Blockchain architecture is showing feet of clay as 51% attacks have gone from theory to expensive reality for investors and exchanges.
A 51% attack is an attack against a blockchain that uses a proof-of-work consensus mechanism in which the perpetrator gains majority control of a blockchain’s mining nodes to fork the blockchain. These forks can add new transactions onto the blockchain or eliminate existing payments and permit the hackers to spend the affected tokens a second time.
Two popular exchanges, Coinbase and Gate.io, noticed that someone was rewriting transactions on the Etherueum Classic (ETC) blockchain at the start of the year, reported MIT Technology Review’s, Mike Orcutt.
Coinbase detected one incident of a double spend on the ETC blockchain on January 5 and temporarily halter interactions with the blockchain the same day, according to the exchange’s blog. After analyzing activity on the blockchain the following day, the exchange operator identified eight additional instances of double spending.
“We shouldn’t be surprised,” wrote Orcutt. “Blockchains are particularly attractive to thieves because fraudulent transactions can’t be reversed as they often can be in the traditional financial system. Besides that, we’ve long known that just as blockchains have unique security features, they have unique vulnerabilities. Marketing slogans and headlines that called the technology ‘unhackable’ were dead wrong.”
The attacks came within days of a McKinsey & Company note, “Blockchain’s Occam Problem,” in which the authors noted that blockchains were losing their silver-bullet status while delivering little results.
The technology is at an inflection point between the initial pioneering phase’s early adopters and proofs-of-concept and the growth phase’s product standardization and enhancements, wrote the authors.
However, despite the technology’s ability to remove intermediaries, store data, and provide greater coordination between counterparties, the authors have seen many PoCs failing to get to their Series C funding rounds.
Along with the lack of productive use cases, the nascent technology is creating the problem it is supposed to solve, Steve Grob, a director at Ion, told Markets Media at the time. “They have multiple different standards and still need intermediaries to bridge the gap between them.”