On the 5th of January 2019, the 18th largest cryptocurrency by market capitalization, Etherum Classic (ETC) which was forked out of Etherum got hacked. The hacking was not the normal hacking that we are used to in the crypto sphere, rather it is the rare 51% attack. Apparently, it took over 24 hours for Coinbase to detect this hacking, and as a result, Coinbase alongside other cryptocurrency exchange platforms froze Etherum Classic (ETC) from trading. Investors have been asking questions, and the cyber space in general has been agog with questions as to if this attack will affect the prices of Etherum Classic (ETC). Or in a more general term, people have been asking if 51% attack can affect the prices of cryptocurrencies.
WHAT IS A 51% ATTACK?
It is an attack on the mining pool of a cryptocurrency project, in which a group of miners or a single miner takes control of the network by controlling more than 50% in price value of the network. Simply put, when a miner or a group of miners gain over 50% control of a cryptocurrency network, it is referred to as a 51% attack. A control of this magnitude gives the controller the ability to block transactions, modify transactions and they can even make false double transactions. In the case of the 51% attack on Etherum Classic (ETC), Coinbase claimed that it gave a single person the power to control about 60% of the mining power of the cryptocurrency, leading to longer blockchain and consequently, availing the person the power to do double transactions. Most 51% attacks are most likely detected by cryptocurrency exchanges, more reason why Etherum couldn’t detect the attack, hence the reason why it lasted for two days.
The Aftermath of Ethereum Classic
No doubt, the attack came as a shock to a lot of people, but then most of these people had their surprise hinged on the wrong reasons. Major holders of the cryptocurrency were on their toes, especially when Coinbase and other cryptocurrency exchange platform took it down for a while. However, there is a probability that the concerns that people had concerning the price value of the cryptocurrency have died down. It has been almost two weeks since the attack, yet there is no sign of a decline in value of Etherum Classic (ETC) on the cryptocurrency exchange market. The coin has continued to maintain the performance it had prior to the attack, trading at $4.56 USD currently, although it took a nose dive of 0.5 USD when Coinbase announced the attack. Also, when Vertcoin and Bitcoin Gold experienced 51% attack, the hack didn’t have much effect on their prices. They are both doing well in the cryptocurrency market with good future prospects.
It is not the same story for the exchange platform, as 51% attack takes most of its toll on these platforms. Coinbase leads other cryptocurrency exchange platforms in damages, with estimated $1.1 Million losses as a result of the double transactions. However, this does not in any way mean that a 51% attack will not affect the price of a cryptocurrency. Once investors lose confidence in the security details of a network, the price will drop. But this is not the case with ETC as the development team of the company sprang to action immediately after the attack, assuring coin holders that such an attack will not happen again.
Take home point
The take home lesson from the 51% attack on Etherum Classic (ETC) in my opinion is that in any 51% attack on a cryptocurrency, the coin holder or trader actually walks home unscathed. The exchanges on the other hand take the damage. But on the long run, in a situation when coin holders go into panic and sell off their holdings, or there is a consistent 51% attack, it will not just affect the coin holder but it will kill the cryptocurrency itself. It can also lead to a hard fork, resulting in the network chain splitting into two. For instance, we know that Etherum Classic (ETC) was forked out of Etherum (ETH). So a subsequent attack might lead to Etherum Classic splitting into two.