Since have become more popular, regulators have struggled to keep up with the technology and promulgate rules to ensure fair competition in the market. Currently, markets have been ripe with and . While cut-and-run schemes and engaging in practices to cause price manipulation clearly implicate certain criminal statutes, it is unclear whether hostile takeovers by miners of blockchains are illegal under current criminal statutes.
What is a 51% Attack?
To understand how a 51% attack works, there needs to be a basic understanding of how blockchains operate. Blockchains operate via a public where transactions are verified and recorded to prevent double spending of the . This allows the to not be replicated and allows it to operate as transferable money. In Proof-of-Work , such as , transactions are verified by “miners” or people who run computers that solve complex algorithms to verify the ’s transactions. The depends on the miners to correctly verify transactions that occurred and enforce the protocol in a way that prevents fraud and double spending.
But what happens when the miners don’t verify the correct transactions? Under normal circumstances, any block that contains non-valid transactions will be rejected. However, if 51% of the miners are willing to verify a block with non-valid transactions, then the could possibly be taken over by these miners and the non-valid transactions could be verified. This takeover by the simple majority of miners is referred to as a 51% Attack.
Why Would a 51% Attack Occur?
Many cite that bad actors are deterred from committing 51% Attacks because the coins they could possibly steal would be worth much less after the 51% Attack since the integrity of would be called into question. However, it is possible that proof-of-work blockchains could be taken over for reasons other than to steal coins.
In the ICO market, some blockchains are very similar in purpose and use. A ’s miners may view a competing as an obstacle to the long term success of the they mine. If the miners coordinated and had the capacity to take over the rival , they could commit a 51% Attack in order to destabilize the competing . This could deter new users from engaging the and drive existing users to the miners’ . The miners who committed the attack would profit since the gain in users could increase the price of their coin holdings and cause higher transactions on the , which could result in higher fees for the miners to collect.
If another ICO bull market begins, the higher stakes and crowding in the ICO space could cause some miners to resort to more aggressive tactics to allow their coin to stand out. Hostile takeovers of blockchains could be viewed as a way to consolidate a foothold in certain areas of the ICO sphere and prevent competition. And much like corporate raiding in the 1980s, a few successful hostile takeovers could cause them to be viewed as a legitimate way to deter or eliminate competing .
Are 51% Attacks Illegal?
As of right now, 51% Attacks are not illegal in and of themselves. There are no federal statutes forbidding the takeover, by miners, of a .
That said, the context of the attack could determine if criminal liability exists. If the underlying purpose of the 51% is to divert coins to one’s own for personal gain at the expense of the original owner, that could be a possible criminal act. However, legal obstacles still remain. Courts have yet to establish how one owns or possesses . Is owned by the person who possesses the private keys or is ownership actually established by the consensus of the ? If ownership is subject to the consensus of the , one could argue that the original owner of the impliedly availed themselves to the rule of the when they purchased or mined the coin.
Another possible avenue of criminal liability is in the context of securities law. Currently, the Securities and Exchange Commission has taken the position that many ICOs are securities under U.S. law. As a result, these coins (and their blockchains) would be subject to securities regulations. The United States has addressing price manipulation. However, these laws generally address price manipulation in the context of buying or selling the security or derivatives to manipulate the price of the security. They do not address attacking the underlying infrastructure to the security to cause a manipulation in price.
Ultimately, a 51% miner takeover is not illegal and the existing criminal framework does not adequately address issues within the world of blockchains. Much like other emerging technologies, oversight and are needed to deter bad actors and help promote new investment in the market. As of now, blockchains largely remain legally exposed to hostile takeovers by miners.
Published at Wed, 08 May 2019 19:06:48 +0000
