, 18 tweets, 5 min read Read on Twitter
Please read a novel solution proposed by @hosseeb to deter 51% attacks on exchanges where double spend can be stopped by, the exchange itself launching a 51% attack to "re-revert" original txn on chain ("Dollar Auction" analogy en.wikipedia.org/wiki/Dollar_au…)

But IMO it's a disaster 1/
Instead of being a deterrent, it'd be an incentive for further 51% attacks. If attacker was certain that the exchange will retaliate, they would create a "dollar auction" en.wikipedia.org/wiki/Dollar_au… scenario by double spending on two different exchanges & let them "51%" each other 2/
① Deposit ETC → Coinbase [R]❌
② Withdraw LTC → Gemini [R]❌
③ Exchange LTC → ZEC, Withdraw → Binance [R]❌
④ Exchange ZEC → XRP, Withdraw [Irreversible]✅
⑤ Deposit the same ETC → Kraken as ① Double Spend! [R]‼️
⑥ Withdraw XRP [Irreversible]✅
A smaller exchange is highly incentivized in this regime to double spend against 2+ rival exchanges (Coinbase + Gemini + Binance + Kraken) setting them on an irreversible path to mutually assured destruction as they blow through their customers funds trying to revert PoW txns 4/
My example is far fetched & it's more likely someone will just double spend on two different exchanges. But the complex attack will expose the dark underbelly & power players in PoW Crypto as they are going to have OPTIONS about which PoW network to 51% attack ETC, ZEC or LTC?
ETC & ZEC are Digital Currency Group investments who are also invested in Coinbase & Kraken. Barry Silbert (owner of DCG) is a huge ETC holder.
DCG also doesn't hold any LTC directly and the indirect exposure through Grayscale is a minuscule 200K (vs 22m & 7.6m for ETC & ZEC) 6/
Surely Coinbase would want to revert the ETC chain but Kraken would likely offer to help launch an attack on LTC instead and get that back from Gemini rather than a devastating attack ETC again burning through cash, which is an important investment of their shareholders: DCG. 7/
Gemini wouldn't agree? They'd lose their funds and the LTC chain wasn't even attacked, it was ETC and they don't even list it. Why should they be penalized for it? WinkleWoss twins, owner of Gemini would propose rolling back the ZEC txn from Binance an affordable & fair solution.
DCG wouldn't want to attack ZEC which is on their portfolio. All the PoW coins can be reversed so Binance is in trouble as they paid out in XRP which is irreversible. Even if Binance had paid out in Fiat, it could be reverted but XRP makes it impossible. So CZ will obviously 9/
CZ will obviously defend his ground & either mine ZEC in retaliation while the other three exchanges collude to sabotage Binance or he'd try to strike a gentleman's agreement with Coinbase and Kraken to mine LTC and 51% attack revert LTC as nobody liked that coin and nobody holds
Whatever the case, it's a disaster for the exchange to handle PoW coins which can be reversed and attacker taking payout in immutable ledgers like XRP where you have transaction finality in a few seconds. Even Fiat Payout is could be reversed but XRP can't be. So they are stuck /
Following the recommendation of exchanges retaliating to 51% attacker by re-mining the chain with less accumulated work in order to revert the double spend results in mutually assured destruction of exchanges as PoW is a euphemism for "might is right" and the richest always win.
Even though an attack could happen on ETC, the damage would be paid by ZEC, or LTC or a different exchange that wasn't attacked but was purely a recipient of a chain of conversions & paid out in XRP. This shows the ugly truth about PoW, a few winners, LOTS of losers, uncertainty.
There's no long term solution. Coinbase/Gemini list only transaction reversible assets (PoW) but their payout can be directed to an exchange to covert it to an irreversible asset like XRP. No amount of money can recover your funds, so PoW power players must attack each other/die.
In the process the digital asset markets will suffer. The mayhem will of 51% attacks being launched by rival cryptocurrency networks to recover or steal funds to gain supremacy will just give the impression that blockchains are a gimmick: rich folks pick & choose winners & losers
I therefore think nobody should attempt such recovery or deterrent techniques as it's highly likely to fail or be exploited by well funded state-actors who could destroy the confidence in all blockchain.

That's unfair to distributed agreement protocols (XRP) that can't be 51%ted
The stop-gap solution is to make deposits/exchanges and withdrawals directly proportional to the amount of money you are depositing/withdrawing. It means it's a lot like FIAT, and that sucks, but that's the truth about PoW. It's probabilistic, so the larger risk, longer you wait.
Alternatively, you can do big money transactions with chains that give settlement finality in seconds. XRP Ledger is an example and XRP is liquid. Unfortunately for Coinbase and Gemini, they don't want to list it. LEt's see how long they list ETC before they realize it's crazy.
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