Coinbase cryptocurrency exchange says it has paused the trading, sending, withdrawals and deposit of Ethereum Classic [ETC] token after it noticed signs of a 51 percent attack on the ETC blockchain.
In a blog post to its customers, Coinbase explained that it first noticed a deep chain reorganization of the Ethereum Classic blockchain that included a double spend on Friday Jan. 5. The exchange change subsequently suspended ETC transactions as investigations into the incident was ongoing.
What is a 51% Attack?
Blockchain operates on a principle of decentralization. What makes a blockchain immutable and secure is the fact that no single party has the majority computational power to independently influence decision on the network. Now, for anyone to successfully ‘hack’ a blockchain, that person must control 51 percent of the computational power available to the blockchain. This known as a 51 percent attack.
When this happens, the person can tamper with the blockchain records, rearrange blocks and perform fraudulent activities like a double spend—that is reverse transactions that were already completed.
In the blog to its customers, Coinbase explained that “Honesty” was a prerequisite for security of Proof of Work blockchains citing a section of Satoshi Nakamoto’s whitepaper that read:
“If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains.”
If confirmed, Ethereum Classic will become the most high-profile cryptocurrency to suffer such an attack. It is widely believed that a 51% percent attack practically impossible against a major cryptocurrency network will many miners and a huge market capitalization.
Smaller blockchains that have been affected by a such an attack in the past are verge, Bitcoin Gold, Litecoin Cash, Verticoin and ZenCash (now Horizen). Ethereum Classic is currently a top-20 cryptocurrency with a market cap of over $500 million.
What is a Chain Reorg
When a malicious player gets hold of a blockchain through the 51 percent attack, they can pick an arbitrary mine block and start mining new blocks on it thereby creating an alternative block history. This is known as chain reorganization (or chain reorg) and can allow the person to double spend coins.
Coinbase said it already observed double spends of 219,500 ETC tokens (valued at about $1.1M).
Response to the Incident
The Ethereum Classic core team, in its response to the unusual activities said it was investigating with the help of blockchain security firm Slow Mist. It also advised crypto exchanges that support ETC to increase block confirmations times.
Ethereum Classic tweeted:
“We are now working with Slow Mist and many others in the crypto community. We recommend exchanges and pool significantly increase confirmation times.”
The team suggested that it might not be a 51% attack as thought but a selfish mining noting that ASIC manufacturer Linzhi confirmed testing of new 1,400/Mh ethash machines. According to crypto new outlet Coindesk, a representative categorically denied the claims.
Linzhi Shenzhen director of operations Wolfgang Spraul was quoted as saying:
“If we would test our ASICs, we would never do that on any mainnet, we would do that on a testnet or a private net. We would most likely invite independent industry figures like David Vorick or Anthony Lusardi to observe what we are doing.”
As Coinbase suspended ETC transactions, another mining giant Bitfly, announced that it was temporarily increasing the block confirmation times. Bitfly later confirmed that it was a successful 51 percent attack on ETC affecting more than 100 blocks. Kraken also increased the confirmation times for ETC deposits while Poloniex disabled ETC wall wallets for the time being.