The Truth About 51% Attacks; The ETC Story
Because of recent events, the community is abuzz with the effects and after effects of 51% attacks. For those of us who are uninformed, the Ethereum Classic coin, recently, faced a 51% attack that was pointed out by Coinbase. A lot of people believe that a 51% attack is a game-over scenario for cryptocurrencies.
However, this is hardly the case. Before we get into the details, let’s get the basics right.
What is a 51% Attack?
A 51% attack is an attack in which a mining pool or a group of miners take control of a network by controlling more than 50% of it. In other words, when a group of miners get over 50% control of a network, it is called a 51% attack. This is because they can essentially control the network from then on.
This mining group can prevent transactions from going through, can modify transaction records and further make false double spending claims. They prevent new transactions from going through by making sure that they do not get confirmation and similarly give multiple fraudulent transactions confirmation.
The 51% attack is a theoretical attack that was prophesied about for the Bitcoin network. However, such an attack taking place on a coin of Bitcoin’s stature is extremely unlikely.
What Happened With ETC?
Ethereum Classic, one of the more popular varieties of cryptocurrencies in the market, recently was faced with a similar situation. A mining group managed to take control of more than 50% of the ETC network and did all the things expected out of a 51% attack. That is; prevent transactions from getting confirmation, rampant double spending and more.
In the case of ETC, the mining group spent thousands of ETC on a variety of exchanges like; Bitrue, Gate.io and Coinbase.
The irony of the entire situation was that the fact that such a situation had taken place had to be pointed out by an exchange. And the exchange was one of the biggest exchanges in the industry; Coinbase.
Coinbase announced on its Twitter that it detected an attack on 5th of January. After having detected that there was an attack, the exchange froze all movements temporarily. Here is the tweet;
On 1/5/2019, Coinbase detected a deep chain reorganization of the Ethereum Classic blockchain that included a double spend. In order to protect customer funds, we immediately paused movements of these funds on the ETC blockchain. Read more here: https://t.co/vCx89dz44m
— Coinbase (@coinbase) January 7, 2019
While there was quite a bit of speculation on who figured out the attack first, most of the blow was taken by Coinbase. On the Coinbase platform, the mining pool had managed to spend 219,500 ETC.
Was There An Effect on The Coin?
Having had its network compromised, quite a lot of people wanted to know how the cryptocurrency market was faring, post the attack. But to everybody’s surprise, the coin is doing quite well. In fact, a lot better than was expected from it.
The coin has maintained its performance and is currently trading at $4.55 USD. The coin took a slight fall after the attack, but it lost only half a dollar. So that is not too bad for the coin.
The exchanges, however, were the worst affected in the entire scenario. The exchanges identify the attack and bare most of its brunt too. Like Coinbase absorbed most of the damage that happened because of the ETC 51% attack. In which the mining pool spent more than $1.1 million USD worth of ETC.
Moral of the Story
The moral of the story in this particular case and for all future 51% attack is that the trader walks away unharmed. In other words, no matter how big the attack, the trader is seldom affected by a 51% attack. It is, rather, the exchanges that bare the brunt of the entire situation.
The ETC 51% attack brought about a lot of discussion on what will happen if and when the same happens to the bigger coins in the market. But the truth is that it makes no sense for a mining pool to take over the network of a coin like Bitcoin because the kind of initial investment that needs to be put in is astronomical and it would be close to self-destructing for the mining pool.
So there is actually very little to worry about. Because to start with, it makes no financial sense to want to take over the network of a coin like Bitcoin and furthermore even if it does happen, it’s the exchanges that need to be worried, not the investors.