The Coinbase team published a disclosing post on Ethereum Classic, claiming that the chain had undergone a “Deep Chain Structural Reorganization.”
The twitter post elaborated saying
“On 1/5/2019, Coinbase detected a deep chain reorganization of the Ethereum Classic blockchain that included a double spend.”
Coinbase continued to declare that they reacted to the dubious behavior in order to safeguard their customer base by terminating the transfer of affected funds on the ETC blockchain. Their aim was to protect their user base. Coinbase Security Engineer Mark Nesbitt asserts that there exists a bug within the ETC’s Proof of Work framework that permits a continuous block “reorg” which can be used to change blockchain transactions frequently by an individual, or a team of intruders.
The fact that the quantum of double spend was 88,500 ETC, worth $450,000, is even more troubling. The hacker was able to create trades which were later discovered by Coinbase. The exchange then decided to halt the funds from being transfered. Coinbase is also the only major cryptoexchange to publish ETC fraud at this point.
On 1/5/2019, Coinbase detected a deep chain reorganization of the Ethereum Classic blockchain that included a double spend. In order to protect customer funds, we immediately paused movements of these funds on the ETC blockchain. Read more here: https://t.co/vCx89dz44m
— Coinbase (@coinbase) January 7, 2019
Etherum Classic developers, however, reacted swiftly to the accusations by saying that a mining pool is responsible for a few of the dubious transactions and that they account for over 50% of the hash rates in the network and indulge in “selfish mining.”
In the official ETC account’s tweet, the developers claim that ASIC manufacturer Linzhi is testing new ethash devices, resulting in a 50% plus network hash rate rather than a direct 51% hack attempt.
The tweet clearly states that “double spending has not been identified,” which conflicts with the specifics of the Coinbase report.
“Regarding the recent mining events. We may have an idea of where the hashrate came from.
ASIC manufacturer Linzhi confirmed testing of new 1,400/Mh ethash machines #projectLavaSnow
– Most likely selfish mining (Not 51% attack)
– Double spends not detected (Miner dumped bocks)
— Ethereum Classic (@eth_classic) January 7, 2019”
Coinbase did not restart withdrawal and deposits on ETC, although Ethereum Classic development team reacted, but rather chose to track the activities related to the coin.
Although the reorganization has led to double spendings amounting to $450,000, the exchange claims it was “not the target of this double spend and no funds were lost,” and some commentary from the ETC team overlaps with this exchange.
In November 2018 Coinbase re-listed Ethereum Classic after previously offering the cryptocurrency for investors to buy, trade and sell, making it the first coin to be listed in the months following the announcement during the summer. However, after news of the potential attack and double spend, ETC, the eighteenth biggest coin by market capitalisation, declined more than 8% at the time of writing this article.
Because of the falling market capitalisation and network hash power on account of bear markets in 2018, it was a fear for investors and coin users that the 51% attack would lead to a higher rate of criminal activities in the Ethereum Classic blockchain. Researcher Husam Abboud last May estimated that it would cost roughly $70 million for a move against the blockchain of Ethereum Classic, which is far higher compared with the alleged looted amount over the weekend.