It’s safe to say that August, 2020 was Ethereum Classic’s (ETC) worst month to date. Last month, the cryptocurrency’s network was hit by three successful hacker attacks, leaving the ETC community in chaos.
To makes things worse, several cryptocurrency exchanges have halted ETC deposits and withdrawals on their platforms to mitigate risk.
But does it mean that Ethereum Classic is dying? Or does the coin have a chance for survival?
The Background of the Attack
Before we deep-dive into our topic, let’s first take a look at some basic concepts.
First, Ethereum Classic uses the Proof-of-Work (PoW) consensus algorithm, which requires miners to leverage their computing power to verify transactions and generate new blocks.
By securing the majority of the network’s computing power, hackers can take over a cryptocurrency’s blockchain with a 51% attack.
While large blockchain networks like Bitcoin and Ethereum are well-protected against 51% attacks, hackers have an easier job taking over smaller blockchains, such as Ethereum Classic.
Large blockchains feature a much higher hash rate – the total computing power in the network – than smaller ones, making it very expensive to launch a successful attack against them.
For example, it would cost over $506,000 to seize the Bitcoin network for one hour and $492,000 to hack Ethereum for the same period.
Also, as their networks are so huge, hackers won’t be able to purchase the necessary hash power from marketplaces like NiceHash to carry out a successful 51% attack.
On the other hand, the same one-hour attack costs around $3,800 against Ethereum Classic. Also, contrary to the previous examples, over five times the hash power required for the ETC attack is available on NiceHash.
Ethereum Classic Suffers Three 51% Attacks in August
By now, we can conclude that it was totally possible to launch a successful 51% attack against the Ethereum Classic blockchain.
And hackers have exploited ETC’s weakness to generate a lucrative income.
Before the August attacks, Ethereum Classic was only hacked once in January 2019 when malicious parties reorganized the chain 15 times, costing the ETC community $1.1 million at the time.
However, last month’s attacks were more devastating than ever.
Between July 31 and August 1, an attacker purchased hash power from the infamous NiceHash marketplace for $192,000, which allowed him to take over the network, stealing $5.6 million worth of ETC during the attack (generating an over 2,800% ROI).
Apart from the ETC community, cryptocurrency exchange OKEx was the main victim of the attack as the hacker used the platform to withdraw the stolen funds.
As per the exchange’s user-protection policy, OKEx refunded its customers, bearing the $5.6 million loss.
The hacker followed the same scenario to launch the second attack on August 6, siphoning $1.68 million ETC through various cryptocurrency exchange services.
On August 29, Ethereum Classic suffered its third attack of the month, reorganizing nearly twice the blocks than during the first and second incidents combined.
However, as crypto exchanges had already taken steps to protect against future attacks after the first and second incidents, it still remains a question whether malicious parties managed to steal any ETC during the third hack.
The Aftermath: Exchanges Delist ETC, Community Yet to Decide on Security Fix
Suffering three attacks in a single month shook the ETC community, while key players of the crypto space took steps to protect themselves.
Cryptocurrency exchanges – including AAX, OKEx, Coinbase, Binance, and others – have suspended ETC deposits and withdrawals on their platform.
As the main victim of the attacks, OKEx has even threatened Ethereum Classic developers to delist ETC from the exchange unless they upgrade the network’s security.
However, while the community stayed loyal to ETC after the attacks, Ethereum Classic developers have yet to decide on the solution to prevent future hacks.
There are multiple proposals for the upgrade – including the creation of a decentralized ETC treasury protocol and a hashing algorithm change –, but ETC developers have so far only decided to push for the regulation of hash power marketplaces to make such attacks harder in the future.
Interestingly, it seems that the attacks did not have a significant effect on the ETC price. Between August 1 and 29, the cryptocurrency only suffered a 9.5% loss, currently trading at $5.13 after a minor crypto market fall.