Coinbase Witnesses Potential Ethereum Classic Double-Spend Attack

A 51-percent attack on an established blockchain network has long been considered a black swan event. Such an attack is considered to be highly-expensive in both upfront costs (mining equipment) and on-going expenses (electricity or renting hash-rate). While this is not the first attack of this kind on a blockchain network, it certainly is for a cryptocurrency currently listed on Coinbase. Ethereum Classic is the smaller brother of Ethereum that appeared in the wake of the infamous DAO attack. During this attack, 3.6 million ether was stolen due to security vulnerabilities in code. At the time, the Ethereum community had to split into two. Ethereum (ETH) underwent a hard fork and returned the stolen ether to their rightful owners. On the other side, Ethereum Classic (ETC) appeared as the original and separate cryptocurrency. The community maintained a stance that “code is law” and that blockchains should remain immutable — no matter what happens.

The Double-Spend Scenario

Strangely, it was Coinbase that identified the block reorganization and an attempt at double-spending, which started on Jan 5. Coinbase estimates the total value of double spends until now at 88,500 ETC, which would be around $460,000. While the U.S.-based exchange did halt any interaction with the Ethereum Classic blockchain for its users, it took almost two days for the issue to surface. This case highlights how blockchains with weak communities might become prey to bad actors. As the bear market unfolded, more of ETC’s miners started switching off or switched to mining other cryptocurrencies. As a result, the network became vulnerable to 51-percent attacks. If this was indeed an attack and double-spending has occurred, the hacker may have gotten away with at least $180,000.

$ETC hackers have made off with at least $184k, net of costs. pic.twitter.com/aV0n4IDShi

— Greg Cipolaro (@GregCipolaro) January 7, 2019

Second-Case Scenario

At the same time, ASIC manufacturer Linzhi has been testing new machines for the mining algorithm — at least, this is what the official team behind Ethereum Classic is claiming. A spike in mining hash rate can indeed be observed in the charts. In this scenario, the network might not have suffered any damage, as the created blocks might be orphaned and no double-spending occurred.

To be clear we are making no attempt to hide or downplay recent events.

Facts are facts and as the situation develops we'll soon get a full picture of what actually took place.
Linzhi is testing ASICS. Coinbase reported double spends; both may be true.

In time we will see. https://t.co/bbq6eqIoiS

— Ethereum Classic (@eth_classic) January 7, 2019

As this situation is still developing, it is hard to deduce what exactly has happened. It might turn out that both scenarios have taken place. In that case, the damage to Ethereum Classic might be crippling — as the trust in its network security will plunge. Even more, miners will leave the network and its user base might continue to shrink at a rapid pace. Moreover, questions should be asked of Coinbase — which identified an issue with the network but hesitated to contact the developer team. Did Coinbase conveniently wait long enough to shield its interested parties’ holdings? Could a double-spend attack result in the de-listing of ETC from Coinbase? Let us know what you think in the comments below! 

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Image courtesy of Shutterstock, Twitter.