Cryptocurrency Exchanges Are the Biggest Targets of 51% Attacks

A 51 percent attack occurs when a single entity owns over half of a cryptocurrency’s hash rate or mining power, giving them the ability to reverse the blockchain to a prior state for self-gain. A few years ago, when the cryptocurrency industry was still largely nascent, 51 percent attacks were only theorized and never actually witnessed.

However, the onslaught of new digital currencies since late 2016 has resulted in several blockchain networks having a relatively tiny amount of total hash rate. As a result, smaller, less valuable cryptocurrencies such as Verge (XCG) have been repeatedly exploited.

Once an attacker gains control over a majority hash rate, they can reverse recent transactions by mining a completely different block and recording it to the blockchain. In technical terms, this is known as a ‘double spend.’

Exchanges Worst Affected?

Digital currency exchanges are perhaps the biggest targets of 51 percent attacks, according to Haseeb Qureshi, a general partner at the MetaStable Capital cryptocurrency hedge fund. Since these companies allow users to trade a certain cryptocurrency token for another, or even fiat currency, an attacker could liquidate a certain amount of tokens and immediately dispense the same tokens to themselves or another wallet.

Qureshi explained in his Twitter thread,

Hence, exchanges are the primary targets for 51% attacks.

Almost every realistic 51% attack will go as follows: deposit crypto on exchange -> withdraw to other chain / USD -> revert original crypto deposit. The attacker has now 2Xed their money.

— Haseeb ＞|＜ (@hosseeb) January 9, 2019

The investor further noted that most average users are likely not going to be affected by a 51 percent attack, especially if it is extremely short lived. In a follow-up tweet, he said,

If you're the 51% attacker, you want to rob the bank, not some random person on the street. In crypto, that means exchanges. So 51% attacks represent a scourge to exchanges. Meanwhile, individual users don't even notice unless they check Twitter.

— Haseeb ＞|＜ (@hosseeb) January 9, 2019

ETC Security Breach

Notably, the 51 percent attack endured by the Ethereum Classic cryptocurrency only cost the attacker around $5,000 per hour to execute. This is because mining pools such as Nicehash effectively rent out large amounts of processing power for a fixed duration. The amount of money required to attack Bitcoin in a similar fashion would be a fair bit higher since the cryptocurrency has exponentially higher existing hash rate and can only be mined with ASIC hardware.

The person behind ETC’s 51 percent attack is said to have made off with around $250,000. While large exchanges such as Coinbase picked up on the attack and turned off ETC trading, a host of smaller ones remained vulnerable.

Do you think digital currency exchanges should react faster to 51% attacks, especially with user funds at stake? Let us know your thoughts in the comments below!