Crypto Exchange Gate.io Confirms 51% Attack on Ethereum Classic, Promises Refunds

Researchers from crypto exchange Gate.io report they have confirmed that a 51 percent attack successfully occurred on the Ethereum Classic (ETC) blockchain. The company published an analysis of their findings Jan. 8.

Gate.io Research has published its analysis of ETC transactions on its platform during the alleged attack, claiming it has detected seven rollback transactions — four of which were reportedly conducted by the attacker, transferring a total of 54,200 ETC in total (worth $271,500 at press time).

Gate.io reports that the incident occurred over a period of 4 hours between 0:40 and 4:20 Jan.7, 2019 UTC, during which the transactions were normally confirmed on the blockchain and then subsequently invalidated after the malign network rollback. After providing details of three ETC addresses purportedly used by the attacker, Gate.io continues to explain:

“Gate.io's censor successfully blocked [the] attacker's transactions at the beginning and submitted them to [a] manual exam. Unfortunately, during the 51% attack, all the transactions looked valid and confirmed well on the blockchain. The examiner passed the transactions. It caused about 40k ETC loss due to this attack.”

Gate.io states it will compensate its users’ losses, stating “Gate.io will take all the loss for the users.” The exchange also advises other crypto trading platforms to block transactions stemming from the identified suspect addresses. The exchange also states it has raised its ETC transaction confirmation number to 500 and launched a more robust 51 percent detection security mechanism.

Today, Jan. 9, Chinese blockchain security firm Slow Mist also published a report also confirming a 51 percent attack and containing and the same rollback transactions reported by Gate.io.

As previously reported, several major crypto exchanges — United States-based Coinbase and Japanese exchanges bitFlyer and Coincheck — have have all temporarily suspended withdrawals and deposits of ETC as early as Jan. 5. The exchanges all reportedly moved to respond to unusual hashpower activity indicating a potential 51 percent attack, as well as Coinbase’s own findings of double spending and “chain reorganizations.”

The ETC dev team initially responded by refuting that a 51 percent attack had taken place, stating that double spends had not been detected. At the time, they claimed that majority control over the network’s hashrate was “most likely selfish mining,” attributable to the testing of new 1,400/Mh ethash machines by application-specific integrated circuit (ASIC) manufacturer Linzhi.

As reported, a 51 percent attack can occur on blockchains that use a proof-of-work (PoW) algorithm, and essentially entails a user or group seizing control of the majority of mining power to monopolize control over the network. This, in particular, can allow the threat actor to reverse transactions with the view to double spend — by transacting crypto for fiat currency, and then rolling back the deed to recuperate the spent crypto, while pocketing the fiat.

While the theoretical risk of majority attacks exists, practically seizing control of a large hashrate blockchain is widely considered to be prohibitively expensive at present. The PoW-based Bitcoin blockchain has not to date been compromised by a hijack of the network’s hashrate, but some developers have nonetheless made the case for investigating potential PoW change.