Yes, Eventually Blockchains Get Hacked

Yes, MIT, eventually Blockchains get hacked. In the following article, I review how, why, and what we can expect to happen next.

Ethereum Classic was hard forked (split) from Ethereum several years ago due to governance problems with their smart contract implementation of the DAO (decentralized autonomous organization). The DAO was exploited by fair play - rules written to its governance model overlooked a shortcoming, which allowed code to be executed that legally stole money from other accounts. This was super controversial at the time because according to the way the smart contracts were written, stealing in this was was OK. It was a technical oversight that led to the disruption.

As a result, core Ethereum developers decided on their own to hard fork the code and to disregard all previous transactions, essentially restoring the millions of dollars worth of Ethereum to users who were legally robbed. This initially caused a lot of contention and drama that eventually faded, the thought being that, once forked, nobody would spend the mining resources to keep Ethereum Classic up and running. Well, this notion was wrong. In fact, some die hard fans kept ETC afloat and drove it back into the spotlight when Ethereum started to run into its own problems. Why Coinbase ever decided to sell ETC is beyond me. They're typically very selective and this was a known problem in the crypto community for years. Why risk investing in a blockchain platform that already catastrophically failed its mission once before?

51% attacks are a real threat to a lot of immature cryptos, which is why BTC is so shiny to maximalists and institutional investors. At this point, it would take more power and money to try and perform a 51% attack on BTC than it would be to use that power to mine valuable BTC. In essence, that's the beauty of Bitcoin. It started slowly, without much attention, and built up resistance to sybil attacks and 51% attacks while nobody was looking. This is also why institutional investors are primarily interested in BTC. Bitcoin has the longest chain, meaning it is the most resilient to attacks, and therefore is the healthiest bet in the long-term.

Other blockchains that started up during the ICO boom retain value but have very few miners and will therefore increasingly suffer from 51% attacks. Bootstrapping value into a proof-of-work blockchain is very difficult to accomplish with ICOs and airdrops. Bootstrapping a proof-of-stake blockchain with security guarantees is even harder. It's like putting several million dollars behind a wall of whack-a-mole locks. It doesn't take much to gang up on the moles with more than one hammer. And the reward is lots of money that nobody's really paying all that much attention to.

As this trend of 51% attacks continues, and other valuation trends pile on, I believe we'll see a consolidation in value around the top 10 - 15 cryptocurrencies. While the overall market cap vacillates, cryptocurrencies like BTC will slowly appreciate in value such that the overall market cap doesn't need to change much for there to be a positive swing in the top 10. The money will flow from the bottom up while the overall market cap stays relatively calm.

Eventually, once regulations are clearer and custody is solved, institutions will bankroll key performers. The most interesting aspect about crypto is that people are making meaningful bets on real money every day. Others simply just don't realize it most of the time because that money is tokenized. Without a trusted custodian, the same scrutiny for protecting your USD or gold is warranted for crypto, if not more.