If You Own Bitcoin, Bitcoin Cash (Or Any Other Cryptocurrency) You Should Read This
I'm not a big fan of FUD, on the contrary, I try to keep a balanced perspective and make my decisions by taking into account as many factors as I can. So please don't take this article as FUD, because it isn't. It's a real possibility and, if you keep some cryptos in your portfolio, you will be affected.
Background
Bitcoin Cash is a fork of Bitcoin. It has a bigger block size and that's all it has compared with Bitcoin. More importantly, it has the same hashing algorithm as Bitcoin. You'll see down the road why this is important.
Bitcoin is supported by a group of developers, called Bitcoin Core. Bitcoin Cash is supported by a group of miners (many from China) and a few public persons. I won't be talking about the moral compass of the BCash supporters, because this is not about that. I do have my opinions, though, but I won't make them public now, this is purely technical.
Potential Danger
Because Bitcoin and Bitcoin Cash share the same hashing algorithm (and mining equipments), and because Bitcoin Cash has only 10% of the total hashing power, there is a real danger of a 51% attack.
What is a 51% attack?
In Proof of Work algorithms, transactions are validated after solving a difficult mathematical problem. The one with the most calculation (hashing) power wins. So just because there is at least 90% more hashing power outside the BCash ecosystem, ready to step in at any time, it means a single player can take control over the blockchain.
Now here's where it can get tricky.
The attacker will not control all transactions, openly and publicly. Instead, he will try to mine an alternative blockchain branch, while still making transactions on the main branch. Because it has more hashing power, his alternative branch will become in time, the longer one.
At some point, after he sold his coins in the main branch, he will switch the branches. Now the longest branch - the one he secretly mined - will be the public one. All past transactions will be vanished. It will look like he never spent his coins.
This is a very, very simple explanation, but I urge you to go through this article and read it a few times. It was the reason I decided to write this article.
The Implications
This is not a political article and I'm not taking sides. I don't even own Bitcoin or Bitcoin Cash and I am, as you may know, long term bearish towards Bitcoin as a token, but bullish on the blockchain technology pioneered by Bitcoin. I'm all for appcoins like STEEM (obviously).
This is purely from a technical perspective.
If such an attack is conducted and if it succeeds, it will send poisonous ripples in the entire crypto market. It will be Mt. Gox again. Given the amount of money in the markets right now, it will probably be a few orders of magnitude bigger than Mt. Gox.
I just think this is something you should be aware of.
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
https://steemit.com/~witnesses
If you're new to Steemit, you may find these articles relevant (that's also part of my witness activity to support new members of the platform):
It’s scary itself just investing then you add so many other dangers
that's life :) or the journey of it, cough, cough :)
:)))))))))))))))))) that was hilarious
Thanks for this useful update @dragosroua.
After reading your post, I am really frightful now. Who knows if steem could also be attacked like this?
STEEM cannot be attacked like this :) It uses a different minting algorithm, called DPoS (the whole witness thing voting, you know?). But being a crypto, it will also be impacted by the negative sentiment.
Core fundamentalists can initiate hashrate attack on more weaker BCash. It could be done by one of the major pools singlehandedly.
That's why I won't buy BCH for more than 20 mbtc. Bitcoin Gold seems even stronger.
In such a scenario, the entire market, even the safest of coins, are going to take a big hit. Market cap will squeeze and a lot of progress will be undone.
Does being in USDT help in such a case?
USDT is not a cryptocoin in true sence.
Trust and bilieve in one particular coin give it value. ANd trust is quite an ephemerial thing.
SBD (when it returns t0 1 USD peg) is a better option IMO.
I was thinking of SBD as well but it has broken the peg and I don't see why it won't go too lower than pegged amount. Nonetheless, with +-0.10$ fluctuation, SBD can be a really good option.
Sbd cant go lower than peg. If does you will be able to buy steem with 1 sbd = 1 usd at platform and sell for more sbd on exchange.
SBD isnt supposed to be pegged to 1 us dollar. it simply means that 1 SBD is worth a minimum of 1 usd worth of steem. 2 different concepts. if you read the steem whitepaper this is what it says.
so, its not pegged to 1 usd. its just supposed to be worth a minimum of 1 usd of steem.
try bitusd
just take profit now and then, don't be 100% crypto
That took me to zero in 2017. Not a good trader at all.
I mean sell 1% every week while things are reaching new all time highs...
Take a look at decentralized exchange, I am trying OpenLedger.io,
instant deposits of steem, and low trading and withdraw fees
Thanks. That's a good suggestion. Cashing out a little chunk every now and then. If such an attack happens and market crashes, that withdrawn money would come very handy to buy coin at their lowest.
not, IMHO
How long can it take for this attack to happen? Any ideas.
You mean how long the attacker wants to hold the secondary chain hidden? Nobody knows. The actual takeover in terms of hashing power can happen instantly.
That's what I wanted to know. Instant take over rings some alarm bells for me. Next question though. Is it technologically possible to prevent it from happening?
From a technical point of view, no. Technically speaking, this is a Bitcoin fork, which uses Bitcoin hashing power. So, technically speaking, it can happen.
That means that PoS coins like steem can't be affected by this kind of attack, not event theoretically, right?
yes but bitcoin is still the ocean everything floats on so whenever it crashes it takes any coin with it, whenever there are bearish days on the market out of the 1000++ currencies only 5-10 are on a upward trajectory, to contrast whenever things are business as usual there are 50-100 coins on the negative for the day
because bitcoin (and ethereum as for now) is a household name.
Not for very long in my opinion.
yes, that's true.
PoS has its own set of weaknesses, but a a 51% attack is not part of it. Steem is DPoS, which is a bit different.
I will always stick with who ever has the best developers. I am going to keep all forks until I understand it better don't want to miss out on a new improved version
Thankful for the warning. Good to be aware of this.
Bitcoin and Bitcoin Cash are far too centralised in my viewpoint, just a few people in control of them both.
ohhhhh that's a knowledge for me. i did no know about it, now after reading your article i am able to understand the whole scenerio. and i am lucky that i am steemian and i have steem.
Thanks @dragosroua.
Steem on.!