Ashwin Ramachandran is a junior associate at Dragonfly Capital, a cross-border crypto enterprise fund. Haseeb Quereshi is a managing associate.
On January 23, Bitcoin Gold was 51 % attacked and $72,000 was double-spent. That is the second time that Bitcoin Gold (BTG) has been attacked, and its aftermath left many individuals questioning: why don’t exchanges delist Bitcoin Gold and different simply 51 percent-attackable PoW cash?
Seems, there’s a easy reply. However first, let’s study the circumstances of how this assault was carried out.
Bitcoin Gold is a fork of bitcoin that makes use of the ASIC-resistant ZHash mining algorithm. ZHash is optimized for environment friendly GPU mining and will increase the problem of ASIC growth on account of its excessive reminiscence necessities. GPUs are extensively out there for rental since they’re commoditized and in massive provide relative to ASICs, so it’s simple to lease sufficient hash energy to dominate the Bitcoin Gold community. Hash energy marketplaces, akin to NiceHash and MiningRigRentals, have dramatically decreased the prices of performing a 51 % assault, and comparable marketplaces are popping up left and proper (see Warihash, Luxor, and many others).
The latest assault on Bitcoin Gold required up-front capital prices of $3,400 (0.Four BTC to reorganize a complete of 29 blocks assuming linear slippage), however word that this value was recouped by way of block rewards on the reorganized chain. Due to the cheap total value, this assault may have been carried out fully utilizing spot GPU rental markets. Moreover, as a result of GPU rental markets have gotten more and more liquid, the price of overtaking a GPU mineable community is lowering (see NiceHash pricing). Thus, the up-front capital required by the attackers is just the Bitcoin Gold they wished to double-spend, plus the hash energy prices. The BTG attackers double-spent an estimated $72,000 and paid solely $3,400 (recouping roughly $4,200 by way of block rewards), giving them an ROI of about 96.6 %, making this a wildly worthwhile assault.
And naturally, the first victims of 51 % assaults are exchanges. The assault typically goes like this: the attacker deposits cash on an trade, these cash are traded for another liquid cash like BTC, after which the BTC is withdrawn. The unique deposit transaction is later reverted by the 51 % attacker, permitting them to get again their unique deposit and primarily double their cash. Due to this vulnerability, exchanges wait a affirmation interval (initially 12 blocks on Binance for Bitcoin Gold) earlier than permitting cash to be withdrawn. However whereas these affirmation intervals improve safety, they can not forestall assaults outright. For extra on the mechanics of 51 % assaults, take a look at this tweetstorm on the Ethereum Traditional (ETC) assault final yr.
Bitcoin Gold’s 51 % assault was the second in simply two years (the primary Bitcoin Gold assault was a lot bigger), but BTG stays traded on exchanges like Binance to at the present time. Naturally, the query arises: why doesn’t Binance delist BTG?
Binance presently trades about $4.13 million in BTG/BTC quantity per week. So Binance makes round $429,000 per yr in whole revenue on the BTG/BTC buying and selling pair alone (assuming common charges of 20 foundation factors (maker/taker) per commerce and low BNB utilization).
After calculating income for all low-mid market capitalization PoW cash, a development crystalizes. It’s extra worthwhile for Binance to listing low-mid market cap PoW cash, even with their potential losses on account of 51 % assaults. The chart beneath reveals estimates of the proportion of hash charge out there for lease, together with Binance’s revenue estimates (assuming present market costs).
Be aware: All rented hash energy will increase the whole hashrate of the community. Thus, an attacker should purchase 100 % of the present hashrate to launch a profitable 51 % assault. All hash energy acquisition estimates are additionally susceptible to linear market value slippage, which might vastly improve assault prices.
So long as it’s sufficiently worthwhile, we count on that Binance and different high-volume exchanges will proceed to listing susceptible PoW cash. Exchanges can all the time cut back the likelihood of a 51 % assault by growing the variety of confirmations required for withdrawals (Binance elevated this for BTG from 12 to 20 following the assault). However, in fact, this doesn’t forestall assaults outright and as an alternative merely will increase an attacker’s capital prices. Exchanges can additional have interaction in assault prevention by performing prudent anomaly detection on person deposits of small-cap PoW cash. However word that there isn’t a technique to straight detect a 51 % assault earlier than it occurs, since renting hashrate doesn’t trigger the on-chain hashrate to drop in any method.
The newest Bitcoin Gold assault was value about $72,000, whereas Binance expects to make $429Okay from Bitcoin Gold this yr. Likewise, the Ethereum Traditional 51 % assault netted the attacker roughly $1.1 million, whereas Binance expects to make about $3.2 million off its buying and selling charges. That is but one more reason why cash don’t die after 51 % assaults.
That stated, 51 % assaults are nonetheless an enigma. They appear like a basic violation of the proof-of-work safety mannequin. However 51 % attacked cash proceed to commerce on prime exchanges, and infrequently, bizarrely, improve in value after an assault (see ETC, BTG, XVG). We are able to partly clarify this phenomenon by seeing 51 % assaults as a tax on exchanges and modeling their continued incentives to listing susceptible cash. However as for why 51 % attacked cash typically recognize, sadly that also stays a thriller.
The authors thank Tom Schmidt and Ivan Bogatyy for reviewing drafts of this publish, a model of which additionally seems on Medium.
Disclosure Learn Extra
The chief in blockchain information, Fintech Zoom is a media outlet that strives for the best journalistic requirements and abides by a strict set of editorial insurance policies. Fintech Zoom is an unbiased working subsidiary of Digital Forex Group, which invests in cryptocurrencies and blockchain startups.