Ethereum's $1.46 Billion Rollback Debate: Immutability vs. Security

The Ethereum blockchain's ability to roll back transactions has been a topic of debate following the recent Bybit hack, which resulted in a staggering $1.46 billion loss. The incident has sparked discussions about the limits and risks associated with reversing transactions on the Ethereum blockchain.

Rollbacks in blockchain refer to reversing its history to counter disastrous events, such as hacks threatening the ecosystem, protocol bugs, or centralization risks. The Bybit hack has triggered demands for a rollback of affected transactions on Ethereum. However, this idea challenges the fundamental principles of blockchain – immutability and decentralization.

Theoretically, a rollback is possible but highly debatable, particularly on a large blockchain like Ethereum. Ethereum has evolved into an expansive ecosystem with several layer-2 solutions and numerous decentralized finance (DeFi) applications. A rollback can be achieved through a soft fork or hard fork, both of which involve modifying the blockchain's history. However, reversing transactions on such a significant ecosystem would require overwhelming consensus from the network participants, making it an extremely complex and controversial decision with potentially unexpected and equally calamitous fallouts.

In addition to hard and soft forks, a blockchain patch is another method of rollback. It involves a specific fix for an issue where the blockchain's history is "rolled back" to a previous state, effectively reversing certain transactions or events. However, the technical infeasibility of rolling back transactions on Ethereum's interconnected system and reliance on onchain and offchain settlements make it nearly impossible today.

The origins of blockchain rollback date back to 2010 when Bitcoin's block 74638 minted 184 billion BTC due to a software flaw. Satoshi Nakamoto released a patched version of the Bitcoin client, invalidating these transactions and reverting the blockchain to block 74637. However, Ethereum's 2016 The DAO hack sparked a different kind of controversy. The decentralized application, The DAO, held about 15% of ETH at the time but was exploited by a hacker who drained the funds. Unlike Bitcoin's 2010 rollback, this wasn't a protocol issue, as Ethereum itself functioned correctly; the vulnerability existed within the application built on top of it.

The Bybit hack, which originated from a compromised interface rather than a flaw