Ethereum Classic hit by 51% attack, Hackers steal $1.5M

Decentralised networks aren't always as decentralised as they seem.

Ethereum $ETH▼2.13% Classic, one of the most popular forks of the second most valuable cryptocurrencies by marketcap has suffered a 51-percent attack.

A 51 percent attack would be “technically a catastrophic failure,” Emin Gun Sirer, co-director of the Initiative for Cryptocurrencies and Smart Contracts at Cornell University, said in a tweet. If coins were double spent, that blockchain would have failed at its essential task and the currency would have no future, said Kyle Samani, managing partner of crypto hedge fund Multicoin Capital.

What happened with ETC?

After Chinese blockchain security firm SlowMist raised the alarm, an analyst at CoinNess dug a little deeper. The analyst found that a private mining pool had managed to increase its hash power to 3,263 GH/s, making it – temporarily – the most powerful mining pool at around 11:00am UTC on 6 January.

After this brief spike in power, the mining pool returned to its normal state of around 300 GH/s. However, ten hours later the same thing happened again, and the pool’s hash rate began to climb. At the time CoinNess’ article was published the illicit mining pool’s power equated to around 63% of the total network hash rate.

Coinbase paused all ETC transactions

Shortly after these attacks, Coinbase paused all Ethereum Classic transactions, it initially detected that around 88,500 ETC ($460,000) had been double-spent. However, the cryptocurrency exchange has since uncovered another 12 attacks that “included double spends, totalling 219,500 ETC ($1.1 million).

How does a 51-percent attack work?

In order to create a 51% attack the hackers have to aquire majority of the power that supports that specific blockchain. In other words, acquiring 51% of the nodes.

Depending on the consensus mechanism, this power could be computing power, coin supply, number of delegates, master nodes, or some other weight such as free storage space, and so on.

It is then possible to manipulate the blockchain in a multitude of ways, including shutting it down. So far a perfect solution has not yet been found against a possible 51% attack.

Real World Example-

Let’s say I send John 2 ETC to pay him back for the pizza we shared at lunch. When I get home I fire up my super powerful mining rig – that has over 51-percent of the network‘s power – and start mining from a block that was mined before I sent David those 2 ETC and start a new blockchain.

When this happens, I obviously get to keep the pizza, and the transaction I sent to David is not accepted as true, so I get to keep my money and David is left without payment. As the cryptocurrency can be spent again, this is known as “double-spending.”

In this case, the attackers went back 100 blocks and started a new blockchain which allowed them to release over $1.5 million worth of Ethereum Classic to be spent again. Scary, very scary

The whole idea of blockchain is built on the concept of decentralization, not just of technology but of power too. When a single entity can control the majority of the network‘s power, it’s technological and political power is no longer decentralized.

When a 51-per cent attack occurs, it’s the first sign that a blockchain has potentially become too centralized to be considered trustworthy. Incidents like this are enough to get coins delisted from cryptocurrency exchanges. Last year, Bittrex delisted Bitcoin Gold following a similar incident which saw hackers steal over $18 million worth of BTG.
To some, this attack might not be all that surprising. Last year, mining operations began shutting down all over the world as operating costs far outstripped the rewards of mining. All this has done is put more power in the hands of the remaining miners, enough power it seems to start launching 51-per cent attacks.

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Posted from my blog with SteemPress : https://cryptx.eu.com/ethereum-classic-hit-by-51-attack-hackers-steal-1-5m/

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