Ashwin Ramachandran is a junior associate at Dragonfly Capital, a cross-border crypto enterprise fund. Haseeb Quereshi is a managing associate. On
Ashwin Ramachandran is a junior associate at Dragonfly Capital, a cross-border crypto enterprise fund. Haseeb Quereshi is a managing associate.
On January 23, Bitcoin Gold was 51 p.c attacked and $72,000 was double-spent. That is the second time that Bitcoin Gold (BTG) has been attacked, and its aftermath left many individuals questioning: why don’t exchanges delist Bitcoin Gold and different simply 51 percent-attackable PoW cash?
Seems, there’s a easy reply. However first, let’s study the circumstances of how this assault was carried out.
Bitcoin Gold is a fork of bitcoin that makes use of the ASIC-resistant ZHash mining algorithm. ZHash is optimized for environment friendly GPU mining and will increase the issue of ASIC growth as a consequence of its excessive reminiscence necessities. GPUs are extensively out there for rental since they’re commoditized and in giant provide relative to ASICs, so it’s straightforward to hire sufficient hash energy to dominate the Bitcoin Gold community. Hash energy marketplaces, equivalent to NiceHash and MiningRigRentals, have dramatically decreased the prices of performing a 51 p.c assault, and comparable marketplaces are popping up left and proper (see Warihash, Luxor, and so on).
The current assault on Bitcoin Gold required up-front capital prices of $3,400 (0.Four BTC to reorganize a complete of 29 blocks assuming linear slippage), however word that this value was recouped via block rewards on the reorganized chain. Due to the cheap general value, this assault may have been carried out completely utilizing spot GPU rental markets. Moreover, as a result of GPU rental markets have gotten more and more liquid, the price of overtaking a GPU mineable community is reducing (see NiceHash pricing). Thus, the up-front capital required by the attackers is just the Bitcoin Gold they needed to double-spend, plus the hash energy prices. The BTG attackers double-spent an estimated $72,000 and paid solely $3,400 (recouping roughly $4,200 via block rewards), giving them an ROI of about 96.6 p.c, making this a wildly worthwhile assault.
And naturally, the first victims of 51 p.c assaults are exchanges. The assault usually goes like this: the attacker deposits cash on an alternate, these cash are traded for another liquid cash like BTC, after which the BTC is withdrawn. The unique deposit transaction is later reverted by the 51 p.c attacker, permitting them to get again their authentic deposit and primarily double their cash. Due to this vulnerability, exchanges wait a affirmation interval (initially 12 blocks on Binance for Bitcoin Gold) earlier than permitting cash to be withdrawn. However whereas these affirmation intervals improve safety, they can’t forestall assaults outright. For extra on the mechanics of 51 p.c assaults, try this tweetstorm on the Ethereum Traditional (ETC) assault final yr.
It’s extra worthwhile for Binance to checklist low-mid market cap PoW cash, even with their potential losses as a consequence of 51 p.c assaults.
Bitcoin Gold’s 51 p.c assault was the second in simply two years (the first Bitcoin Gold attack was much larger), but BTG stays traded on exchanges like Binance to at the present time. Naturally, the query arises: why doesn’t Binance delist BTG?
Binance at present trades about $4.13 million in BTG/BTC quantity per week. So Binance makes round $429,000 per yr in complete revenue on the BTG/BTC buying and selling pair alone (assuming common charges of 20 foundation factors (maker/taker) per commerce and low BNB utilization).
After calculating earnings for all low-mid market capitalization PoW cash, a development crystalizes. It’s extra worthwhile for Binance to checklist low-mid market cap PoW cash, even with their potential losses as a consequence of 51 p.c assaults. The chart under reveals estimates of the proportion of hash price out there for hire, together with Binance’s revenue estimates (assuming present market costs).
Be aware: All rented hash energy will increase the full hashrate of the community. Thus, an attacker should purchase 100 p.c of the present hashrate to launch a profitable 51 p.c assault. All hash energy acquisition estimates are additionally weak to linear market worth slippage, which might vastly improve assault prices.
So long as it’s sufficiently worthwhile, we anticipate that Binance and different high-volume exchanges will proceed to checklist weak PoW cash. Exchanges can all the time scale back the chance of a 51 p.c assault by rising the variety of confirmations required for withdrawals (Binance elevated this for BTG from 12 to 20 following the assault). However, in fact, this doesn’t forestall assaults outright and as a substitute merely will increase an attacker’s capital prices. Exchanges can additional interact in assault prevention by performing prudent anomaly detection on person deposits of small-cap PoW cash. However word that there isn’t a strategy to immediately detect a 51 p.c assault earlier than it occurs, since renting hashrate doesn’t trigger the on-chain hashrate to…