On Feb. 20, the San Francisco-based cryptocurrency exchange Coinbase provided the public an inside look at how the company deals with controversial forks. Coinbase engineer Breck Stodghill specifically talked about how the trading platform handled the Bitcoin Cash (BCH) split on November 15, 2018.
Replay Attacks, Protection, and ‘Dust Mixing’
Over the last couple of years, cryptocurrency lovers have got familiar to the concept of forks and subsequent blockchain splits since the Ethereum network bifurcated in 2016. Since then there have been a couple of other significant splits that impacted the crypto environment. Coinbase has discussed in an article written by developer Breck Stodghill that the business believes networks need to have the ability to fork as it's an “essential tool for development in the environment.” The only thing is, some forks, particularly ones that don't have replay security, can pose “unique security risks” for exchange consumers.
The Bitcoin Cash network fork in November was one of those instances as the upgrade was controversial in the eyes of an “opposing subgroup.” In order to secure users who held BCH on Coinbase prior to the fork, the company developed its own replay security technique to mitigate replay attacks. When a cryptocurrency splits in half there are 2 chains with similar transaction histories, addresses, and balances. Essentially, without replay defense, deals can be double spent by harmful actors and other types of transaction mistakes can occur.
“To overcome this special issue, we implemented our own replay defense by using a method called “dust blending,” thus making sure that all customer funds are isolated to a specific chain and not susceptible to replay attacks,” describes the Coinbase developer.
When the fork happened, Coinbase utilized the dust mixing strategy in order to be sure the firm's hot wallet and customers' funds were protected. One way to separate two identical chains is by using transaction inputs that only exist among the ledgers. When the BCH chain diverged into 2, new outputs were developed and formed within the miners' reward. These coinbase benefits are various and separate the mirrored chains moving forward.
“Dust mixing describes the practice by exchange operators of consisting of at least one small chain-isolated input to each freshly generated post-fork transaction,” Stodghill's post information. “At the time of the BCH/BSV fork, we acquired a BCH coinbase reward from a miner. We utilized the coinbase reward to generate a big set of chain-isolated dust outputs. For each newly produced post-fork BCH transaction, we make sure to include at least one input that is ensured to be separated to the BCH chain (i.e. a descendant of a BCH coinbase reward).”
Coinbase continued by adding:
Any leftover change outputs of Coinbase generated BCH transactions are added back into the pool of chain isolated outputs in our hot wallet and can be used as an input to subsequent transactions to produce additional dust outputs required to service BCH sends off our platform.
Contentious Forks Can Lead to Big Exchange Losses
Hard forks are a part of the way blockchains update however controversial forks can result in splits and subsequent replay attacks if no protection is added by cryptocurrency devs. Back when the Ethereum network fork shocked everybody in 2016, former Coinbase executive Charlie Lee specified that the Ethereum Foundation advised the exchange not to utilize replay defense. Reports at the time detailed that trading platforms like Coinbase, Yunbi (40,000 ETC) and Btc-e all lost thousands of ETC and ETH throughout the chaos. On Aug. 6, 2016, Coinbase CEO Brian Armstrong informed the cryptocurrency developer Peter Todd that the exchange lost around 17,500 ETC ($40,000 at the time) from replay attacks.
In its blog post about the BCH/BSV split, Coinbase discusses that the business wishes to continue developing an open monetary system with a relied on track record. Established in 2012 by Armstrong and Fred Ehrsam, the exchange hasn't seen any significant breaches, unlike a lot of the other trading platforms produced at that time. When it comes to hard forks, Coinbase says the firm's engineers are always working all the time to find solutions to issues like blockchain splits. “Our security focused technique to difficult fork management is a direct result of that objective,” the San Francisco business concludes.
Image credits: Shutterstock, the Coinbase blog, and Pixabay.
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