Coinbase Halts Ethereum Classic Trading

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Coinbase

The Ethereum Classic blockchain is vulnerable to 51% attacks due to the low hash power. Unknown victims (which may include some exchange platforms) fell victim to the attack and lost $5m.

In the 51% attack, a single group or individual purchases or repurposes a massive amount of hashing power. This enables them to produce a blockchain history in which they didn't make an accepted payment, and feed that back to the network. As a result, they keep their funds, and whatever they received for their payment.

While any customers holding Ethereum Classic would have temporarily lost access, there were no funds lost in this case.

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

About Coinbase

"Ethereum Classic is a decentralized computing platform that executes smart contracts. Applications are ran exactly as programmed without the possibility of censorship, downtime, or third-party interference. Ethereum Classic is a distributed network consisting of a blockchain ledger, native cryptocurrency (ETC) and robust ecosystem of on-chain applications and services." "Ethereum Classic is the product of a hard fork after the Ethereum network split in different ways following an infamous hack in 2016."

"“[Grayscale] holds a sizable percentage of the circulating supply in Ethereum Classic, which is locked up in the trust that will never be liquidated,” [Meltem Demirors, the chief strategy officer at CoinShares] said. “So I think some of those natural factors, which can drain the supply of Ethereum Classic on the market, have a dampening impact on the price.”" "Grayscale started its ETC Trust in April 2017."

“It would be very difficult for us to comment or point to our operating a vehicle around a particular protocol as being influential to the prices,” Michael Sonneshein, managing director of Grayscale, said in a phone interview with CoinDesk, pointing out his company also has large positions in bitcoin and ether. Grayscale, like CoinDesk, is a unit of Digital Currency Group.

"The “honest[y]” of more than half of miners is a core requirement for the security of Bitcoin and any proof-of-work cryptocurrencies based on Bitcoin. Honest action, in this context, means following the behavior described in the Bitcoin white paper. This is sometimes described as a “security risk” or “attack vector,” but is more accurately described as a known limitation to the proof-of-work model."

"Failure to meet this requirement breaks several core guarantees of the Bitcoin protocol, including the irreversibility of transactions. Many other cryptocurrencies, such as Ethereum Classic, have also adopted proof-of-work mining."

"For the Ethereum Classic blockchain, 51% attacks have been a threat for a long time. Unlike Ethereum, from which it was hard forked, the Ethereum Classic network is committed to the Proof-of-Work (PoW) consensus algorithm, which is also used by [bi]tcoin. But for large networks like Bitcoin, a 51% attack is prohibitively expensive to do given the enormous amount of computational power required by PoW to successfully do it. Ethereum Classic’s hashrate is much smaller, making it far more vulnerable to 51% attacks."

"The Ethereum Classic network also suffered a 51% attack in early 2019."

"Media publication Coinness reported Monday that an in-house analyst had detected an abnormal hash rate (or computation energy) going into a single mining pool, potentially causing mass reorganizations (reorgs) of mined blocks. Though initially refuted by the core proponents behind ethereum classic on Twitter, the official account has now affirmed potential cause for concern."

"The duration of the attack seems to [have been] in dispute [at the time]. Blockscout reported block reorganizations occurring at 02:00 UTC and 05:00 UTC Monday, while Bitfly said in a Tweet at 17:00 UTC that the attack was potentially "ongoing." In its note, Coinbase wrote that "the attacks are ongoing." Blockscout project lead Andrew Cravenho affirmed to CoinDesk that although the last recorded reorg attack was seen 14 hours ago, the network is constantly "fluctuating and people are always switching their hashing power," suggesting the potential for continued disruption under "the perfect circumstances."

The attack "led crypto exchange Coinbase to halt all ETC transactions, withdrawals and deposits at the time." "Coinbase has halted all ethereum classic transactions, withdrawals and deposits due to a series of blockchain history reorganizations on the network." "In a blog post, Coinbase said it first noticed the reorg on Jan. 5, two days before other reports began."

"Late on the evening of Saturday 1/5, our systems alerted us to a deep reorg in ETC that contained a double spend. Our on-call engineers responded to the alert and worked to confirm the report through the night. We determined that we would temporarily halt send/receive interaction with the ETC blockchain in order to safeguard customer funds. This meant that customers who tried to send or receive ETC on Coinbase Consumer or Pro were unable to complete their transactions."

"On the morning of Sunday 1/6 we posted an update on status.coinbase.com stating (that) “Due to unstable network conditions on the Ethereum Classic network, we have temporarily disabled all sends and receives for ETC. Buy and sell is not impacted. All other systems are operating normally.”"

Ethereum Classic reported to be "working with Slow Mist and many others in the crypto community. [They] recommend[ed] exchanges and pools significantly increase confirmation times (400-4000+)"

"Updated Jan. 7, 2019–10:27pm PT: At time of writing, we have identified a total of 15 reorganizations, 12 of which contained double spends, totaling 219,500 ETC (~$1.1M). No Coinbase accounts have been impacted by the attack."

"Updated March 11, 2019–11:20am PT: We have now re-enabled sends and receives of ETC. Please note that transactions may take 24 hours, or longer, to be processed by the network due to the large number of confirmations required. Current ETC network status can be found here."

This exchange or platform is based in United States, or the incident targeted people primarily in United States.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Coinbase Halts Ethereum Classic Trading

Date	Event	Description
January 5th, 2019 12:00:00 AM	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Total Amount Lost

No funds were lost.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Prevention Policies

The solution to mitigate 51% attacks is to increase block confirmation times and institute checkpoints, where all miners agree that transactions up to that point are valid. If a large reorganization occurs, it will be rejected by miners, and the attacker will simply lose the funds spent on the attack.

Attacks are relatively easy to spot because they result in massive chain reorganizations, which miners can easily decide to reject.

Platforms can protect themselves against 51% attacks by ensuring that they only deal with coins which aren't vulnerable to 51% attacks or use checkpoints, and have sufficient block confirmation requirements on deposits.