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Investigation of the Summer 2021 BSV blockchain ‘double-spend’ attack

Double spend attack

Jack Pitts of Slictionary responded that he would like to see the Bitcoin Association take an active role in getting BSV taken off Bitmart, Bitfinex and Binance Institutional and called for a more thorough investigation into the alleged double-spends and re-orgs that occurred on the BSV blockchain in late June to August in 2021.

Having done a little bit of digging it is not immediately apparent what the facts of the incident are and how BitMart came to be a victim. Nor is it immediately obvious why such action should be taken against Bitfinex BitMart and Binance Institutional. 

This article will simply serve as a call out for more information and pose some questions that this author has been unable to answer satisfactorily. 

The backstory of the BSV blockchain ‘double-spend’ attack

These ‘attacks’ occurred in several waves. At first, a four-block reorganisation of the chain tip was observed on June 24th, 2021, by a miner under the alias of Zulu Pool. This did not immediately seem like a double-spend but more so as a poorly connected node with significant hash power.

The Bitcoin Association attempted to reach out to the node, but no communications were returned.

During early July, further reorgs of a similar nature occurred. After having reached out to the legitimate Zulu Pool, the Bitcoin Association Infrastructure Team was informed that it was not them doing the mining but rather an impersonator.

This now confirms that there is some malicious intent behind the reorganisation efforts.

Another wave of attacks commenced over August 3 and 4 where a much deeper reorganisation was attempted to be inserted with the attacker this time impersonating TAAL.

The Bitcoin Association communicated to miners and exchanges and recommended protective measures to mitigate the attacks. 

The impact of the ‘double-spend’ attack

In the aftermath of these attacks, fearing something similar could happen again and because of the depth of the reorganisation, many exchanges raised their thresholds to over 150 confirmations for deposits.

If we dig a little bit deeper and look at the motives behind these attacks, it would appear the attacker spent somewhere in the vicinity of $20,000 to execute the hashing in secret needed to promote a 100-block chain tip with difficulty at the time.

Social media posts from the time by some of the fiercest BSV pundits suggested that there was no correlation between the double-spends on BitMart and that it was likely just users depositing because they were panicked about a double-spend and the impending fallout.

It’s also interesting that, in conjunction with the attacks, a frenzy of rabid pundits began attacking through social media channels, criticising the handling of the attack and the violation of the Nakamoto Consensus by leveraging established relationships, identity and credibility to prevent catastrophic damages.

At the time of these attacks, the Bitcoin Association reached out to the community to see if any parties were affected but no one came forward. 

BitMart’s double standards

Later it was revealed in court filings that BitMart claimed to have been the victim of around 90 user accounts (including some registered in New York), depositing double-spent BSV during this period, trading them for other digital assets on the exchange and withdrawing these off the site.

It’s claimed they lost somewhere in the order of $5m from these actions.

There was no criticism of BitMart seeking to violate the ‘code is law’ mantra to get global injunctions placed upon the accounts under the New York Convention.

Later in the same year, BitMart suffered a ‘hack’ that saw them lose around $100 million of Ethereum and $95million of Binance Smart Chain, which was mixed through the recently sanctioned Ethereum mixer Tornado Cash. 

Interestingly, for this attack, BitMart’s owner Bachi.Tech and Spread Technologies LLC have petitioned the FTC to quash the investigation into the incident. 

There appears to be a double standard here for the exchange but what does that mean? 

With many ‘hacks’ often turning out to be inside jobs, could this be the reason for the parent companies seeking to quash an investigation? 

BSV suffers the fallout

Looking at what effect the reorganisation attacks had on the BSV market, just a month or so prior BSV was trading at highs of around $450.

Is it possible that these attacks were more than just for an opportunistic miner sensing BitMart’s security vulnerability and sitting on some serious hash power decided to fleece them for $5m? 

The BSV price has never recovered and the attacks themselves appear to demarcate an inflexion point between a clear uptrend and a clear downturn which saw BSV miss out on much of the ridiculous price action many other digital assets saw that year. 

Meddling by Bitfinex and Binance?

As to what roles Bitfinex and Binance Institutional played in the affair, it’s unclear. Binance threw its hat in the ring taking a firm stance against BSV, delisting it from their exchange following Dr Craig Wright’s instigation of legal action against Lightning Network Twitter celebrity Granath Magnus. 

At the time of the delisting, Binance gave users very little time to withdraw their funds from the exchange so there have been rumours circulating that they are sitting on a shadow pool of BSV that is used for market manipulation of the asset. Additionally, there are rumours that for some time BSV was still traded on their Binance Institutional platform but no evidence of that has been found.

Bitfinex has more extensive rumours circulating around its relationship with embattled ‘stablecoin’ Tether through its parent company iFinex and its leveraged trading. Having an intimate relationship with a stablecoin that is not actually fully collateralised, on a margin trading exchange can have significant clout in moving markets one way or another. 

Naked shorting has been the demise of many asset classes over the years. Especially if there are shadow pools of BSV floating around unaccounted for in market estimations. 

Pressurising the BSV blockchain community

There have been grassroots efforts by members of the BSV society to recommend users withdraw all their BSV from these exchanges to try to initiate a short squeeze on these exchanges but so far nothing of substance has eventuated. 

It’s interesting to note that BSV was having a consistent daily trading volume of $1-3 billion in the months leading up to the incident but since has often struggled to make $100m in daily volume. 

The 150 confirmations make it challenging for users to deal with exchanges and the pundits still love to harp on about the Bitcoin Association using Twitter to recommend the block hash for the honest chain during the attack despite miners already having used their processes to thwart the reorganisation.

Could it be the real gains made by the attack were halting the upward trajectory of BSV and limiting the liquidity of the asset available on the markets? 

Todd Price

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