Can Ethereum Turn Back Time on Financial Hacks?

• On February 21, 2025, Bybit was hacked, resulting in the theft of over 401,000 ETH ($1.5 billion) by a group linked to North Korea’s Lazarus Group, sparking discussions about reversing the blockchain to undo the loss.
• Some in the crypto community called for a rollback similar to the 2016 DAO hack, but Ethereum’s core developers rejected the idea, citing the complexity and scale of Ethereum’s ecosystem today.
• Unlike Bitcoin’s early days, Ethereum’s interconnected networks—such as DeFi, Layer 2s, and stablecoins—make a rollback technically infeasible and potentially damaging to the ecosystem.
• Despite the breach, Ethereum’s commitment to immutability remains strong, and the growing institutional interest in ETH ETFs and supportive regulatory changes suggest continued long-term stability for the network.

On February 21, 2025, the cryptocurrency exchange Bybit suffered a devastating blow: hackers, widely linked to North Korea’s Lazarus Group, tampered with Safe{Wallet}—a popular service Bybit used to safeguard its Ethereum holdings in custody—siphoning off over 401,000 ETH, roughly almost $1.5 billion at the time. Safe{Wallet} keeps funds secure by requiring multiple approvals, often tied to “cold wallets”—offline storage for enhanced security—but the attackers swapped out its display code to fake a normal transfer, tricking Bybit’s team into signing over control of the funds. The breach, one of the largest in crypto history, propelled the hacker to the world’s 14th largest ETH holder, controlling approximately 0.42% of Ethereum’s total supply—surpassing Fidelity and Ethereum co-founder Vitalik Buterin, and holding more than twice the Ethereum Foundation’s 223,000 ETH (though much may have been sold or converted by now). This wasn’t just a massive financial loss—it reignited an old debate in Ethereum’s history: should the blockchain be rolled back to undo the damage?

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The Community Push and Key Voices

In the wake of the hack, prominent figures in the crypto space called for drastic action. Arthur Hayes, co-founder of BitMEX and a major ETH holder, suggested Ethereum rewind its blockchain to a pre-hack state, asking co-founder Vitalik Buterin on X if he’d advocate for it. Hayes argued that Ethereum abandoned pure immutability with the 2016 DAO hack response, so why not do it again? Samson Mow, CEO of JAN3, backed the idea, framing it as a way to thwart North Korea’s funding of illicit activities with the stolen funds. Some community members echoed this sentiment, seeing a rollback as a moral and economic necessity to protect users and stabilize the ecosystem.

Bybit CEO Ben Zhou took a more neutral stance, suggesting in a February 22 X Spaces discussion that any rollback should hinge on community consensus, not a unilateral decision. He confirmed talks with Buterin and the Ethereum Foundation but stopped short of endorsing the move.

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The Ethereum Foundation’s Response

Ethereum’s core developers quickly poured cold water on the idea. Tim Beiko, a lead developer at the Ethereum Foundation, called a rollback “technically intractable” in a February 22 X post. Unlike the DAO hack, where a smart contract flaw allowed a month-long window to act, the Bybit breach followed protocol rules—hackers exploited a compromised multisig interface at Bybit, not Ethereum’s core system. Beiko warned that reversing transactions now would wreak havoc on the network’s sprawling ecosystem, a far cry from the simpler blockchain of 2016.

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Bitcoin’s Early Rollback: A Simpler Time

The rollback idea has roots in Bitcoin’s history. In 2010, a bug minted 184 billion BTC in block 74638. Satoshi Nakamoto stepped in with a quick fix, releasing an update that cancelled those transactions and rewound the chain to block 74637. With mining difficulty 10 billion times lower than today and BTC at $0.07, the new chain quickly overtook the old within a day, re-including user transactions. This worked because the bug was in the protocol, the network was tiny, and adoption was minimal—conditions Ethereum can’t replicate now.

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The DAO Hack Precedent

Advocates for a rollback often point to the 2016 DAO hack, where a vulnerability in a decentralized autonomous organization let a hacker drain $60 million in ETH—about 15% of the supply then. The community responded with a hard fork, redirecting funds to a refund contract via an irregular state change—manually tweaking the blockchain’s database, not rewinding the entire chain. This split Ethereum into ETH (the patched chain) and Ethereum Classic (ETC), which kept the original ledger. A 28-day withdrawal freeze in The DAO’s code gave developers time to act, and the funds’ isolation prevented mixing—unlike Bybit’s instantly movable haul. The Bybit hack’s 401,000 ETH is just 0.4% of today’s supply—a big loss but less systemic. Proponents like Hayes see the DAO as proof Ethereum can bend rules; critics note it wasn’t a true rollback and today’s context differs vastly.

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Bitcoin, Ethereum, and the Fate of Forks

Bitcoin’s most notable hard fork came on August 1, 2017, when block size disputes birthed Bitcoin Cash (BCH). Most miners and users stayed with BTC, keeping it dominant, while BCH faded. In Ethereum’s DAO case, the new ETH fork won majority support, relegating ETC to a minority. The new fork doesn’t always win—consensus rules. A Bybit rollback would hinge on this, but Ethereum’s evolved stakes complicate the odds.

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Rollback vs. Forks: What's the Difference?

A rollback attempts to erase a blockchain's recent history—for example, to undo a major error or security breach—by reverting to an earlier point. If the entire network agrees, a rollback can occur without causing a fork. However, if there's disagreement, it often leads to a hard fork, splitting the chain: one version accepts the rollback, erasing recent events, while the other maintains the original history, as seen with Ethereum and Ethereum Classic. Hard forks create permanent divergences in the blockchain, while soft forks introduce backwards-compatible rule changes without necessarily splitting the network, provided most participants agree to the update. Essentially, rollbacks aim to reverse recent events when consensus allows, while forks alter the blockchain's path forward, potentially splitting the network when views diverge.

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How a Rollback Works: The Tech Behind It

A blockchain is like a chain of digital ledgers (blocks) containing transaction records, each connected to the previous one by a unique cryptographic hash. In Ethereum's ecosystem, special participants known as validators maintain and secure this chain. When a rollback is executed, the network selects a specific point in the blockchain's history—say, block number 19,000,000—and reverts all account balances, smart contract states, and transaction histories to that earlier state. This process effectively erases every transaction and interaction that occurred after the designated block.

Executing a rollback requires a coordinated update to the blockchain's software, ensuring that every computer node in the network agrees to "rewind" their copies of the ledger. Validators must achieve consensus—typically through established on-chain voting or off-chain governance processes—so that all updated nodes follow the new chain history. Failure to reach full consensus can lead to temporary forks, where some nodes continue to follow the original chain while others adopt the rolled-back version.

This reset process involves recalculating state roots (e.g., the Merkle trees that securely capture the account states) and rigorous testing to avoid introducing errors. Given the extensive coordination, programming precision, and risk of unintended network splits, such a rollback cannot be rushed.

It's important to note that the 2016 DAO incident did not involve a rollback but rather a hard fork that created Ethereum and Ethereum Classic. In that case, the community chose to implement a state change through a fork rather than attempting to erase history. Unlike a hard fork which creates a divergent path forward, a rollback for Bybit's situation would require erasing significant blockchain history—a far more disruptive approach with no safe implementation window given the immediate nature of the hack.

In summary, a rollback is a highly complex and coordinated technical maneuver, incorporating validator consensus, recalculation of cryptographic states, and extensive testing to restore the blockchain to a prior validated state—an effort that, if mishandled, could risk network stability.

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Why It Won’t Work: Ethereum’s Tangled Web

Ethereum in 2025 isn’t 2016’s nascent network—it’s a sprawling ecosystem. Layer 2s (e.g. Base, Optimism), bridges, DeFi, stablecoins, and mixers like Tornado Cash interlink it. The Bybit funds—split across wallets, swapped on DEXes, and funnelled through mixers—can’t be undone without breaking this web. Rolling back would unwind millions of transactions, including off-chain settlements (e.g., exchange sales, RWA redemptions), with no fix for the real-world half. Experts like Gautham Santhosh of Polynomial.fi note, “A rollback would break bridges, stablecoins, L2s, RWAs, and more. ETH’s too interconnected now for a clean solution like 2016.” With $57 billion locked and over a million daily transactions, it’d torch Ethereum’s immutable credibility, repelling developers and trust.

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The Parity Precedent: Community Resistance

Fixing things after a mistake isn’t impossible in theory. In November 2017, a bug in a popular Ethereum wallet locked up over 500,000 ETH. Some pushed for Ethereum to step in and unlock it, but the community, still wary from the DAO fallout, refused to change the blockchain’s past. Even with the funds frozen and not circulating, they stayed put. That over 500,000 ETH, now worth over $1.2 billion at $2,400 per ETH, remains lost—proof of Ethereum’s no-rollback stance.

A proposal called EIP-999 was made to restore the funds, but it was ultimately rejected by the community. This decision reinforced Ethereum’s commitment to immutability, even in cases of significant financial loss. It’s a clear sign that not just Ethereum itself but also its community firmly oppose rollbacks for financial mishaps.

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The Bigger Picture

For most market participants, the real takeaway from the Bybit hack isn’t whether Ethereum will roll back—it won’t. The rollback debate is largely noise, and Ethereum’s core infrastructure remains intact, with no systemic risk to DeFi, L2s, or institutional integrations. Unlike Bitcoin, which once reversed its chain in 2010 due to a protocol-breaking bug, Ethereum has never performed a rollback. Instead, its history shows a preference for hard forks—whether in response to hacks (Ethereum Classic) or planned upgrades (PoS transition). Despite temporary sentiment shifts, the broader market will continue operating as usual, and Ethereum’s long-term trajectory remains unchanged in our view.

Momentum is already favouring Ethereum’s financial integration. U.S. policymakers are taking a more pragmatic approach—SAB 121, which treated custodial crypto as a liability for banks, was repealed in January 2025, easing restrictions for institutional players. Regulatory winds are shifting in favour of this industry under Trump’s administration. Efforts to end Operation Chokepoint 2.0 are progressing, and the SEC recently closed investigations into Consensys (MetaMask) and Uniswap (Ethereum’s largest DEX) without charges—signalling a more pragmatic stance toward crypto.

Would this $1.4 billion hack pivot the conversation back to attacking permissionless tech like Ethereum? We don’t see that as the case—it’s just a hiccup, an expensive one, nonetheless. ETH ETF adoption shows strong life and interest, with Spot ETFs holding almost $10 billion (~4% of ETH’s supply) after seven months since launching in July 2024—all without staking enabled, foreshadowing even faster adoption. Grayscale has already applied to enable staking, and others are expected to follow, potentially unlocking institutional access to ETH staking rewards by mid-2025.

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