A recent selfish attack on Monacoin, a cryptocurrency developed in Japan, caused around $90,000 in damages
A selfish attack involves a miner successfully mining a block, but not broadcasting discovery of the new block to the network. Then the same miner works on finding a second block before every other miner and, if successful, links the second newly discovered block with their first secretly discovered block. If done correctly, the miner has effectively created a branch in the network, where their branch is the longest, and thus valid chain. This also invalidates all transactions processed on the shorter chain’s blocks since the time of when attacker’s chain was hidden.
The attack could be consider profitless vandalism or also a profitable venture. To be profitable the attacker would have to conduct a transaction on the eventually-to-be orphaned and invalidated chain while it was still being processed and not invalid. If the miner received their purchase before invalidation then the miner would essentially not pay. There were reports that this particular miner attempted to send Monacoin to exchanges outside of Japan in an attempt to convert them before they became invalid.
It is also believed that the miner had around 57% of the mining power and was trying for over six months to exploit a weakness in how Monacoin adjusts its difficulty. On the Monacoin’s official developer Twitter, they initially posted that they “grasped the attack”. Some sources indicated that the developers may be working with exchanges to roll back the blockchain to a point before the attack occurred.
Importance of Incentives
The attack highlights the importance of incentives built into the blockchain to encourage beneficial behavior. Properly aligned incentives is what made Bitcoin so revolutionary when it was first created. Previously, others had written off a decentralized digital currency partially because of the concentrated incentives to attack the network and the distributed benefits/costs of protecting the network. Many had not believed a digital currency was possible outside of a centralized database. Bitcoin, and many other cryptocurrencies that followed, solved this issue with well aligned incentives to make the benefits of protecting a network more concentrated, and thus larger than the benefits of attacking the network, within each participant.
However, with the spate of cryptocurrency attacks seen recently, that could be changing. As @CobraBitcoin recently pointed out on Twitter about a 51% attack, incentives could now be shifting because of the ability to short coins. If a user is able to highly leverage themselves in a bet in favor of a coin decreasing in price, then they would have a profitable monetary incentive to operate the necessary hardware and bandwidth to attack the network. These perverse incentives could lead to more malicious attacks that were effectively discouraged before. However, constantly evolving code and incentives could shift that balance.
Dash adds more beneficial incentives
The Dash network has at its disposal a number of improvements to help ensure a stable and smoothly-running network. Among these are sporks, which offer “soft forks” to allow quick optional updates to the code, without immediately being made mandatory until a consensus is reached. SPORK_12_RECONSIDER_BLOCKS “[f]orces reindex[ing] of a specified number of blocks to recover from unintentional network forks. This helps keep the network in sync to prevent forks from forming and disrupting the network. SPORK_3_INSTANTSEND_BLOCK_FILTERING has “masternodes reject blocks containing transactions in conflict with locked but unconfirmed InstantSend transactions.” This helps protect the network against 51% attacks. Additionally, the Dash network offers a series of other incentives that discourages potential attacks on the network for short-term profit.
Dash is exploring various scaling structures, including “collateralized mining”, which further invests miners interests in the sound and unattacked operation of the network. Potential growth strategies like this shows that Dash has demonstrated it has the ability to evolve its code and incentives to deal with an evolving community of desires and needs.
Dash also employees other incentives to encourage mutualistic use of the network. The most obvious is the Dash DAO which coordinates the Dash community in a decentralized way and leverages the treasury with the incentives of the masternodes to fund projects that better the overall Dash network. Additionally, with the continuously low fees, fast confirmation times, and security Dash incentivizes everyday use rather than just hodling. Dash further incentivizes everyday use with its numerous platform integrations and outreach teams around the world. Dash has been able to use its unique structure to create beneficial incentives to improve users’ satisfaction of Dash as a decentralized cryptocurrency that they can use and trust.