One of the core problems solved by cryptocurrencies is the double spending problem. It is a notorious hurdle for any digital currency concept. Cryptocurrencies like Bitcoin and Ethereum solve it by recording all transactions on a public blockchain whose copies are maintained on various nodes in the network. Moreover, the data in the blockchain cannot be altered without consensus from a majority of the network.
This mechanism ensures the integrity and validity of all transactions as it is very difficult for attackers to gain control over the majority of the network. But what if the attackers are able to do just that?
The latest events in the Ethereum Classic network might shed a light on the impact of such an attack.
Coinbase, the largest cryptocurrency exchange in the US, detected a deep chain reorganization of the Ethereum Classic blockchain on Jan 5. The exchange immediately halted sends and receives of ETC at 09:26 PST on Jan 6, to protect its customers’ funds.
The ETC network was seemingly hit by a 51% attack, also known as a majority attack. When attackers gain control over more than 50% of the network, they can make lasting changes to the blockchain and siphon away funds in the process.
For example, the attackers can register two transactions of 100 ETC each to different addresses from a wallet containing only 100 ETC, enough for just one such transaction. Normally, such a double spending transaction would automatically fail. But in this case, the attackers can add it to the blockchain since they control the network. Thus, they can commit double spending while they maintain control over the network.
The first deep chain reorganization detected by Coinbase also included a double spend. At this point, it seemed that the ETC blockchain was evidently under attack. However, the official account of ETC team tweeted, “There have been rumors of a possible chain reorganization or double spend attack. From what we can tell the ETC network is operating normally. BlockScout's ‘Reorg’ section shows nothing of the sort. https://t.co/Yi2cXusCz9”
Furthermore, Coinbase detected 8 more chain reorganizations in the subsequent hours. The total double spends amounted to 88,500 ETC (~$460,000) by the time they published their blog post.
The figure was later updated to 219,500 ETC (~$1.1M) with 12 more chain reorganizations occurring up till 10:27 PM PT on Jan 7. As of now (1:30 AM PST, Jan 8), the Ethereum Classic is shown to be 'Under Maintenance' on the Coinbase status page.
Meanwhile, the ETC team is investigating into the matter stating, “We are working with Slow Mist and many others in the crypto community. We recommend exchanges and pools significantly increase confirmation times (400-4000+).”
This attack sheds light on the well-known problem of maintaining the integrity of the blockchain for cryptocurrencies to function reliably. Cryptocurrencies are only secure until the blockchain data is not corrupted via any attacks.
The Ethereum Classic token has taken a significant hit since the attack as its market cap has fallen by almost 6% in since the discovery of the attacks.
Notably, almost all cryptocurrencies are vulnerable to a 51% attack and the current events do not necessarily mean Ethereum Classic contained any special vulnerability.