binance DEX site interfaces with this chain. We’ll quote the terms and conditions of Binance DEX at some length:
“If Binance determines that you have engaged in any Prohibited Use via the Site, Binance may address such Prohibited Use through an appropriate sanction, in its sole and absolute discretion.
Such sanction may include… proposal to Binance Chain governance (Validators and Community) for confiscation of any Digital Tokens obtained in any Prohibited Use; and, terminating your access to any Services through the Site.
In addition, Binance makes no representation or warranty as to what actions Binance Chain governance (Validators and Community) may take, at its sole and absolute discretion, including to seize and hand over your property to law enforcement or other authorities where circumstances warrant…
Binance insists on a comprehensive and thorough user due diligence process and implementation and ongoing analysis and reporting. This includes monitoring of and for suspicious transactions and mandatory reporting to international regulators.
Binance needs to keep certain information and documentation on file pursuant to applicable law and its contractual relationships, and Binance hereby expressly reserves the right to keep such information and documentation.
This will apply even when you terminate your relationship with Binance or abandon your wallet and related applications.
Binance and Binance Chain community reserves the right to refuse service of the Site, or to bar transactions from or to, or terminate any relationship with, any user for any reason (or for no reason) at any time.
Without limiting the generality of the foregoing, this includes, but is not limited to… anyone that fails to meet any user due diligence standards, requests, or requirements of Binance and Binance Chain community.
At all times, you may be subject to enhanced user due diligence procedures in your use of the Site and any Service.”
So there are two aspects to it. First this suggests the DEX site is centralized so they can lock out access. Rather than this being an interface to a smart contract, it looks like it is more of a Binance Chain node sort of thing that interfaces with the blockchain.
A single node can of course do whatever it wants. It can deny you access to information, it can lie to you, it can ban you and so on. Where there are thousands of nodes to which you connect through a full node, then a single node can still ban you if it wishes – in which case you connect to others – but it can’t lie because Proof of Work.
Here BNB runs on Tendermint BFT consensus where “the initial validators are selected from trusted members of the Binance community, and will eventually expand to more members as the Binance blockchain and ecosystem matures.”
The rest connect through an SPV wallet which doesn’t do any verification, doesn’t have all the code rules and so on. In addition, one can’t just be a validator or just run a full node on BNB. Plus, as for now it is probably just Binance validating the chain, this is sort of a centralized database.
So the D part in the DEX here is almost non existent because as the sole or main validator Binance can pretty much do whatever it likes.
That’s basically saying you can see what we’re doing, so it’s fine that you have no power to stop us from, in this case, listing a token or in the BNB chain case from even perhaps taking your coins.
The problem here is the fact that since validation is not open, you can’t know whether they have taken BNB or whether they have printed out a billion of it.
It’s basically a database modifiable at will, which raises the question of why did they go to their own chain rather than the far more trusted and open ethereum blockchain.
The latter even has smart contracts where true dexes can be built, although at the expense of speed and convenience since the technology is still very young.
That’s the tradeoff however for now, but where the ERC20 BNB token was concerned, there was pretty much no tradeoff between trustlessness and speed etc.
On the BNB chain, there may be speed all one wants, but trust without verify where it concerns $3.2 billion is a problematic proposition.