Ethereum Classic Suffers 51% Attack, $ 1.1 Million USD Stolen.

On January 5, 2019 the Ethereum Classic Blockchain was altered, there was an entity that spent the same coin twice 12 times, stealing $ 1.1 million. This fraud is the result of a limitation in the Proof Of Work system that allows the Blockchain reorganization. This article explains what this failure consists of, how the call works 51% attack and what happened to the Blockchain of Ethereum Classic.

In a traditional electronic system, the way to prevent a user from transferring the same currency to two different clients is to have a trusted authority monitoring movements. Nowadays, banks ensure that all users spend their money only once.

Conversely, Bitcoin works with a decentralized system in which, the consensus of the nodes replaces a central authority. This system is protected by the cryptography and is based on the game theory, which consists of designing a system in which participants obtain more benefits when they follow the rules than when they break them.

To ensure that users do not spend the same resource twice, Satoshi Nakamoto designed a confirmation system in which, users called miners are dedicated to checking that each transaction is correct and when it is, they vote in favor of this transaction being approved.

Every Bitcoin transaction is recorded on the Blockchain, which is a chain of Blocks and Blocks are a set of transactions. For a Block to be generated, miners from all over the world must democratically approve its creation.

For this system to work properly, I know requires at least half of the miners to act honestly when approving blocks. Failure in this requirement, breaks with many of the guarantees of the Bitcoin protocol and of many other cryptocurrencies that follow this model, such as; Ethereum Classic.

Gasto doble 1
Blockchain Reorg

In order to hack into this system, it is necessary that a single user or entity owns more than 50% of the computational power of the network in order to vote in favor of the creation of Blocks that are not authentic, this is a weakness of the Proof-Of-Work system (work test). For more information click here.

When someone has more than 50% of the power may:

  • Modify the order of transactions.
  • Reverse your own transactions.
  • Make the same currency transaction twice. Double spending a currency whose transaction has been previously registered on the Blockchain.
  • Reverse the confirmations of each transaction that has been registered in the Blockchain.
  • Prevent other transactions from getting confirmations.
  • Prevent other miners from generating valid blocks.

The attacker cannot:

  • Reverse other people’s transactions without their cooperation, unless the history of the coin is affected by double spending.
  • Change the number of coins generated per block.
  • Generate coins from scratch.
  • Send coins that never belonged to you.

This situation is called “Blockchain reorganizationOr simplyReorg”.

On January 5, 2019, it was detected that the Ethereum Classic (ETC) cryptocurrency Blockchain had deep reorganizations. The team of Coinbase studied this situation thoroughly, suspended the Ethereum Classic exchange so as not to put its users at risk.

“Coinbase takes security very seriously. As part of that commitment, we monitor Blockchains for activity that may be harmful to our users and we take prompt action to safeguard funds.” Release from Coinbase.

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Status of CoinBase.com

On 12 different occasions, different users spent double between 600 FTE and 51,000 FTE, for a total of 219,500 ETC, equivalent to $ 1.1 million. If you want to see the details of these reorganizations, click here.

The addresses of the hackers are known. However, due to the anonymity feature that cryptocurrencies have, It is not possible to link these addresses with particular people, unless they withdraw their funds, only then will more information about these users be obtained.

ETC reorg
The ETC Price chart on January 6 and 7, 2019. Retrieved from: Coinmarketcap.com

This failure can be prevented if the crypto community gets organized. Institutions like Coinbase are taking independent security measures and developers are working on making algorithm improvements to mitigate this risk. This situation could have havoc on the price of Ethereum Classic, as it is possible that many users withdraw their funds from this network.

The Ethereum Classic network is not as big as the Bitcoin network. For this reason, one group was able to win a majority. But nevertheless, the Bitcoin network is so large and powerful that it is almost impossible for a single entity to gain more than 50% of the power and for this reason it is a highly secure network.

In addition, Bitcoin has a alert system. If a person detects an error, he can launch an alert that alerts the entire network of users.

There were one or more malicious users who found a way to hack into the system. But nevertheless, There were also people who spotted the bug and the community is working to reverse it. The decentralization and teamwork of the global network are what keeps cryptocurrencies safe and what allows them to continue to function.

The urgency to solve this problem, pushes the developers to generate solutions and that is how in the end, the error makes the system improve.

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Ethereum Classic Suffers 51% Attack, $ 1.1 Million USD Stolen.

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