The Ethereum Classic (ETC) blockchain has experienced a second 51% attack in a week. This is not normal for a blockchain that is in top 25 cryptocurrencies, at the time of writing.
What is a 51% attack?
A 51% attack is a hard attack on a blockchain to manipulate and double spend the cryptocurrencies on the blockchain. It can happen because a herd of bad miners or other rogue actors, managing higher than 50% of hash rate (mining) of the network.
These rogue actors put a stop to new transaction from acquiring confirmations. Thus, permitting them to stop value transfer between users. Also, they possess complete control to reverse transaction with many confirmations over the network. This means they may freely double spend their cryptocurrencies maliciously.
Rogue actors will not be able to produce new coins into existence or modify old blocks. 51% attack only affects particular blocks at the point when the actual attack occurs.
Remember, it is not painless to attack an enormous network. It definitely requires a humongous amount of dollar spending and mining resources. A 51% attack will not demolish blockchain and the virtual currency wholly.
What is Ethereum DAO?
The Autonomous Organization that has Decentralization as its mission, is an intricate smart contract waiting to transform Ethereum forever. Building a VC fund on top of decentralization that will invest in future Decentralization Applications within the Ethereum ecosystem is a revolutionary idea.
It is a governance token. You can think of Maker (MKR) governance token that has control over DAI and DSR in the current world scenario.
Do you want to have some control in the direction Decentralization applications will take? Then, exchange your ETH to buy DAO token and get a say. Holding DAO tokens means you are an insider member of the decentralization ecosystem.
DAO has the best potential along with giving users the control and complete transparency that’s never seen before. People bought into the hype and excitement. While the cause is noble, no one anticipates what’s coming next. It quickly accumulates $150M in USD value of Ether in just 28 days of inauguration with a crowdsale.
How Ethereum Classic came into existence?
To drop out of DAO, a Split function comes into existence, which performs the same role as the exit door. This functionality enables you to get back your ether (ETH) or create your own Child DAO (Think of Reddit and subreddits). Sounds completely easy right? Yes, there is a catch.
There’s a rule in the smart contract. Once you pull out of the DAO, you need to wait 28 days to spend your ETH currency.
As with any other rules, people exploit rules by finding loopholes. On 17th June of 2016, someone did the same and looted 33% of the DAO total funds. At that time, it’s around $50M dollars in fiat currency. This loophole was an easy one to exploit apparently, most network security experts quoted, after the DAO hack.
Ethereum decided to hard fork and refund the addresses that lost funds to DAO hack. People who were against hard fork refused to change to the new blockchain and decided to remain in the old blockchain christening it “Ethereum Classic” or “ETC”.
First 51% attack on August 1
Ethereum Classic uses Proof of Work to mine its blocks and include transactions.
According to analysis from Yaz Khoury, the first attack took place in the early hours of August 1, when someone mined 3,693 extra blocks on the ETC blockchain.
Decrypt notes, Yaz put forward his thesis these new blocks may be generated when a bad miner lost access to internet for hours together, when he/she was continuously mining. Cutting off internet access means previous block information is not received properly. But, these miners are still able to produce invalid blocks, without the previous block information.
According to blockchain data company Bitquery, 807,260 ETC (worth about $5.6 million) was double spent. Victor Fang, CEO of Blockchain Ecosystem Intelligence Anchain.ai, confirmed that the attacker address belongs to the OKEx exchange.
Second 51% Attack within a Span of 5 Days
Bitfly on Twitter says the second attack occurred last Thursday morning. Binance’s alert system also quickly caught the attack. After hearing the news, Bitfly and behemoth Binance quickly had to halt ETC withdrawals and also deposits, just to be safe.
Today’s attack is the second 51% attack on ETC in just five days. The dollar amount size of the second attack is not estimate-able at this point. It will come out in a few days once the blockchain analytics firms dig in further.
I totally agree with Vitalik, after couple of proof of work 51% attacks in a short time span. Only after a chain has network effects and becomes huge, sybil attack is difficult to perform.
Bitcoin can afford to be on proof of work with its massive network but other smaller chains can be attacked with manipulation from miners. It is better to adopt Proof of Stake for smaller chains.
While attacks against more well defended blockchain are far less likely than the one potentially made against ETC, the event and subsequent investigation serve as a potent reminder that every system, however centralized or decentralized a blockchain is, has a weak point.
Blockchains are still in its early stages. DYOR before investing.