What does this mean?
(Not all of us know a whole lot about how crypto works or why this is good or bad and what it means for our investments)
(Not all of us know a whole lot about how crypto works or why this is good or bad and what it means for our investments)
Privately, you are building a chain where said transaction did _not_ occur. Because your hash rate is high enough, you are generating blocks at at least the pace of the public chain. You keep mining your chain (without your transaction) privately until the bank transfer from the exchange goes through, or you are sure whatever you bought is on its way. Then you broadcast your private chain as soon as it has at least one block more than the public chain and voila, you have your ETC back and the USD/EUR/crypto you sold it for (or the product you bought). You can have your cake and eat it too. This is because the rule of most cryptocurrencies is that the longest chain is the truth, and everyone mines on top of the longest chain. If a longer chain appears out of nowhere, all miners will jump on top of this one. There is no such thing as "finality" in most cryptocurrencies, where something becomes actually (read: much more) irreversible.
Of course, doing this only makes sense if what you gain outweighs the costs of performing such an attack.
Note that you typically _cannot_ steal coins from specific wallets, as you do not have the keys to those coins. You can however censor transactions that you may not want, but the above is a common way to benefit from a 51% attack.
Another mitigation is to shut down trading until the attack is over. Maintaining a 51% attack is expensive (assuming there is at least SOME usage of the coin), and if you just say "we won't be doing business for the next 24 hours", the attacker now has to maintain that attack for the next 24 hours, and if the company wants, they can just extend the time. Eventually (hopefully!) the attacker will run out of money, and the "correct" chain will take it over again.
I would say that most (other) fringe coins are not as easily attacked as ETC was. They have very illiquid markets, and you cannot really sell a significant amount of them before you basically just deplete the order books. And merchants are typically not accepting anything other than the major coins either. I guess ETC was still riding along on its partially shared name/history with its bigger brother.
Eventually, some more details on the double spend transactions might shed some light on who suffered a loss in this case. It might be an exchange, but most of them require KYC nowadays (so it becomes hard to get away with).
I guess you could buy a hundred gadgets at $100 each from a hundred places in one day and then produce a fork censoring your whole $10k shopping spree?
a<-b<-c<-d<-e<-f
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c'<-d'<-e'<-f'<-g'If the hardware to accomplish the attack is available for your use, the cost of the mining should net out at zero-ish, because you're also getting the rewards for doing the mining. So the net cost of the attack is just the overhead for the mining hardware.
Coincidentally, economist Alex Tabarrok just wrote about this today: https://marginalrevolution.com/marginalrevolution/2019/01/bi...
Also, if you have clients follow the rule "never switch forks" to protect against 51% attacks, then any network partitions will cause a permanent fork.
I'd imagine that you would want to look for evidence of a double spend as that's the most likely goal of a 51% attack. But then the blockchain must have up-to-date knowledge of likely double spend targets (such as exchanges, OTC desks, etc), and be able to algorithmically and deterministically prove malicious intent with high certainty. Only then will you be able to maintain consensus and prevent unnecessary or accidental forks.
But since this is all open-source anyway, it would only be a matter of time before a slightly more sophisticated attacker read through the updated consensus algorithm and figured out how to game it. And so the cycle continues.
In truth, the only real strategy for mitigating attacks in PoW blockchains is hash power. It has proven to be very effective if you have enough of it (see BTC), and looking for other 51% resistance measures isn't really that productive unless you start from the ground up and rebuild the consensus mechanism on a different paradigm (e.g. PoS, which is still unproven afaik).
Philosophically, what the distributed blockchain is, is an agreement for adjudicating whose record (eg list of transactions) should be agreed on as "the valid one". If you already have a different, reliable external way of deciding this question, that is (arguably) conceding that you didn't need a distributed blockchain in the first place.
EDIT: I've realised my comment could be misinterpreted as endorsing the blockchain 'movement'. I am among those who are quite skeptical of these many blockchain projects.
If anything, relying on an outside source is what we're doing now. Coinbase and others are telling us that they detected something and I haven't heard anybody question them. (And I'm assuming they're not lying). Though that's not to say the blockchain will be changed by this information.
You are correct of course. To me, problems like this recent attack highlight an inherent contradiction in the blockchain idea
- that the "51%+ of hashing power determines the truth" rule is really either lip-service; techno-marketing vanity that doesn't actually translate to practice (if corrective action ensues), and in which case the adjudicator is clearly not the blockchain tech we were told, but instead a nebulous collection of companies and stakeholders OR
- that "51% determines the truth" is indeed a strictly-held principle even though we have already demonstrated that there exist actors with enough resources and motivation to make attacks of this nature on some of the most prominent blockchain projects already - and we haven't even yet witnessed what a 51% attempt by an actor with the resources of a state would look like.
This is one of the reasons I have become skeptical of blockchain projects.
There's always dilution when an idea has been around long enough and I'm concerned about the copycats trying to use blockchain for other things.
If Raft is democracy, then blockchain is Might Makes Right. The guy with the biggest stick always wins. There is no actual vote. Everybody is an accomplice.
That doesn't sound like progress, that sounds like regression. A really big one.
It is a pretty interesting solution, that seems to work out OK.
For example, most Bitcoin cash clients don't accept reorgs longer than 10 blocks, as such a reorg is 100% an attack. This protects the network against large reorgs.
I can't comment on investment. Note Ethereum has always been over-hyped which (imvho) makes it useless for any serious engineering. see https://news.ycombinator.com/item?id=18780489
[1] The idea is that the miner just pick the last block and select a bunch of the current transactions and a random number and makes a hash of all of them. If the hash has enough zeros at the beginning then it is a new block and it is distributed to all the network. The other nodes of the network validate all the transactions and also that this bunch of transactions with this random number produce a hash that has enough zeros at the beginning. Any invalid transaction of a wrong random number make all the other nodes of the network ignore the fake block.
Once the last block and the bunch of transactions are picked, the difficult part is selecting a random number that with them produces a has that has enough zeros at the beginning. So the mines must try, try, and retry with different random numbers until they are lucky (or someone else is lucky). They must try millions of millions of millions (gillons?) of times, because it's difficult to pick the correct one. This uses a lot of electricity to power the computer. The other people just validate with the lucky number, so it's much cheaper.
Mining is basically the way that everyone agrees a transaction is valid - you have a bunch of unrelated entities saying, "Yes, according to my copy of the ledger, the sending party has X dollars and wants to send Y dollars, and the two parties agreed." (It's much more nuanced, but this is the easiest way to summarize it.)
If someone said, "I'm going to send AccountB 100ETC from AccountA," but AccountA only had 50ETC then a miner would see that and deny the transaction (wouldn't add it as a valid block to the blockchain). In reality, there are several places that the transaction should be thrown out, but there are obvious ways around those, and every transaction incurs a fee, so trying to just flood the network is costly. More importantly, several miners have to agree that the transaction is valid. When sending bitcoin, you'll see a number of "confirmations," which is the number of miners that marked the transaction as valid. You can see this when sending coins between two exchanges, you'll see that the receiving exchange won't allow you to use the coins for trading until you hit, say, 30 confirmations.
The problem with this model for smaller projects is that those "confirmations" by unrelated miners can't be trusted if one person/group owns more than half the miners. I left out the idea of wallets/nodes to bring this up here. Every "full" wallet (or node) has a copy of the blockchain and does some cursory checks on transactions before broadcasting them to the network. Miners then package a bunch of transactions in a block and send this to the network - "Here is my version of block X. It should be added to the blockchain as block X for everyone." The miners then have to expend some effort to verify that the block is actually the block they think it is and contains valid transactions. When the miners confirm a block, it eventually propagates to all the miners and nodes, and competing blocks by other miners, which might have contained some of the same transactions are discarded. It doesn't mean the other blocks were fake, just that the chosen block reached "consensus" of the miners and can be trusted to be valid. (I realize this leaves lots of open questions, but I'm limiting the scope to OP's question.)
Consensus is the big problem in 51% attacks. If someone controls more than half the mining power, they can reach consensus on blocks faster than legit miners and add whatever they want to the blockchain that is distributed to all the other miners and nodes. That means they can add/delete transactions or manipulate existing ones to, say, change the receiving address to their own, and everyone that receives those blocks will accept the outcome.
This is why decentralization is so important to cryptocurrency. There's a level of necessary chaos that keeps the network honest. It is possible to roll back the blockchain to a previous version, but that also means that transactions in all blocks that followed must be rolled back as well. If the rogue party simply accumulated currency, that's not a big deal, since all other transactions would still be valid. But, if they immediately turned around and traded them for other coins, you start to see the problem. On top of that, if ETC was more "robust", the news would (and currently is) send the price into a nosedive, which creates an opportunity to legitimately buy it very low and profit from the recovery. That's not going to be the case here.
All this being said, Ethereum Classic was kinda declared dead a month ago when the development group halted operations, so anyone with any significant amount of ETC should have sold off by now. This attack will probably be the final nail in the coffin.
TL;DR - In the end, the state of the blockchain comes down to a simple majority of miners agreeing that a block (a group of transactions) is valid. At 51%, you can force everyone to see invalid transactions as valid. ETC development ceased around a month ago, so no one that follows it should be holding any now, but people blindly trading for profit will get a nasty surprise.