Was January's 51% Attack On Ethereum Classic A Good Thing?

The 51% attack on Ethereum Classic’s blockchain that shook the cryptosphere between 5th and 8th January 2019 was the most high-profile of its kind to date.

Nobody directly affected by the attack, in which a reported 219,500 ETC were stolen, will be quick to look on the bright side. However, there is a school of thought developing that such events only serve to demonstrate that a currency calling itself ‘decentralised’ is indeed operating as such.

(This article is taken from 21CRYPTOS Magazine – read the full 100 page monthly magazine HERE).

Litecoin creator Charlie Lee said in a tweet, while the attack was still on going, that: “By definition, a decentralized cryptocurrency must be susceptible to 51% attacks whether by hashrate, stake, and/or other permissionlessly-acquirable resources. If a crypto can’t be 51% attacked, it is permissioned and centralized.”

Donald McIntyre, a former business development manager for the recently disbanded ETCDEV (Ethereum Classic Development Company) also commented in a blog; “Bear in mind that the current attacks ETC suffered are not a function of a flawed internal design or a ‘hack’ to the system. It was a double-spend mining attack and a breach of security which is a formal assumption in its design, which is vulnerable to 51% attacks, as in any other proof of work blockchain, including Bitcoin”.

The important point here, is that truly decentralised currencies, including Bitcoin, have to be vulnerable on some level to a 51% attack.

Decentralised currencies work on the basis that truthful transactions on any chain are proven by consensus between the ‘majority’ of participants (be they miners, stakers or otherwise) rather than a single entity. If you enable an entity to overrule the consensus of the majority, then the currency can no-longer be decentralised. If you somehow block entities from forming a majority, then you also forego true decentralisation.

Even the great Satoshi Nakamoto stated in his Bitcoin whitepaper; “The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes”. T’was ever thus.

So where is the good news?

The shockwaves that rippled (no pun intended) through the crypto space after ETC – a top 20 cryptocurrency by market cap – was attacked, have prompted discussions on how to guard against this inherent vulnerability without sacrificing decentralisation.

The ETC community has since completed a post-mortem analysis of events and agreed options and proposals for the community to debate.

Included in the list of options are potential updates to their Proof of Work (POW) algorithm so that ETC can be dominant in a new POW niche. Not being the dominant blockchain using a particular mining algorithm is believed to be one of the factors that make a currency more susceptible to a 51% attack.

Many other sources have also suggested exchanges increase the number of confirmations required for withdrawals and deposits by exchanges and mining pools so that the cost of reorganising a chain ends up being more than an attacker could gain by stealing coins.

A public debate on how decentralised cryptocurrencies can mitigate such attacks in future without sacrificing decentralisation, only serves to benefit the crypto community as a whole.

How events unfolded

A report by blockchain security research firm SlowMist, found that the attacks began on 5th January 2019, when 5,000 ETC were moved from Binance to a mining block via a private address.

The attackers had a simple method of making deposits followed by withdrawals, while using their greater hashpower to remove transactions from the blockchain, allowing double spends.

A number of exchanges were affected, including Coinbase, Gate.io and Bitrue.

Initially, ETC denied the attack completely, saying on twitter on 6th January: “There have been rumours of a possible chain reorganization or double spend attack. From what we can tell the ETC network is operating normally.”

However, as the situation worsened, ETC sprang into action, asking exchanges and pools to allow a significantly higher confirmation time on withdrawals and deposits  in order to mitigate the attacks.

On 7th January, Coinbase announced in a blog (link: https://blog.coinbase.com/ethereum-classic-etc-is-currently-being-51-attacked-33be13ce32de) that they had “detected a deep chain reorganization of the Ethereum Classic blockchain that included a double spend. In order to protect customer funds, we immediately paused interactions with the ETC blockchain”.

Coinbase say they first detected the attack on 5th Jan, much to the annoyance of ETC who claimed Coinbase “unfortunately did not connect with ETC personnel regarding the attack”.

As the debate rumbled on, Coinbase updated their blog on after more double-spends were found. The attack was worse than originally feared; “Subsequent to this event, we detected 12 additional reorganizations that included double spends, totalling 219,500 ETC (~$1.1M)” They said, revealing the full scale of the attack.

Coinbase and Kraken were among the first exchanges to temporary block various ETC activities with others soon following suit.

SlowMist say the attack finally came to an end on the 8th January after the increase in block confirmations and bans on suspected malicious wallet addresses were implemented by exchanges. At that point, the risk-reward ratio of continued malicious activity was no longer in the attacker’s favour.

Lessons Learned

Interestingly ETC’s price suffered no significant downturn as a result of the attacks. There are suggestions that this was down to how quickly exchanges placed restrictions on their ETC markets after the attack was revealed. People simply weren’t able to sell.

That such a prominent cryptocurrency could suffer such an attack will have come as a surprise to many, and the subsequent discussions on how to safeguard decentralised currencies from similar attacks  are vital.

Although many say the exact figures are more complex to calculate, Crypto51 (link: https://www.crypto51.app/) provides a guide as to how much it would cost to 51% attack major cryptocurrencies. While they say the 1 hour cost to attack Ethereum Classic is only $8,556, the ETC blockchain is also 88% NiceHash-able – a possible contributing factor in these attacks. Crypto51 puts the cost of a 1hr 51% attack on Bitcoin at $242,084.

With ETC’s advice that exchanges significantly increase confirmation times playing a major role in bringing the attack to an end, it appears that better communication between the likes of Coinbase and ETC could have foiled the attackers sooner.

ETC’s allegation that Coinbase failed to contact them after initially detecting the attacks on 5th January is fairly damning.

Further collaboration between ETC and exchanges will also be necessary if the attackers are to be caught, according to SlowMist: “Through our intelligence analysis, the identity of the attacker can be finally located if the relevant exchanges are willing to assist” according to their report.

(This article is taken from 21CRYPTOS Magazine – read the full 100 page monthly magazine HERE).