Last week the Ethereum Classic team was caught off guard.
On January 6, reports of double spends and blockchain anomalies began to pour in just as ETC was celebrating the earlier launch of Ethereum Classic Labs, a ETC-based startup accelerator based in San Francisco.
The Ethereum Classic team was initially skeptical, especially about a previous Coinbase report on possible double spends.
But soon the pieces began to come together in a rather dramatic way.
To be clear we are making no attempt to hide or downplay recent events.
Facts are facts and as the situation develops we'll soon get a full picture of what actually took place.
Linzhi is testing ASICS. Coinbase reported double spends; both may be true.
In time we will see. https://t.co/bbq6eqIoiS
— Ethereum Classic (@eth_classic) January 7, 2019
After blockchain sleuths were done looking for the source of the problem, the community had determined it was a cookbook 51% attack, done the old fashion way: by sheer hashrate brute force.
Apparently, someone developed a very powerful new ASIC and hashrate shot up beyond all previous estimates.
The Coinbase warning was, in fact, an even earlier attack, perpetrated between January 5 and 6. The main attack, which went public, happened on the next day, on January 7.
Ethereum Classic is a top 20 market cap cryptocurrency. Even after the 51% attack, it's still worth over U$ 400 million, which is more than most companies are worth anywhere in the world (not discounting fake market cap).
What immediately comes to mind is a question everyone should be asking themselves at this point.
With the advances in mining hardware allowing attacks on a top 20 cryptocurrency, what's to say about all the hundreds of PoW cryptocurrencies ranked below ETC?
The answer is a rather chilling reality check: it's very likely that most PoW cryptocurrencies with difficulties below ETC are vulnerable to the kind of mining hardware being developed today.
What if the ETC "attack" (or accident) had been throttled to stay below 51%?
What we know is that someone (Linzhi?) had come up with a new and powerful ASIC that simply outran every other mining hardware in existence.
It was a classic and possibly accidental brute force attack.
What if there are several of these mining operations out there that throttle their hardware to stay below the radar?
Looking at the big picture, what the recent 51% attack exposed is a situation where hardware manufacturers have the upper hand.
Perhaps the 51% attack on ETC accidentally exposed something bigger: is there such hardware for cryptocurrencies ranked higher than ETC? Is this kind of hardware being used right now in stealth mode?
Imagine that you had developed a mining system that could outhash every other rig in existence: would you expose it or would you quietly mine as much as you can without going full throttle?
These questions may pose some rather troubling scenarios for cryptocurrency enthusiasts.
Which brings us to the main point of this article.
We now know for sure that there is hardware capable of breaking a top 20 cryptocurrency.
Of course Ethereum Classic pools and exchanges will now increase the number of confirmations, making 51% attacks much more difficult. Bitcoin and other top currencies have much higher hashrate and attacking them is not profitable.
But that's not the point.
The main issue is that there are literally hundreds of Proof of Work cryptocurrencies that could have been wiped out by the folks behind the ETC issue. ETC was caught off guard but it could've been any other PoW below it.
At this point it's safe to assume that any PoW cryptocurrency below the top 20 might be vulnerable!
We're going through a tough bear market. Miners are shutting down operations daily because of cashflow problems : mining costs are paid in fiat, so a fraction of cryptos must be exchanged to cover these costs. When crypto price goes under, with +or - 10% a day being common, miners are unable to cover their daily expenses.
As a result, there are rumours of Bitmain facing over U$ 1 billion losses in 2018. In fact, Bitmain CEO, Jihan Wu, is stepping down presumably because of the 2018 financial results.
After weeks of silence, Chinese mainstream media (South China Morning Post) is now reporting that both Bitmain co-founders Jihan Wu and Micree Zhan are stepping down as co-CEOs and will be replaced by product engineering director Wang Haichao.https://t.co/xmpE8eqLtP
— Larry Cermak (@lawmaster) January 10, 2019
What we have here is a very negative scenario for Proof of Work.
It seems like most experts agree that Proof of Stake would not be vulnerable to the problems ETC and other PoW cryptos currently face.
Is it time to hedge our bets by buying PoS cryptos? Will the ETC issue accelerate ETH's transition to PoS?
The Ethereum Classic episode has given us food for thought.
We now know that the combination of ASIC hardware development with the cryptocurrency bear market may signal the end for most PoW cryptocurrencies.
At current prices it's not worth investing hashrate into lower ranked PoW cryptos. This puts most of them in danger of 51% attacks.
But there's an even worse scenario: that where powerful mining operations quietly exploit lower ranked cryptocurrencies to exchange them for Bitcoin until they're depleted.
There's a high probability that this is going on right now.
Miners who invested large sums into their operations might be quietly exploiting low difficulty PoW coins right this minute and it'd be very difficult to find out.
If it weren't for the Ethereum Classic episode we might not have known about this imminent threat at all.