Coin Metrics Researcher Proposes Mining Power as a Defense Against Crypto Hacks

Using Mining Power to Combat Cryptocurrency Hacks: A Controversial Approach

Lucas Nuzzi, a researcher at Coin Metrics, has proposed an innovative yet controversial strategy for cryptocurrency exchanges to counter hacks. Speaking at the Unitize virtual event, Nuzzi explained how exchanges could use rented mining power to reorganize blockchain networks and potentially reverse malicious transactions.

Reorganizing Blockchains Through Mining Power

The Concept

Nuzzi suggested that exchanges victimized by hackers could:

1. Rent Mining Power: Utilize online marketplaces like NiceHash to rent enough hashing power.
2. Force Network Reorganization: Create a new version of the blockchain where the hack never occurred.

“If you’re an exchange and you’ve been hacked, within those six work confirmations that the network is expecting to be considered final, you could potentially alter a transaction where your hot wallet has been drained,” Nuzzi explained.

Bitcoin Transactions and Finality

• Bitcoin transactions are not necessarily final until they receive six block confirmations, which generally takes about an hour.
• During this window, an exchange could use mining power to alter the blockchain and reverse unauthorized transactions.

Applicability to Smaller Blockchains

Not Feasible for Bitcoin

Nuzzi acknowledged that this approach is impractical for major cryptocurrencies like Bitcoin due to the sheer scale of its hashing power:

“It’d actually be impossible for exchanges, or any entity really, to reorg BTC via NiceHash.”

Effective for Smaller Chains

The strategy could work on smaller blockchains with less mining power and niche hashing algorithms like:

• Lyra
• Equihash

Case Study: Bitcoin Gold Attack

Nuzzi pointed to the 2018 attack on Bitcoin Gold (BTG) as evidence of this concept’s viability.

• The Incident: The Bitcoin Gold community successfully used mining power to repel an attacker.
• Significance: Demonstrates how rented hashpower can be a tool for blockchain defense.

Challenges and Ethical Concerns

1. Potential for Abuse

Using mining power to reorganize blockchains could be:

• Exploited by Bad Actors: To rewrite history for personal gain.
• Harmful to Network Integrity: Undermines the principle of immutability in blockchain technology.

2. Cost and Practicality

For smaller blockchains, the cost of renting sufficient mining power may be feasible, but for larger networks, it becomes prohibitively expensive.

3. Trust Issues

This approach could erode trust in blockchain networks, especially if users feel their transactions are not final or secure.

Conclusion: A Double-Edged Sword

While Nuzzi’s proposal to use rented mining power offers a potential defense mechanism against hacks, it raises significant ethical and practical questions.

For smaller blockchain networks, this strategy might provide a lifeline against sophisticated attacks. However, for major cryptocurrencies like Bitcoin, the sheer scale of required resources makes it unfeasible. Furthermore, the approach could jeopardize blockchain’s core tenets of immutability and trust.

As the crypto industry grows, innovative solutions like these highlight the ongoing need to balance security, ethics, and decentralization in the fight against hacks.

To explore more on blockchain security and innovative defense mechanisms, check out our article on emerging trends in crypto security.