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The myth that the blockchain is unhackable has fallen

The Myth That The Blockchain Is Unhackable Has Fallen

Technology Review: The “51%” cyber attack against Ethereum Classic, noticed by the cyber security team at Coinbase, and the recent series of aggressions confirm that the blockchains are no more unhackable

The myth that the blockchain is unhackable has fallen. According to Technology Review, last month the cyber security team at Coinbase noticed that the Ethereum Classic blockchain was under a cyber attack. An aggressor had gained the control of more than half of the network’s computing power and was using it to rewrite the transaction history. That made it possible to spend the same cryptocurrency more than once. Coinbase claims that no currency was stolen from any of its accounts. But a second exchange, Gate.io, has admitted that had lost around $200,000. Moreover, those are just the latest of a recent series of attacks on blockchains, that have heightened the stakes for the nascent industry. Cybercrime, in fact, is increasing its actions on these targets. Chainalysis cyber security experts revealed that just two groups, both of which are apparently still active, may have stolen a combined $1 billion from exchanges.

How the blockchain was hacked with “51%” cyber attacks

Most blockchains use proof of work as their protocol for verifying transactions. In this process, also known as mining, nodes spend vast amounts of computing power to prove themselves trustworthy enough to add information about new transactions to the database. A cybercrime hacker who somehow gains control of a majority of the network’s mining power can defraud other users by sending them payments and then creating an alternative version of the blockchain in which the payments never happened. This new version is called a fork. The cyber attacker, who controls most of the mining power, can make the fork the authoritative version of the chain and proceed to spend the same cryptocurrency again. For popular blockchains as Bitcoin, attempting this sort of heist is likely to be extremely expensive. But it gets much cheaper quickly as you move down the list of the more than 1,500 cryptocurrencies in the wild. 

The cyber security experts: There is new level of blockchain security weaknesses, the smart-contract bugs

Technology Review explains that, aside from “51%” cyber attacks, there is a new level of blockchain security weaknesses whose implications researchers are just beginning to explore: smart-contract bugs. A smart contract is a computer program that runs on a blockchain network. It can be used to automate the movement of cryptocurrency according to prescribed rules and conditions. This has many potential uses, such as facilitating real legal contracts or complicated financial transactions. Or to create a voting mechanism by which all the investors in a venture capital fund can collectively decide how to allocate the money. It’s called the Decentralized Autonomous Organization (DAO). But it had a flaw that allowed an attacker to steal more than $60 million worth of cryptocurrency, requesting money from accounts without the system registering that the money had already been withdrawn. 

You can’t patch a smart contract

The cyber security experts reveal that the problem for the blockchains is that you can’t patch a smart contract. Some of them can be “upgraded” and developers can also build centralized kill switches into a network to stop all activity once a hack is detected. But for users whose money has already been stolen, it will be too late. The only way to retrieve the money is, effectively, to rewrite history—to go back to the point on the blockchain before the cyber attack happened, create a fork to a new blockchain, and have everyone on the network agree to use that one instead. That’s what Ethereum’s developers chose to do. Most, but not all, of the community switched to the new chain, Ethereum. A smaller group of holdouts stuck with the original chain, Ethereum Classic. 

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