Bitcoin Gold is a fork, or spin-off, of the original cryptocurrency, bitcoin. It shares much of the same code and works in a similar way to bitcoin, with Bitcoin Gold miners contributing computational power to process new transactions. That also means it faces the same vulnerabilities as bitcoin, but without the protections that come from the large, dispersed group of people and organizations whose computers are powering the bitcoin blockchain.
In recent days the nightmare scenario for any cryptocurrency is playing out for Bitcoin Gold, as an attacker has taken control of its blockchain and proceeded to defraud cryptocurrency exchanges. All the Bitcoin Gold in circulation is valued at $786 million, according to data provider Coinmarketcap. Blockchains are designed to be decentralized but when an individual or group acting in concert controls the majority of a blockchain’s processing power, they can tamper with transactions and pave the way for fraud. This is known as a 51% attack.
The possibility of a 51% attack has been one of the concerns institutions such as banks and tech companies have had over the years about using the blockchain for transactions; some have worried that the Chinese government could at some point endeavor to do that, ordering all of the Chinese bitcoin miners to act in concert. It’s unlikely for bitcoin, but for smaller cryptocurrencies, 51% attacks are a concern, one dramatized on a recent episode of HBO’s series Silicon Valley.
Cryptocurrency miners commit their computer processing power—or hash power—to adding new transactions to a coin’s blockchain. They are rewarded in units of the coin in return. The idea is that these incentives create competition among miners to add more hash power to the chain. The more hash power is added, the better the chances of winning a reward.
So what’s a 51% attack? It’s when a single miner controls more than half of the hash power on a particular blockchain. When this happens, that miner can mess with transactions in a bunch of ways, including spending coins twice. This is the “double-spending problem,” a puzzle surrounding digital money that has vexed computer scientists for years—and which was solved by bitcoin. But the solution only holds if no single miner controls the majority of the hash power on a chain.
Bitcoin Gold has been experiencing double-spending attacks for at least a week, according to forum posts by Bitcoin Gold director of communications Edward Iskra. Someone has taken control of more than half of Bitcoin Gold’s hash rate and is double-spending coins. Since an attacker must spend coins in his or her possession, and can’t conjure up new coins, the attack is somewhat limited.
What’s happening now, according to Iskra, is that exchanges that automatically accept large deposits are being targeted. The fraudster deposits Bitcoin Gold into an account at an exchange, where coins are traded. Once the exchange credits the Bitcoin Gold to the attacker’s account, the attacker trades those coins for another cryptocurrency and withdraws it. The attacker can repeatedly make deposits of the same Bitcoin Gold it deposited in the first exchange and profit in this way.
A bunch of other cryptocurrencies have been attacked in similar ways recently. Something called Verge has been hit twice in the last two months, leading to $2.7 million being stolen. The exotic-sounding coins Monacoin and Electroneum have also suffered from 51% attacks not too long ago.
A 51% attack isn’t likely to hit bitcoin any time soon. Bitcoin Gold has a lot less hash rate securing it than bitcoin. Bitcoin miners are contributing about a million times more processing power than Bitcoin Gold miners at the moment. To give you an idea of how much money would be required to capture more than half of the bitcoin network, in 2013 the processing power on the bitcoin network was already greater than the 500 most powerful supercomputers combined—by eightfold (although it’s worth noting that the comparison isn’t entirely fair, since the specialized chips mining bitcoin can only perform one operation, instead of general computing). In the five years since, bitcoin’s hash rate has increased by about 1.4 million times.