On the growing risk of the 51% attack against BCash Who should read this
Anyone that is holding any money, or cryptocurrencies on online exchanges, or know people who do. I repeat: any cryptocurrency. Disclosure
I am a BTC supporter. But I’ll try to explain everything technically and stay objective. Judge yourself. Background: What is Bitcoin and what is Bcash/Bitcoin Cash
Bitcoin is a cryptocurrency created in 2009.
Since Bitcoin grew in popularity, it eventually reached the orignal block size limit (data cap).
There was a big debate how to improve it, to be able to handle more transactions than the current 3-4 per second.
One side, formed mostly around developers and crypto-libertarians was concerned about security and wanted to take slower and more abitious road. All they wanted is a couple small changes to Bitcoin that allow building protocols on top of it: SegWit, but categorically opposed increasing data usage of Bitcoin, which would make it easier to censor and attack. This group is refered to as “Core” (Core Developers).
Second group was raddically opposed to any “fancy” improvements, and just wanted data usage increase. This group was formed mostly around Chinese Bitcoin miners, and handful of individuals, with rather shady reputation. I won’t go into details since I’m not objective. This group is refered to as “BCash” or “Bitcoin Cash”.
The third, formed mostly around business-people was concerned about making money.
They wanted business as usual: data increase at the cost of security to fix immediate problems, and “fancy” new features for the futuree. You could think of them as “moderate center”, but none of the previous groups were happy with them. This group is refered to as “Segwit2x” or just “2x”. (2x – double the block size (data usage))
The whole 2017 in Bitcoin was basically a political war between these groups, resulting in 3 Bitcoin versions (forks), each sharing the same history, to the point where they parted ways by changing some rules governing the currency.
Well, actually two forks. The last group: “Segwit2x”, without a proper software engineering support, failed to actually launch their fork, in a act of laughtable incompetency.
After the war and resulting forks, Core became the dominant group, with most of users, business and economical power behind them. For this and subtle technical reasons, their Bitcoin is “the Bitcoin”.
It retained the “BTC” and “Bitcoin” names.
The second group: BCash, struggled for a while, rescuing themselves from being abandoned by all Bitcoin miners by tweaking their mining difficulty rules. They were assinged “Bitcoin Cash/BCash name” and “BCH” symbol. In response to Core domination, they have launched a business and marking campaign, trying to convince everyone that their Bitcoin is “the Bitcoin”.
This series of tweaks used to rescue BCash, and the fact that it’s the minority coin, is the root of the problem that I am to describe: a risk of 51% attack. What is a 51% attack.
Any proof-of-work-based blockchain cryptocurrency works by miners constantly solving some difficult math puzzles to find a solution that allows them to append a block of transactions, and get a nice reward. Appending is the important part here.
Blockchains grow by miners appending new block to the longest existing blockchain.
Every attempt at solving a puzzle takes time and electricity. The rate at which puzzles are being tried to be solved is called “hashing power”.
The more hashing power you have, the more chances you will win a reward, but the difficulty of the puzzles adjust so the total rewards are given out at a steady pace. That’s why what matters is a relative proportion of your mining power to all the other miners combined.
It’s great to have a lot of hashing power since it pays a lot. But it is even better to have more hashing power than all other participants combined. (51% or more total) Why? Because you can travel the blockchain in time.
Imagine that blockchain looks like that: A – B
New blocks are being appended in order, with time: A – B – C
Now at some point, the miner with 51% hashing power decides to attack the network. It starts mining in secret: A – B – C D’
The rest of the network keeps mining the public and official chain since they are unaware of the new branch. A – B – C – D D’ – E’
but since the attacking miner has more hashing power, it guaranteed to append blocks faster and have its secret chain grow faster and stay longer. A – B – C – D – E D’- E’- F’
While this is happening, the attacker makes transactions on the public chain (eg. in block E) sending coins to many places: exchanges, stores, private parties. But the attacker does not include these transactions in the secret block it is mining ( E’ ). The attacker sells the coins transmitted in E and withdraws acquired goods and money.
What the public sees during the attack is: A – B – C – D – E – F
When the attacker is done with the attack it publishes its secret chain.
What public now sees is: A – B – C – D’- E’- F’- G’
Since G’ is longer, it is immediately considered a correct and the only valid chain.
That is the rule of the blockchain – the longest chain is the truth. The transactions in the block E never happened from the perspective of all the nodes in the network.
The attacker was effectively able to cancel some blocks, spend coins and get them back, and waste the work of miners in blocks C , D , E . It is going to take some time for everyone to notice, while the attacker can try to sell their coins one more time. After a while, the whole network is shaken since the chain can’t be trusted anymore. Why is it relevant now
Typically this is not a problem. It is very hard to gain a mining majority, and a disappearance of 51% mining power is visible and suspicious.
BTC miners are useless at mining LTC, so they are not a threat to LTC, and vice versa. Same for most other coins. But generally the more hashing power (in terms of money) a given cryptocurrency has, the harder it is to attack.
But there is an exception. BCash shares hashing algorithm with Bitcoin. That means any hashing power on the Bitcoin network can work on BCash network. And there is typically 10 times more miners mining on BTC, than on BCH because of the difference in the price and minning fees.
This disproportion keeps growing because of high BTC fees.
That’s exactly what Core is hoping for.
https://bitinfocharts.com/comparison/hashrate-btc-eth-bch-ltc-dash-sma14.html#3m
Recently major crytpocurrency exchange: Coinbase added BCash support Since there is another market trading BCash and the market depth has grown, the amount of potential targets and funds that can be stolen using such attack is getting bigger and bigger.
Also … it is probably not even illegal to carry such attack. Why would it? Under which jurisdiction? It is also hard to prove anything, and if enough trading is happening in the background it might be hard to tell who was lucky, and who was doing it.
I could go on and on into a variations of this attack and all possibilities, but it would long and technical. Math
Currently, Bitcoin miner is rewarded 12.5 BTC for mining the block plus 8 BTC in fees. That gives ~20 BTC every 10 minutes. At the price of $15K per Bitcoin that is $1.8M of dollar.