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Ethereum Classic suffers 51 percent attack, leading to almost $500,000 in losses. Ethereum Classic, originally itself a fork of Ethereum, sustained a 51% percent hack that rewrote its blockchain. Coinbase acknowledged this event yesterday.

The attack on Ethereum Classic occurred through a mechanism known as a rollback attack, which allowed attackers to reorganize the Ethereum blockchain, according to Mark Nesbitt, A Coinbase Security Engineer in a blog post. The attackers were then able to “double spend” about 88,500 ETC, meaning they were able to recover spent Ethereum Classic coins and transfer them to a new address. Effectively, the coins were transferred from the valid recipients to new recipients chosen by the hackers.

We observed repeated deep reorganizations of the Ethereum Classic blockchain, most of which contained double spends,” Nesbitt wrote. “The total value of the double spends that we have observed thus far is 88,500 ETC (~$460,000).”

Rollback attacks are known in the cryptocurrency industry as 51% attacks because, in theory, they require an attacker to control the majority of the CPU power generating a blockchain. Controlling 51% of the hash power grants you this majority. By controlling 51% of the hash power, it violates a core requirement of any blockchain-based currency – it allows a single attacker to write the contents of the universal ledger shared by the blockchain.

Nesbitt wrote:

The function of mining is to add transactions to the universal, shared transaction history, known as the blockchain. This is done by producing blocks, which are bundles of transactions, and defining the canonical history of transactions as the longest chain of blocks. If a single miner has more resources than the entirety of the rest of the network, this miner could pick an arbitrary previous block from which to extend an alternative block history, eventually outpacing the block history produced by the rest of the network and defining a new canonical transaction history.This is called a “chain reorganization,” or “reorg” for short. All reorgs have a “depth,” which is the number of blocks that were replaced, and a “length,” which is the number of new blocks that did the replacing.

In layman’s terms, a rollback attack creates a new fork of the blockchain. This causes nodes controlled by the attackers to replace the original blockchain with new transactions and makes it possible for attackers to reverse previously made transactions. Rollback attacks require control of a substantial fraction of the total hashpower, hence, 51% attack. Satoshi Nakamoto Warner of key limitations in his white paper for Bitcoin.

Coinbase paused all movements of affected ETC to prevent double spends from affecting its users.  Kraken Exchange temporarily halted ETC deposits and withdrawals and will bring ETC funding back online once the exchange determines its safe to do so.  ETC officials have confirmed that double spends are affecting the currency, but they have not released any further word regarding this matter.

What do you think about 51% attacks?  Do you hold any PoW coins?  Or do you forego them because of the potential for 51% attacks?  What do you think ETC should do now?  Should they hard fork to restore the blockchain?  Problems like these are why some believe legal compliance for exchanges is necessary.  Do you think this legal compliance will make cryptocurrencies safer?  Should cryptocurrency exchanges just comply?  Will it lead to mass adoption?  The Winklevoss Twins certainly think so.  What about you?  What do you think?  Do you think more regulations will bring on better market conditions and have institutional money flooding in?  Let us know on our Facebook Page!

 

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