Unknown hackers may have successfully hijacked the Ethereum Classic blockchain through a so-called “51% attack”.
Cryptocurrency exchanges including Coinbase have frozen trading of the token amid fears that the previously hypothetical attack has been executed.
According to Coinbase, the reorganisation of the blockchain has led to the attacker taking control of tokens worth almost £400,000.
Dr Patrick McCorry, assistant professor of computer science at King’s College London, told Sky News it was important to distinguish Ethereum – the second-largest cryptocurrency behind Bitcoin – and Ethereum Classic, which is in the top 20 and split from Ethereum in 2015.
“The underlying technology of a cryptocurrency, the blockchain, is responsible for recording all transactions on the network,” Dr McCorry explained.
“It gets this name because it is a chain of blocks, and every block is simply a list of authorised transactions.
“In Ethereum Classic, a transaction is only considered ‘final’ and ‘confirmed’ if it is in the blockchain with the most blocks.”
On 1/5/2019, Coinbase detected a deep chain reorganization of the Ethereum Classic blockchain that included a double spend. In order to protect customer funds, we immediately paused movements of these funds on the ETC blockchain. Read more here: https://t.co/vCx89dz44m
— Coinbase (@coinbase) January 7, 2019
The blockchain is powered by individuals “mining” transactions – using computer power to transmit information to other users – for which they are rewarded with newly minted units of the currency.
Due to these newly minted units of the currency, cryptocurrency mining can potentially be a very profitable business – although the volatility of the currencies and the difficulty of successfully adding a block makes it a risky investment.
The blockchain is intended to be a distributed, transparent, and immutable ledger which uses cryptography to mathematically verify transactions and ensure everyone’s trust in the currency.
However, it has long been theorised that an attacker who controlled more than 51% of the mining on the network could purposefully choose to double-spend certain coins.
Behind the collapse: The real cost of Bitcoin’s fall from grace
Many businesses saw their fortunes rise – and then fall – with those of Bitcoin and some people even lost their homes
In a 51% attack, the attackers would create a fork in the network by transmitting conflicting information to different users – allowing them to send the same coin to multiple parties.
Dr McCorry said: “The issue in a 51% attack is that a single person has more than half the network’s computational power (i.e. they have a much bigger warehouse of computers) and they can create blocks faster than everyone else.
“What happened in Ethereum Classic is that a single person managed to repeat the entire network’s effort for 100 blocks, create a longer blockchain and reverse a transaction that paid out around $500,000,” Dr McCorry explained.
One mining group controlled up to 60% of the Ethereum Classic network during the course of the supposed attack, although investigations are ongoing as to the results of it.