On my 3 weeks trip to Asia with Luca Cotta (my amico and BQT.IO ICOdriver) starting at Binance conference and then meetings with expert teams at Hong Kong and Tokyo we had many discussions on the very same subject below. I felt like “getting it out of my system” and express my views.
We’ve reached the 50th anniversary of the Chicago Seven trial, which failed to convict leaders of an anti-war protest which turned into a street battle outside the 1968 Democratic convention. Specifically, they were accused of conspiracy to cross state lines to incite a riot.
During the trial in the spring of 1969, defendant Abbie Hoffman quipped, “What conspiracy? We can’t even agree on lunch?”
At BQT.IO, we concede that cryptocurrency, not to mention all distributed ledger technology applied to all use cases everywhere, is predicated on consensus. Of all human endeavors, that might be the one most difficult to attain. Through history, it has often required tyranny, sometimes involving coercion and at least the threat of violence, to get large groups of people to accomplish anything substantive. When you consider how anarchic the typical crypto enthusiast is, this can pose an intractable dilemma.
So we keep trying to find better ways to reach consensus: proof of work, proof of stake, proof of elapsed time, practical byzantine fault tolerance ... and guess what? None of them work perfectly. Ultimately, they fall prey to the same weakness as one-person-one-vote democracy: The majority isn’t always factually correct.
And what do we mean by “majority”? In 2011 — by then, three of the Chicago Seven had passed away — the Occupy Wall Street movement sprung up with the chant, “We! Are! The 99%!” By that, they meant they were 99% of the country as defined by the Census Bureau. But, according to economist and Nobel laureate Joseph Stiglitz, “1% of the people take nearly a quarter of the nation’s income ... In terms of wealth rather than income, the top 1% control 40%.”
That might not make them the majority in terms of economic power, but they certainly comprise a significant plurality. The one-plus-some-fraction-percent clearly owns most of what can be owned in America and, whatever your views on the causes or effects of income inequality, it’s indisputable that you’re more likely to get what you want with money than without it.
That goes for cryptocurrency as well. If you have the wherewithal, you can purchase the majority of mining capacity required to beat PoW. You can directly buy enough of the issuance to beat PoS. You can buy enough nodes to beat PoET. You can upgrade to the most robust and reliable systems to beat PBFT.
Digital assets will always be susceptible, to some degree, to 51% attacks. The question is, What can — or should — crypto exchanges do when one is detected?
Occupy Wall Street is actually occupying Washington Square Park in this October 8, 2011 photo, but what’s 20 minutes on the 2 train among friends? Credit: David Shankbone
On January 5, Coinbase detected “a deep chain reorganization of the Ethereum Classic blockchain” and stopped all ETC trading on its exchange. A couple days later, the large, centralized platform concluded there had been 15 reorgs, including 12 double spends totaling $1.1 million. It was reminiscent of May 2018’s 51% attack, which resulted in bad actors absconding with $18 million worth of bitcoin gold.
Despite all the noise about Ethereum moving to a PoS consensus algorithm, both ETH and ETC still subscribe to PoW. It wasn’t a difficult or overly expensive operation to rent the required hashing power from NiceHash or one of its competitors for just long enough to pull off the scam.
Although Coinbase might have been the first exchange to report the breach, it has stated that it did not affect any accounts on its platform. The only exchange that has affirmatively reported losses is Gate. io, which has pledged to absorb any adverse consequences for its accountholders. The Ethereum Classic team took to Twitter to dox the attackers’ public key. No luck yet on identifying them.
We might never know who — or even how many — were involved in the hack, but at least one individual had second thoughts and anonymously returned $100,000 of the ill-gotten gain, according to AMBCrypto.
It should be mentioned in passing that the only reason ETC is even a thing is because of a security breach. This is totally unrelated in terms of both process and technology to this year’s 51% attack, but the fact that ether has two different flavors is the direct result of a cybercrime in 2016 now known as The DAO Event. A DAO is a decentralized autonomous organization — basically a digital-native project team. The DAO was a stateless, automated venture capital fund which was an early investor in Ethereum. In June of that year, $50 million was stolen from participants in The DAO. The other ether holders voted to compensate for the grand larceny via a hard fork. The minority position, that immutability is at the core of the entire DLT premise and that “code is law,” persuaded some to eschew the hard fork and establish ETC along the original blockchain while the more broadly accepted ETH continued on as the more widely held cryptocurrency. In a sense, they saw the hard fork itself as a 51% attack.
Solution? There is no solution. Nothing long-term, at any rate. But prevention strategy can be implemented very effectively through a simple tool we mostly forgotten about.
These 51% attacks are similar to any other security breach in that it’s ultimately a technological race between the good guys and the bad guys. Hiring the bad guys seems to work as well as anything else, but that just encourages more people to become bad guys.
The easiest thing for exchanges to do is just shrug off such shenanigans as the issuers’ issue and do nothing. If you think that the exchanges as a group — centralized and decentralized alike — can reach a consensus on what actions we could take as a united front, then please re-read this article.
I can only say what we on the BQT.IO team feel is appropriate for us to do.
We cater to experienced, financially sophisticated traders and share their libertarian spirit and aim to educate them as well as provide guidance to new traders in order to grow our user base. That said, we believe that true libertarianism requires virtue on the part of its participants. This virtue, we recognize, cannot be effectively legislated or coerced. It must be an integral part of the individual.
As an individual dex, we will not dictate what assets our participants can or cannot trade. But neither will we stay silent. Education is the key! Providing comprehensive educational courses for beginners, intermediate and advanced traders would assure safer trading environment while growing community of successful traders. Not to forget, we aim to provide tools for our traders to follow each other, educate each other and contribute to the community. In my opinion, social aspect of education is very important for traders. Most exchanges currently ignore such powerful tool.
We invite other exchanges, particularly other dexes, to join us in taking this stance.
Edward is an Ernst and Young Entrepreneur of the Year Finalist, Blockchain Enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful Blockchain technology and ICO projects and recently launched his own BQT.IO P2P exchange helping traders connect with each other to leverage their crypto assets.
BQT.IO has been in development since March 2017 and its ICO launched September 18. The information can be found online at BQT.IO, on Telegram @BQTCommunity and on Twitter as @bqt_ico.