The Threat of the “51% Attack” on Cryptocurrencies

What was once just a theory surrounding cryptocurrencies has proven reality as a so-called “51% attack” hit Bitcoin Gold (BTG) earlier this month. As Bloomberg reports, this type of attack is so named because it is the result of rogue miners gaining more than half of the mining power for a given coin. The result is the ability to falsify transactions on the public ledger and even spend coins more than once. While Bitcoin Gold is currently seeing its value fall as a result of the hack, could this be reason for other currencies to worry?

Doing some investigating on the Bitcoin Gold attack, Bitcoinist produced what they believed to be the Bitcoin Gold address of the hacker. In all, they observed 76 transactions made using that address. Given the price of Bitcoin Gold at the time of the fraudulent transaction, the site estimates that the hacker made off with around $18 million.

Bitcoinist went on to explain what they believe to be the hacker’s scheme, saying, “The attacker sends a particular number of BTG tokens to an exchange, trades them for another coin and makes a withdrawal. The hacker then returns those same coins in his/her wallet, hence the double-spending problem. Thus, the attacker can spend and hold the same coins at the same time.” However Bitcoin Gold communications director Edward Iskra says that regular coin holders were not affected, noting, “There is no risk to typical users or to existing funds being held. The only parties at risk are those currently accepting large payments directly from the attacker. Exchanges are the primary targets.” Despite that, Bitcoin Gold has lost nearly a quarter of its value in the past two weeks, falling from a $1 billion market cap to around $750 million.

In reaction to this attack, Bitcoin Gold plans to make a few changes that will hopefully prevent future incidents of this nature. For one a hard fork is planned for the currency so that it can upgrade its network. Additionally changes will be made to the BTG’s algorithm in an effort to make mining more difficult. Iskra explained how this algorithm fix will help, saying, “It will offer more protection for the simple reason there’s less power out there configured to mine on the algorithm we are planning to use vs the algorithm we have now.”

Unfortunately Bitcoin Gold isn’t the only currency that’s seen these types of attacks come to fruition. In fact Verge, Monacoin, and Electroneum have all experienced similar hacks in recent weeks. That said it’s still unlikely that bigger currencies like Bitcoin proper, Ethereum, and others would be hit by 51% attacks based strictly on the size of their networks and number of miners. Still this string of hacks is just another issue currently plaguing the crypto space at a time when regulators are taking a hard look at these types of currencies.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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