ETC: A Brief History
Although ETC holds only the 18th-highest market capitalization among cryptocurrencies, it has a relatively storied history. It was born out of a fork of ether, a different cryptocurrency whose transactions are now recorded on a different blockchain.
Early on in the history of Ethereum, an attack against the decentralized autonomous organization (DAO) that had created the Ethereum blockchain led to the theft of several million coins. To right this wrong, the Ethereum blockchain was forked in a way that returned stolen coins to their original users.
This fork was controversial because it involved deliberately rewriting data stored on the blockchain. Folks who disagreed with the fork stuck with the original data transaction records, which kept the stolen coins in the hands of the attackers. That unforked blockchain became Ethereum Classic.
That was back in 2016. ETC has essentially lost in the reputation war against ETH since then.
What Happened: ETC’s “Deep Reorganization” Attack
On January 7, Coinbase, which operates one of the world’s most popular cryptocurrency exchanges, announced that it had discovered “deep reorganizations” on the blockchain on which ETC transactions are recorded. A representative of the cooperative that oversees ETC confirmed the reports, according to Bloomberg.
A “deep reorganization” in this case means that transaction records stored on the blockchain were modified. These modifications allowed attackers to “double spend” ETC coins, or, in other words, manipulate the transaction data in such a way that parties could claim to have spent coins owned by other people. The result was a loss of about $500,000 worth of ETC coins from their legitimate owners.
In order to perform a deep reorganization of blockchain data, attackers have to convince a majority of nodes on that blockchain to rewrite transaction records. On a healthy blockchain, that is impossible to do, because it is not in the interest of the majority of nodes to change data after it has been recorded and confirmed by the network. Doing so undercuts the reliability of the blockchain, which harms legitimate nodes.
In the case of the ETC attack, however, it’s likely that attackers were able to execute a so-called “51-percent attack.” That means that they were able to take control of a majority of the computing power on the ETC blockchain. Because the ability of legitimate nodes to keep data intact was outweighed by the computing power of malicious nodes, transaction data could be rewritten.
For the record, no one has officially explained what kind of exploit took place on the ETC blockchain. It’s theoretically possible that another type of exploit occurred. And it is not clear who the attackers are, despite some speculation that the Ethereum community is responsible.
The attack prompted Coinbase, Kraken and other major crypto exchanges to halt trades of ETC, meaning that people can no longer buy and sell the cryptocurrency on those sites.
Notably, the price of ETC, which is hovering around $5 at the time of writing, has dropped only modestly from a high of around $5.40 on the weekend before Coinbase announced the attack.
The ETC event is significant for a couple of reasons.
First, it drives home the real and present danger of 51-percent attacks. Up till now, only a few 51-percent attacks had occurred to significant blockchains, and most of them affect relatively obscure altcoins. ETC is a more prominent coin, and its developers’ inability to prevent this type of attack (assuming a 51-percent attack is indeed what happened) bodes ill for other blockchains worried about the same risks — especially Ethereum, which still retains much of the same underlying architecture as the ETC blockchain.
Second is the fact that ETC’s price has remained relatively stable despite this attack. That’s probably due in large part to the fact that major exchanges have halted ETC trades, thereby preventing investors from dumping their coins and lowering ETC’s value. Still, it remains possible to sell ETC coins on some exchanges, and the fact that not all investors are rushing to dump them suggests that they’re not actually that worried about this security flaw.
That said, there could be a major sell-off when the exchanges enable ETC trades again. It will be worth watching what investors do when they can easily sell their ETC coins.