OKEx has confirmed a loss of approximately $5.6 million in Ethereum Classic (ETC) from two recent 51% attacks and is considering removing ETC from its exchanges.
Yet, as the cryptocurrency exchange with the highest trading volume of ETC, OKEx acknowledged that removing ETC from trading would not be an easy decision to make, according to Jay Hao, chief executive of the exchange.
“Given ETC’s popularity and standing, we are not rushing into delisting,” Hao told CoinDesk in a Telegram message on Aug. 17. “However, they need to implement significant upgrades to the network to reduce the chances of another 51% attack happening.”
The Malta-based cryptocurrency exchange reimbursed all the lost ETC in full to its customers as part of its user-protection policy, according to a report published by OKEx on Saturday, and all deposits and withdrawals of ETC have been suspended due to the attacks.
“We know that it is impossible to prevent a 51% attack on any decentralized exchange, but we also do not want to foot the bill for ETC’s security vulnerabilities that have made it particularly susceptible to attack(s),” said Hao.
Continued vulnerability
The recent 51% attacks on Ethereum Classic first occurred on Aug. 1 with total double-spending of $5.6 million worth of ETC. The second attack took place just five days later, losing about $1.68 million worth of ETC.
A 51% attack on a blockchain refers to a situation where one or more miners try to gain control of more than half of the mining power of the network. Compared with blockchains such as Bitcoin that have much a higher hashrate, blockchains with lower hashrates including Ethereum Classic are “more vulnerable” to this type of attack, according to OKEx’s report.
“It is evident that this breach in the blockchain’s secure functioning was due to a common problem with the Proof-of-Work (PoW) blockchains that have low global hashpower,” the report said. “... [T]his is certainly not limited to Ethereum Classic, which experienced a similar attack just last year. Other blockchains, such as Bitcoin Gold (BTG), have suffered such attacks in the past.”
Liquidity, and targeting OKEx
The exchange said in its report its only involvement in the attacks was the attackers used OKEx to purchase and trade ETC. This claim was a rebuttal to an analysis by blockchain analytics firm Bitquery, which alleged those wallets the attacker(s) used belonged to OKEx.
“As for why the attacker(s) chose OKEx in particular to purchase and trade their ETC, the most likely reason is liquidity,” the exchange said. “OKEx provides excellent ETC liquidity, seeing some of the largest ETC transaction volumes in the industry. This just means that the attacker(s) likely calculated that they would be able to relatively easily and promptly trade large amounts of ETC on OKEx.”
Similar to other exchanges, OKEx said it will increase the confirmation times for ETC deposits and withdrawals in the future.
The fate of Ethereum Classic has remained in question since the attacks. For now, 51% attacks are a reality for low-cap cryptocurrencies, ETC Coop Executive Director Bob Summerwill told CoinDesk, but options such as an emergency hard fork to a different hashing algorithm could help avoid future attacks.
OKEx also revealed its hot wallet system, providing more transparency about the depositing and withdrawing process on its hot wallet system.
According to a chart provided by OKEx in its report, 95% funds at OKEx are stored in its cold wallet and about 5% funds are stored in its hot wallet system, which has deployed both online and semi-offline risk management systems.
“This attack has been educational for us,” Hao said. “We learned that our robust hot wallet system worked exactly as designed but we also found some ways to improve it and are still working on this. Communication and cooperation are key in [the crypto] space and these are missing currently from our relationship with ETC, which is why we continue to see what their next moves will be.”
Ethereum Classic’s price was $7.49 as of press time, up by 4.12% over the past 24 hours.