Crypto "Kill Switch" Exposed: Bybit Reveals 16 Blockchains That Can Freeze User Funds

A recent analysis from Bybit’s Lazarus Security Lab has unveiled that 16 blockchain networks have embedded mechanisms that can freeze or limit user funds. This revelation raises questions about the true decentralization of these networks.

Key Takeaways

Bybit's report identifies 16 blockchains capable of freezing user funds, challenging perceptions of decentralization.
Major chains like BNB Chain, VeChain, and others have hardcoded mechanisms that enable freezing of transactions or wallets.
There are three types of freezing mechanisms: hardcoded, configuration-based, and smart contract-based.
The dialogue between security and decentralization continues, with supporters advocating for the need to respond to criminal activity and critics warning of potential centralization.
The report calls for transparency regarding fund-freezing features to inform users about the control they have over their assets.

The report, released on Tuesday, evaluated 166 blockchain networks through a mix of AI-driven detection and manual code analysis.

Crypto "Kill Switch" Exposed: Bybit Warns 16 Blockchains Can Freeze User Funds

Understanding Blockchain Freezing Mechanisms

Bybit’s research divided the freezing capabilities into three categories: hardcoded freezing, configuration-based freezing, and on-chain contract freezing.

Out of the 16 identified blockchains, ten utilize configuration files such as YAML, ENV, or TOML to maintain private blacklists that can only be accessed by validators or development teams. Notable examples include Aptos, EOS, and Sui, which can freeze funds through changes made at the validator level.

Blockchain Analysis

Additionally, five networks, including BNB Chain, incorporate freezing functions directly into their source code, allowing the prohibition of transactions from blacklisted wallets at a protocol level. Notably, Heco Chain (Huobi Eco Chain) distinguishes itself by using a smart contract-based blacklist, executing freezes via on-chain contracts.

While these mechanisms provide security benefits, they can also raise concerns about centralization and censorship. According to Bybit’s researchers, “The existence of fund-freezing functions, even when aimed at enhancing security, puts the concept of full decentralization into question.”

The study also highlighted 19 more blockchains that could potentially adopt similar powers with minor modifications to their protocols. Many of these are built on the Cosmos ecosystem, which utilizes “module accounts”—addresses governed by on-chain logic instead of private keys. Although no Cosmos-based networks have enacted freezing mechanisms yet, the report cautioned that future changes could enable such capabilities, potentially allowing for arbitrary freezing of any address.

Freezing Mechanisms

The Ongoing Security vs. Decentralization Debate

The findings from Bybit add to the ongoing discussion in the crypto space regarding the authority of blockchains to interfere in user transactions.

Proponents of fund-freezing mechanisms argue that they are crucial for reacting to hacks and illicit activities. They emphasize that these capabilities can aid in the recovery of stolen assets when courts grant freezes. Moreover, such measures can play a role in preventing money laundering, financing of terrorism, and protecting investors against fraud.

Conversely, critics maintain that central control points can arise, allowing developers or validators to arbitrarily block transactions. This undermines the principles of blockchain immutability and raises concerns about censorship. Once a blockchain has a "kill switch," even if it remains unused, its permissionless nature comes into question.

The timing of Bybit’s analysis is significant, following a $1.5 billion cold wallet hack that the exchange suffered, marking one of the industry's largest breaches. During this incident, collaborations with partners like Circle, Tether, THORchain, and Bitget successfully froze $42.9 million in stolen funds, while the mETH Protocol reclaimed an additional $43 million in tokens.

This situation illustrated the complexities of the fund-freezing debate. While the interventions led to the recovery of significant amounts, they also highlighted the concentration of freezing powers, even within blockchains that are promoted as decentralized.

Although the report refrains from endorsing specific policies, it calls for increased transparency on freezing features. “Blockchains with freezing capabilities should clearly disclose their existence,” the researchers wrote, expressing concern that undisclosed intervention points could mislead users about their true control over funds.

Decentralization Debate