One of the most-feared quirks of cryptocurrencies is becoming more of a headache.
Over the past few weeks, rogue operators of some of the computer networks that perform the complex calculations that verify transactions for various coins are attacking their own networks again. This time it’s Bitcoin Gold, an offshoot of the most widely known form of digital money, with a $729 million market capitalization.
Such 51 percent attacks, in which so-called miners gain control of the majority of the network’s computing power to falsify transactions, are generating ill-gotten gains that risk collapsing the value of the coins. Under attack for more than a week, Bitcoin Gold is down 26 percent since May 18.
Similar attacks have targeted Verge, Monacoin and Electroneum, according to Autonomous Research LLC. To gain power over a coin with a market cap of $500 million, an attacker may need to spend as little as $778 an hour, according to Autonomous.
After all, many of these smaller coins -- and there are now more than 1,600 of just the major ones -- have ballooned in value, becoming valuable targets for criminals. Some bad actors also may want to torpedo one coin to boost the value of another, Spencer Bogart, partner at Blockchain Capital LLC, said in an email.
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The stable of miners supporting many of these coins is still small, so reaching that 51 percent threshold is relatively inexpensive, especially now that manufacturers like Bitmain have begun putting out more powerful and less expensive mining machines that produce more coins. Earlier this year, Bitmain said it’s created machines capable of mining Bitcoin Gold, creating an uproar among some of the network’s users.
"Infrastructure with small communities is fragile, and unless private, has no network effects," Lex Sokolin, global director of fintech strategy at Autonomous Research. "But the irrationality of the markets recently have priced everything -- altcoins, ICOs -- highly, which means that the reward to hacking has increased. This creates a fertile ground for more bad actors across the industry, from hacking to phishing to 51 percent attacks."
To make it harder to execute an attack, Bitcoin Gold plans to upgrade its network software via a so-called hard fork. It’s also tweaking its algorithm, to make it harder for computers -- which can easily gain and aggregate network power -- to mine its coins. Many coins are also working toward getting rid of miners altogether.
“It will offer more protection for the simple reason there’s less power out there configured to mine on the algorithm we are planning to use vs the algorithm we have now,” said Edward Iskra, a spokesperson for Bitcoin Gold.
Some of the smaller networks also may not have as many developers working to fix their bugs and defend their networks. The Bitcoin Gold attack targeted exchanges that didn’t do enough checking of their customers before letting them trade large amounts of funds.
"In many ways, these attacks are inevitable,” Bogart said. “It’s the equivalent of leaving a vault unlocked but still expecting it to secure valuable assets.” - Bloomberg