Recently we’ve seen two 51% attacks on Verge (XVG) and one on Bitcoin Gold (BTG). It basically means that one party had control over these Proof-of-Work coins, making it possible to put fraudulent transactions on the blockchain and for instance double spend coins. This can be very profitable! It is estimated that in this way, the attacker had extracted $3.5 million worth of XVG (two attacks combined) and in the case of BTG $18 million was double spent.
In order to be able to conduct a 51% attack someone must own or rent enough mining power to have 51% or more of the hashrate and use it to control the network. Based on the characteristics of the current state of the network hashrate, it is possible to calculate costs of having control over a network. This is what researcher Husam Abboud has done.
One week ago, it would have cost you around $2.27 billion per day to run a 51% attack on Bitcoin (BTC), around $3.22 billion per day on Ethereum (ETH) and $449 million per day on Monero (XMR). Those numbers are quite high and I don’t think that is an interesting investment for anyone.
But, apparently the Verge and Bitcoin Gold 51% attacks were interesting enough to perform. It is estimated that a 51% on BTG only would cost around $200,000 per day. That is pretty cheap and dangerous!
Small Proof-of-Work coins (with a low hashrate) are more and more at risk. Miners can switch to mining a different coin without letting anyone know upfront. This decreases the hashrate of the previous coin, leaving it more vulnerable to attacks. Also, the hashrate of the big coins are so much higher than the hashrate of the smaller coins. When a few % of the mining power of a big coin switches to the small coin, they can take over that network.
Besides the obvious incentives of for instance double spends, of course the attacker could combine the 51% attack with shorting the coin on the market. And even combine that with a leveraged trading strategy of x10 or even x100. When the attack is happening, people lose trust in a coin, therefore might sell it and the price will go down. Short positions will profit!
Anyway, some serious concerns here. Will we see more 51% attacks in the near future? Will PoW projects increase the numbers of confirmations needed for a transaction? Will this result in more popularity for the Proof-of-Stake consensus mechanism?
I guess we’ll have to see how this all plays out. What are your thoughts on the matter?
Interesting reads on the subject:
- https://medium.com/@HusamABBOUD/rindex-the-robustness-index-87cdcf284faf
- https://medium.com/@HusamABBOUD/the-realistic-lucrative-case-of-ethereum-classic-attack-with-1mm-today-8fa0430a7c25
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Disclaimer: I am not a financial advisor, trader or developer. I am just a blockchain & cryptocurrencies enthusiast. Make sure you do your own research, draw your own conclusions and do not invest any money that you cannot afford to lose.