Hackers compromised the cryptocurrency Bitcoin Gold—a lesser known offshoot of the original Bitcoin—this month, using superior computing power to falsify the currency’s ledger and swindle at least $18 million from online exchanges.
The hacking incident, which was reported in a blog post earlier this month, is significant because it shows how a so-called 51% percent attack, which poses an existential threat to any Bitcoin-like currency, is not just a theoretical concern.
The threat is known as a “51% attack” because it stems from a malicious actor obtaining more than half of the mining power on a cryptocurrency network.
This dominant level of computer power makes it possible to manipulate the blockchain ledger on which transactions are recorded, and to spend the same digital coins more than once. As an analogy, it’s as if a fraudster got access to the clearing records of a stock exchange and falsified a series of share transfers.
This is basically what happened to Bitcoin Gold. According to the website Bitcoinist, the records of a digital wallet show hackers made a series of fraudulent deposits in which the money never ended up with the recipient exchange:
The Bitcoin Gold network still appears vulnerable to further such attacks. The hacker has yet to strike again, however, possibly because further attacks could trigger a massive sell-off as Bitcoin Gold holders lose faith in the integrity of the network.
The price of Bitcoin Gold fell slightly on news of the attack but so far there has been no sign of panic selling.
On Tuesday morning, a Bitcoin Gold developer acknowledged the ongoing risk in a blog post, and added there are plans to introduce a software update known as a “hard fork” that will decentralize the mining power on the network. (The blog post doesn’t state if the hard fork will restore the coins swindled from the exchanges).
As Quartz notes, the crisis at Bitcoin Gold represents the “nightmare scenario” for any cryptocurrency, and could theoretically happen to numerous other currency networks.
While the threat has existed for years, the chances of it materializing appeared to diminish as more and more people joined cryptocurrency networks—which in theory makes it harder to obtain control of over half the network. But the rise of massive mining conglomerates that deploy specialized computer equipment has seen a growing centralization of mining in recent years.
For now, there appears to be no imminent threat of a 51% attack on Bitcoin itself—in large part because of the size of the network—but other smaller networks could be more exposed.
ShareTweetReports have emerged that activities on the EOS blockchain have come to a standstill with frozen transactions network wide. This development is the latest in a growing list of technical issues that have affected the EOS blockchain. In a related event, ICON, another blockchain project also encountered a bug, this time in its smart contract […]
ShareTweet Beijing – One of China’s biggest Bitcoin markets is closed. This was done following the Chinese Government’s ban on the virtual currency. Bitcoin exchange rate has been down in recent days because of the Chinese government’s refusal. With this news, Bitcoin’s value is expected to weaken again. BTCC, which is the second largest Bitcoin […]
ShareTweetLONDON – Global regulators have published a framework for “vigilantly” monitoring risks from crypto assets like bitcoin BTC=BTSP and ether, even though they don’t pose a major risk to financial stability for now. Wild swings in crypto asset prices have prompted central bankers to warn investors they could lose every penny. It is unclear at times which […]