Ethereum Classic Security Exposed
Analysing the Security of Proof-of-Work Blockchains
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Bitcoin and Ethereum Classic are both secured by proof-of-work (PoW) mining. But how confident a user can that their transaction will not be reversed after entering these chains differs dramatically.
Two 51% attacks were recently carried out on the Ethereum Classic blockchain which resulted in over 8,000 blocks being reorganized. Users and miners suffered as previously confirmed transactions were reverted and miners lost block rewards.
In this Difficulty Adjustment release, we analyse the most important factors underpinning PoW security. We highlight how the Ethereum Classic network was vulnerable to and detail the two 51% attacks which were carried out on the chain. We also detail developments in the demand-side of the Bitcoin market and the latest proposals for changes in the November Bitcoin Cash upgrade.
The HASHR8 podcast is back! The first episode back is with the one and only Leo Zhang. Zhang discusses his recently released research – “The Alchemy of Hashpower”.
After the recent run-up in altcoin prices and Ethereum Classic being 51% attacked twice, it seems like the right time to discuss the level of security provided by proof-of-work (PoW) mining. The cost accumulated in PoW mining can be considered to be the budget for securing a blockchain.
In this piece, we will discuss some of the key pillars underpinning this security budget. We will also detail the recent 51% attacks and highlight how the PoW securing Ethereum Classic is vulnerable.
PoW Mining as the Security Budget
The cost to reverse a transaction increases as more PoW mining accumulates. As a transaction moves deeper in the blockchain, it becomes more costly to reorganize (reorg) that chain and double-spend the transaction.
This increases the user's confidence that a transaction is settled. As more PoW cost accumulates, the confidence level increases but it can never reach 100% as there is always the possibility that a chain can be reorged.
(Source: Medium.com)
But how deep a transaction is in a given blockchain doesn’t matter if we are comparing chains with different mining algorithms. What matters is how much cost accumulates to get the transaction to that point in the chain. For instance, it currently takes one day and one hour for a transaction in Litecoin to accumulate as much cost as a transaction in Bitcoin with six confirmations.
ASIC Mining vs. GPU Mining
The type of hardware used for mining also has important ramifications for security. GPU mining is often touted as a benefit for decentralization due to this hardware being more widely accessible to the “Average Joe”.
But what GPU mining advocates often miss is that miners using repurposable rigs lack the “hardware loyalty” that ASIC equipment instils in its owners. When rigs can be reprogrammed for different purposes, miners can act against the long-term interests of a network for a short-term profit without the repercussion that their hardware will lose value.
In the case of ASIC mining, rigs can solely be used for mining the algorithm they are designed for. This serves to align the interests of the miner with the long-term health of the network. If they act against the interests of the network, they risk their hardware becoming worthless and losing the value of their capital investment.
As ASIC miners have their balance sheets closely tied with the value of their specialized hardware and the coin it is mining, their incentives are closely aligned with those of the network. Another critical security variable is how much the hardware which is actively mining on a network represents of all mining hardware which can effectively be deployed on the network.
In the case of Bitcoin, it currently holds about 96% of all computing power deployed on SHA256 mining algorithms. A small fraction of this hashrate could be redirected to attack small SHA256 chains such as Bitcoin Cash and Bitcoin SV.
For networks which are dominantly secured by GPU hardware, their security will always hold a caveat. There will always be a huge amount of GPU hardware in the market and only a small fraction of this will be used for mining at any given time.
$5.6 Million in ETC Double Spent
Ethereum Classic came into existence in the aftermath of the infamous DAO hack of 2016. As Vitalik-and-co. decided to fork the Ethereum blockchain and retrieve the funds lost to the DAO hack, a small community stuck to the original chain which was baptized as Ethereum Classic.
As the years progressed, the support behind Ethereum Classic waned and the hashpower has typically been less than 2% of the hashrate deployed on Ethereum. The dwindling support for Ethereum Classic and low hashpower deployed on the chain left the chain vulnerable to attacks. At the time of writing, a transaction in Ethereum Classic requires 3 days and 12 of mining to accumulate as much cost as one hour of Bitcoin mining.
Over recent weeks, the lower hashpower deployed on Ethereum Classic was exploited with two 51% attacks resulting in 807k ETC ($5.6 million) being double spent. On July 31st, a miner with the account address 0x75d1e5477f1fdaad6e0e3d433ab69b08c482f14e privately built a longer chain which catalyzed a 3,693 reorg of the Ethereum Classic blockchain.
The second attack on August 8th resulted in a 4,236 reorg which double spent ~$3.3 million worth of ETC. The attacker also benefited from earning the block rewards of the reorged chains.
An analysis by Bitquery indicates that the hashrate was likely rented from the marketplace NiceHash due to a spike in prices around the time of the attacks. The below graph shows spikes in the price of DaggerHashimoto hashrate which can be used for mining Ethereum and Ethereum Classic.
(Source: Nicehash.com)
Security Limitations of Insufficient Hashpower & GPU Mining
The Ethereum Classic incidents effectively highlight key security limitations associated with insufficient hashpower and also GPU mining. Given the low hashpower levels on Ethereum Classic, it was possible for the attacker to discreetly acquire over 50% of the hashrate and privately build a longer chain.
Accumulating over 50% hashpower on large PoW networks like Bitcoin and Ethereum would certainly not be carried out discreetly. In the case of Bitcoin, any profitable rigs are almost certainly deployed so an attacker would need to convince miners who are currently profitably operating to sell their rigs or redirect hashrate.
In the case of Ethereum Classic, it was possible to rent sufficient hashpower to attack the chain on a single marketplace. Only a small fraction of the total hashrate mining on Bitcoin and Ethereum would be available on such marketplaces.
Furthermore, to procure SHA256 hashrate requires specialized ASIC hardware. As miners are currently struggling to secure such hardware, it would be even more difficult for an attacker to discreetly accumulate the necessary equipment. Those networks being dominantly mined by GPU rigs such as Ethereum and Ethereum Classic are more susceptible to attack given the vast amount of GPU hardware in the world.
What Miners are Monitoring
Bitcoin Cat Proposal. It’s that time again. The Bitcoin Cash chain may split at an upcoming upgrade as the head of ViaBTC mining pool Haipo Yang proposed significant changes to the protocol. Yang envisions a new chain called Bitcoin Cat forking at the upcoming November 15th upgrade. The Bitcoin Cat proposal considers incorporating many changes including adjusting the block time, altering the difficulty adjustment algorithm, changing the mining algorithm, and potentially allocating some of the mining rewards to fund development. The Bitcoin Cash community committed to a bi-annual schedule of upgrading via a backwards-incompatible hard fork but this schedule has sparked contentious splits such as the creation of Bitcoin SV. Some of the changes the lead developers of Bitcoin Cash ABC intend to make in the upcoming upgrade include allocating 8% of the block subsidy to a specified address.
Bitcoin Demand-Side. Institutions involved in major Bitcoin purchasing activities have recently been receiving attention. In their Q2 report, Square Crypto revealed that they spent $858 million buying Bitcoin over the second quarter. This is a significant jump from Q1 which reported $299 million in BTC purchases.Nasdaq-listed MicroStrategy also announced that it recently purchased 21,454 Bitcoin (worth roughly $250 million) as part of a new alternative investment strategy.
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About HASHR8
Mining is the misunderstood heartbeat of blockchain technology. It fuels multi-million dollar IPO’s and drives institutional investors to big datacenters; it’s infrastructure is the subject of speculation and skepticism. Our global reach helps us demystify and broadcast the thoughts of industry leaders, and keep research firms, investors, and consumers up-to-date on trends and insights.