Possibility of ‘materialization of 51% attack’ on cryptocurrency based on blockchain has gotten higher. Although top cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) are safe, it is seen that most of upcoming cryptocurrencies that use equal amount of resources for mining as top cryptocurrencies are exposed to outside threats.
While South Korean companies continue to issue coins and carry out ICO (Initial Coin Offering) through PoW (Proof of Work) method, it is expected that there needs to be reexamination on ‘safety’ of blockchain.
51% attack refers to when a particular group or an individual owns more than half of computing hashing power within blockchain network and falsifies or forges records of ledgers. It is a method that existed theoretically even when Bitcoin concept was introduced for the first time.
However, it is considered as an impossible technology due to enormous mining pools that are established globally. Reason why Satoshi Nakamoto, who is seen as the creator of Bitcoin, considered economic compensation system through cryptocurrency was because he wanted to protect blockchain network from 51% attack.
However, this treat has become reality when some upcoming cryptocurrencies such as Bitcoin Gold, Litecoin Cash, and Monaco Coin were victims of 51% attack in May. According to a paper written by Founder Husam Abboud of PDB Capital, it only costs $1.5 million to attack Ethereum Classic that is listed at major exchanges in South Korea and other countries. Ethereum Classic has market capitalization of $1.6 billion and is ranked 15th based on market value. There are even sites (crypto51) that calculate costs for 51% attack on each major cryptocurrency.
“51% attack on Bitcoin or Ethereum can be possible just by converting extremely small amount of coins out of enormous hashing power that was introduced to Bitcoin or Ethereum.” said Professor Kim Yong-dae of KAIST (Korea Advanced Institute of Science and Technology). “Basically, every PoW method-based cryptocurrency that has small size of mining is exposed to 51% attack.”
Miners that are successful with 51% attack can make double payments that carry out two transactions at the same time into blockchain network. While continuing to mine on one hand, they cause transactions on other hand and pocket money through exchanges. Current records of ledgers that were established from other participants become neutralized.
Besides direct financial impact from miners, new cryptocurrencies can also be affected by decrease in credibility. After being affected with falsification and forgery even once, it is difficult for them to prevent participants from leaving and values of their coins from dropping. Major South Korean exchanges such as Bithumb, Upbit, and Coinone elevated number of steps of confirmation of deposit of some cryptocurrencies as a countermeasure after occurrence of 51% attack.
Staff Reporter Park, Jungeun | jepark@etnews.com