It seems 2019 is already off to a rocky start for the crypto space. Just a few days ago, Ethereum Classic (ETC) experienced an attack that allowed selected bad actors to spend 219,500 ETC (just over a million USD!) twice. It’s a scary scenario, one that usually hits exchanges the hardest, and it’s surprising just how many blockchains with relatively high market caps are susceptible to this type of attack. We’re going to tell you all about what we think this means for ETC and the space as a whole, but first, a little background…
How could this happen?
We won’t go into any kind of technical depth here – suffice to say that blockchains are trustworthy and secure because of the way they work at their core, yet these very same fundamentals leave early blockchains vulnerable.
Firstly, it is important to have a fundamental grasp on certain basic blockchain concepts to understand what happened, so allow me to paint a simplified picture of how this all went down. If you’re already a level 10 Crypto-Wizard, and you know how a 51% attack works, feel free to skip to the next section.
Blockchains operate using a system best thought of as a network of ledgers, or logbooks. These ledgers constantly keep in touch with each other, to prevent malicious parties from changing any of their entries: the idea being that it becomes impossible to fudge data, and get away with it, when there is an intangible sea of redundancy that would need to be fudged at the same time.
When a new entry is added to the ledger, it first verifies the integrity of its existing content against all other ledgers on the network. If the majority of the other ledgers report having identical content, the new entry is added, and then propagated across the entire network, before any other new entries can be added.
Sounds great, right? The issue is that these ledgers (blockchains) are a new technology, and are constantly being worked on, refined, and updated, meaning that the first iterations of blockchains are left with certain ugly birth defects that may or may not become a problem down the line. Should any party gain control of the majority of the ledgers, they could essentially rewrite the whole thing in their favour, because they can generate entries faster than anyone else, implementing false transactions that cover real ones they’ve already made, and force the network to accept their version as a new truth – recouping all of their spent tokens in the process. This is known as a 51%, or Double-Spend attack.
What is Ethereum Classic?
Ethereum Classic is a fork of Ethereum (ETH) that ironically originated due to a similar incident on the very same network. It’s a continuation of the original ETH chain, and noteworthy because it maintains a truly democratic decentralized operation wherein these kinds of vulnerabilities lie.
Why now?
In April 2018, ASIC mining for ETHash chains surfaced, a specialized hardware implementation that does one thing, and one thing only: solve ETH blocks, and does it really well. So well in fact, that they eclipse the hashing power granted by hardware like computer graphics cards, making them both more powerful and more profitable than these traditional counterparts. It’s the type of hardware you’d see in pretty much any of the infamous bitcoin mines you’ve undoubtedly read about before.
Certain websites allow would-be miners to start generating blocks of their own, by renting out hashing power by the hour, eliminating the need for the miner to have any of their own hardware. That’s a pretty cool idea, until you realise that anybody with sufficient funds can now buy enough hash power to overtake any vulnerable network for a few hours, and rewrite the contents in order to get away with double spending.
There’s a website dedicated to this issue, and we highly recommend you go check it out for yourself if you’d like to know more about this.
What does it mean for ETC?
It remains to be seen how this will affect ETC in the long term, but many believe that any ETHash chains must now move to a programmatic proof of work enabled version of ETHash. This would result in ASIC mining experiencing drastic reductions in hashing power, making the gap between them and other forms of mining hardware minimal – thus restoring proper difficulty levels for a hostile takeover of the network via majority control.
It would be possible to remove the vulnerability altogether, by moving away from a decentralized setup, but that sort of defeats the purpose and vision for cryptocurrency in the first place. Several major chains, including Ethereum and Bitcoin, are still theoretically at risk for these exact same attacks, yet it remains almost outlandishly impossible to actually perform a 51% attack on these networks due to their sheer mass. It’s hard to say what the right call for setting up new cryptocurrencies would be in terms of protecting themselves, but it’s a painful truth that all but the largest coins remain fish in a barrel at the whim of attackers unless measures are taken.
