Double spend attacks in Crypto
Recently there was a double spend attack (specifically a 51% attack) on the ETH Classic Network. For those newer to Crypto and ETH, there was a fork (a split) that created ETH Classic after a disagreement occurred in the community in 2016.
A piece of software (called a smart contract) written on top of ETH had an exploit that wasnt fixed fast enough, resulting in at the time $50m USD being taken from an account owned by a venture capital fund.
This resulted in the majority of the ETH community agreeing to “reverse” the transaction, returning the stolen funds while the developers of the smart contract fixed the error. However not everyone agreed, as a strong philosophical debate within crypto centers around immutability and even this very strong case for doing so did not sway everyone.
So today we have ETH and ETH Classic, respectively $15.1b and $.488b in total market cap. Apparently enough people stayed with ETH and continued its development for it remain the 2nd most valuable cryptocurrency outside of Bitcoin which sits today at $68.6b.
So as previously mentioned ETH Classic has recently been under a double spend attack, however to say that cryptocurrency itself was hacked is at best a misnomer.
What actually has happened in these cases isthat a blockchain was attacked (or “hacked” if we use those words) with more than 51% of the nodes (computers) controlling the blockchain have been taken over (or likely added to the network) by a malicious actor(s).
Attacked by someone who is purposely trying to control the blockchain for their own benefit. However that usually doesnt work in their favor, as we’ll go into.
It’s a rare and expensive scenario where the equipment to do so for any reasonable project would be very expensive to buy (somewhat more economical to rent if you were able). In fact, to my knowledge, I believe it’s only happened 3 times to Bitcoin Gold (a fork of Bitcoin), Vertcoin and now ETH Classic.
If you want a great in-depth analysis of double spending likelihood happening for BTC or ETH, this is a great read.
What is actually occurring is you have 51% of the “miners” (specifically the hashrate, as not all miners have the same “mining power”) of the project saying that they have participated in a transaction that the other 49% would disagree with, because it actually has not happened. They basically “printed” themselves the currency twice, instead of the normal mining awards or transactions that were occurring already.
It’s a voting system fundamentally. Now this does not mean that the previous transactions have disappeared or have somehow been erased or changed. In effect they are only saying that from that particular Moment In Time they now decide how transactions occur.
To go back to my previous point this is very difficult to do and very expensive but it is not impossible. All of these double spend attacks occur in networks that do not have sufficient decentralization, newer technology to prevent this from happening or a sufficient hashrate of the current miners to make this economically unfeasible (linked to decentralization).
Also every transaction can be tracked, so it wouldnt be hard to see when and where a double spend occurred and to block those coins on an exchange or a wallet update.
Also, because they are directly affecting the value of the blockchain they are attacking, economically it typically doesn’t make sense in the payoff for the attacker nor does it make sense in the amount of capital it would take to pull off the attack.
Fundamentally this does not help the person making the attack other than to do so as a proof of theory, the financial gain would be minimum and could cause the coin itself to be abandoned.
Coinbase and other exchanges have been able to mitigate these attacks and I’m sure newer solutions are in the works to further protect less popular coins, who do not have the needed decentralization or hashrate to help avoid these issues.
In short double spend attacks typically happen on semi abandoned projects with low use cases, low centralization and lack of solutions to make those attacks harder.
I hate to bring up more modern-day examples but there have been hundreds of bank failures and countless printing of fake money in the past 10 years, for some reason we’re all still using the US dollar as a basis of our currency.
Thank you to @ Corey Petty for reviewing the facts, my horrible English and grammar.
Gilbert A Darrell is the Founder of Horizon Communications. He has 18 years experience in information technology and telecom solutions, a veteran in Fire and EMS Services, A member of the Bermuda Fire Service Advisory Board, a crypto enthusiast and a member of the Bermuda Government’s Cryptocurrency Task Force.
Horizon Communications is an upcoming fixed wireless internet and cellular service provider looking to provide services in Bermuda, the Caribbean, and Central America before expanding internationally, utilizing 4th generation and soon 5th generation wireless technology.