Page 24 - Banking Finance January 2022

ARTICLE

digital representations of value, issued by private approving a transaction before it is added to the block is
developers and denominated in their own unit of fool proof as long as the " honest nodes collectively control
account. They also added that cryptocurrencies are not more CPU power than any other cooperating group of
necessarily attached to a fiat currency but are accepted attackers". This means that if a group of attackers can get
by natural or legal person as a means of exchange. more than 51% CPU power they can get around the system
and manipulate it according to their will. This loophole is
Brief understanding of Blockchain and referred to as the known limitation of 'the proof of work'.

Bitcoin
Instances of Cryptocurrency Hijacking
Blockchain technology is like a digital public ledger where
Y As per Coinbase- a cryptocurrency exchange platform,
all the transactions and digital events that have taken place
are recorded. Every transaction that is recorded on they noticed some anomalies in the Ethereum Classic
blockchain has to be verified by the consensus of majority blockchain on 1st May2019 which led them to halt all
of network participants and once a transaction has been interactions with the Ethereum Classic Blockchain. After
a few days it was discovered that it was a coordinated
included in the chain of blocks it can't be erased without
attack on the ETC's blockchain and in total 219,500 ETC
the consensus of a majority of network participants.
whose value was approximately around $1.1 million,
though none of the Coinbase accounts were impacted
Bitcoin is one of the first cryptocurrency which was coined
using blockchain technology. Traditionally while transacting by the attack.
online there is a need for a trusted third party to verify each Y On 10th August 2021, the largest cryptocurrency hack
transaction but Bitcoin eliminates the need for any third was reported. Polynetwork, a decentralised finance
party to verify each and every transaction instead it uses a platform that connects different blockchains so that they
peer to peer based system of transactions that facilitates can work together disclosed an attack on its platform
every transaction without having the need to go to any where hackers transferred $610 million worth
financial intermediary. cryptocurrency from the platform to external wallets.
Poly network in their communication urged the hackers
Each transaction is protected using a digital signature and to return the stolen cryptocurrencies and in a strange
each transaction is sent to the public key of the receiver turn of events the hackers did return the stolen
signed using the private key of the sender. Each of these cryptocurrencies.
transaction is broadcasted to every node in the Bitcoin Y In 2014,MtGox - a Japanese Cryptocurrency exchange,
network and is then recorded in the public ledger after who was at that time the world's largest cryptocurrency
verification. Every block is connected to the previous block exchange platform filed for bankruptcy stating $460
using a hash number and also every block has a unique hash million worth of cryptocurrencies were stolen from their
number embedded in itself as well. exchanges. As per the company there was a

However, these transactions come in random order to the
nodes which can create a problem of double spending. To
combat this problem of double spending bitcoin requires a
network of participants to agree upon a single history of
order in which the transactions were received. The person
receiving money, needs proof that majority nodes(network
of participants) agree that the particular transaction was
the one that was first received.

While talking about Blockchain many people refer to it as a
fool proof network of transactions but there is one loophole
in this entire system. As per the author of the Bitcoin
Whitepaper- Santoshi Nakamoto, this system of nodes

24 | 2022 | JANUARY | BANKING FINANCE