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Ethereum Merge makes network more vulnerable to attack — Security expert

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Ethereum Merge makes network more vulnerable to attack — Security expert

The security expert said that while PoS isn’t “theoretically” as secure as PoW, he admits it still has “sufficient practical security.”

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Ethereum Merge makes network more vulnerable to attack — Security expert

Despite the Ethereum Merge being touted as a major upgrade to the blockchain network, its transition to proof-of-stake theoretically makes it more vulnerable to exploit.

Speaking to Cointelegraph, the security researcher explained that unlike proof-of-work (PoW) systems, a proof-of-stake (PoS) system informs node validators in advance what blocks they will validate, thus enabling them to plan attacks.

The security expert, who asked not to be named, is a blockchain developer and security researcher working on a proof-of-stake layer-2 blockchain.

The researcher explained that an exploit could theoretically occur on the post-Merge Ethereum blockchain if validators manage to line up two consecutive blocks to validate.

“If you control two consecutive blocks, you can start an exploit on block N and finish it on block N+1 without having any arbitrage bot coming in and fixing the price that you have manipulated in between.”

“From an economic security standpoint, [this vulnerability] makes these attacks relatively easier to pull off.”

The expert said that while it’s also possible for miners to validate consecutive blocks in PoW networks — that comes down to “pure luck” and gives the miner no time to plan an attack.

As a result, the security researcher argues that Ethereum will be forgoing some strength in security when the Merge takes effect:

“As we stand right now [with] the Ethereum proof-of-work versus Ethereum proof-of-stake, Ethereum proof-of-work does have stronger security […] and economic guarantees.”

“But that being said […] proof-of-stake [still] has sufficient practical security [and] it doesn’t really matter that it’s theoretically not as secure as proof-of-work. It’s still a very secure system,” he added.

Related: Buterin and Armstrong reflect on proof-of-stake shift as Ethereum Merge nears

The security expert added that “Ethereum is working on fixing [the consecutive block issue].

It is a hard problem to solve, but if that gets done, then proof-of-stake security will [further] increase [as] they’ll have protection against those attack vectors.”

Ethereum validators are subject to slashing in PoS, as the consensus rules were designed to economically incentivize validators to correctly validate incoming transactions and any conduct to the contrary would see their ETH stake slashed.

The Ethereum Merge is finally set to take place on Sept. 15 at about 2:30am UTC, according to Blocknative’s Ethereum Merge Countdown. The transition to PoS is set to make the Ethereum network more scalable and energy-efficient.

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Grayscale Launches New Investment Product While Bitcoin Trust Crashes to 35%

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Grayscale Launches New Investment Product While Bitcoin Trust Crashes to 35%

Grayscale Investments is offering investors an opportunity to invest in Bitcoin mining hardware in the bear market.

The new investment opportunity, called the Grayscale Digital Infrastructure Opportunities LLC (GDIO), is now open to qualified individual and institutional investors, even as the asset manager allows ETF-related court proceedings to run their course.

Grayscale putting capital to work

Grayscale will use investor capital from the GDIO to buy mining hardware for a minimum of three years. It will use the hardware to mine and subsequently sell bitcoin. Mining is the energy-intensive process undertaken by a computer network to create a new transaction block and verify it. The node in the network that creates the block is known as a miner. A miner is rewarded in bitcoin for his effort, which typically requires large amounts of cheap electricity and computing power.

Part of the proceeds Grayscale will earn from its efforts will be paid out quarterly to GDIO investors.

“Grayscale’s unique position at the center of the crypto ecosystem enables us to create offerings that allow investors to put capital to work through differing market cycles,” stated Michael Sonnenshein, Grayscale’s chief executive.

GDIO represents another way the company has sought to provide investors with exposure to bitcoin without directly holding the asset.

Investors can also purchase shares from its GBTC trust and gain exposure to bitcoin through Grayscale’s legally regulated business in the U.S.

But Grayscale has a problem. Because investors cannot redeem shares in the trust for bitcoin, the price per share has dropped drastically, trading at a discount of 35% to its Net Asset Value. 

At the close of the trading day on Oct. 5, shares were trading at a shade over $12, despite being backed by $18.45 worth of bitcoin.

To mitigate this discount, Grayscale has pursued the conversion of GBTC into a spot bitcoin exchange-traded fund, which has so far been unsuccessful. The U.S. Securities and Exchange Commission denied the company’s latest application in June 2022, prompting Grayscale to pursue legal action against the federal agency. 

Nic Carter of Castle Island Ventures, a venture capital firm focused on early-stage public blockchain startups, said that Grayscale could wind down the ETF:

watching the GBTC discount. looks like ATL at -35%. on top of discounted spot BTC. paths to breaking open the piggy bank: SEC can approve ETF conversion, or Grayscale can wind down the trust themselves if they so choose.

— nic carter (@nic__carter) June 17, 2022

The SEC maintains that spot bitcoin ETFs are prone to underlying market manipulation.

Grayscale undeterred by SEC rejection

Despite consistent resistance from U.S. regulators, Grayscale launched its first European ETF in May 2022, which tracks the Bloomberg Grayscale Future of Finance Index, offering customers exposure to institutions at the crossroads of finance, technology, and cryptocurrencies.

Grayscale raised investors’ eyebrows recently when it announced that it had applied with the SEC to distribute 3 million ETHPoW tokens that were distributed to all Ethereum (ETH) holders after the controversial proof-of-work fork went live. 

At the time, Grayscale said it was seeking the rights to sell the tokens and pay out shareholders. 

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Colorado is accepting crypto for tax payments — it could be a mess or a shining example

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Colorado is accepting crypto for tax payments —  it could be a mess or a shining example

Colorado is now accepting crypto for tax payments — but if you choose to use that option, it could change the amount you owe…
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BNB Chain confirms BSC halt due to ‘potential exploit’

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BNB Chain confirms BSC halt due to ‘potential exploit’

Rumors of a significant hack on the BNB Chain were confirmed by the blockchain’s team, with all deposits and withdrawals suspended on the network…
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