Committee Meetings

August 2020: Bitwise Crypto Index Committee Meeting

San Francisco | August 6, 2020 9:00 PM UTC

Meeting called to discuss 51% attacks on Ethereum Classic.


Meeting Details

Date: August 6, 2020

Time: 2:00 – 2:30 p.m. PT

Reason for Meeting: Emergency meeting

In Attendance: Matt Hougan (Chair), Hunter Horsley (Member), David Lawant (Member), Hong Kim (Observer)

Meeting Notes

Item 1: Ethereum Classic’s 51% Attacks

The Chair of the Bitwise Crypto Index Committee called an emergency meeting to discuss the unfolding situation surrounding Ethereum Classic (ETC). ETC is a cryptoasset that is held in the Bitwise 20 Mid Cap Crypto Index, Bitwise 100 Total Market Crypto Index, and the Bitwise 10 Select Crypto Index. It recently endured two 51% attacks in a short period of time.

The Committee reviewed the following developments:

  • On August 1, 2020, Ethereum Classic experienced a significant 51% attack. A miner generated a series of 3,763 blocks over many hours and then broadcast them at once to other miners. As reported by blockchain intelligence firm BitQuery, not all nodes reacted the same way: some (Geth and Hyperledger Besu) accepted the attacker blocks, but Open Ethereum did not. As a result, the blockchain was split into two versions, one of which included the attacker blocks and another which didn’t.
  • Ethereum Classic developers initially stated that the attack did not seem malicious, as it could have happened because a miner had lost internet access while mining. Their recommendation at that point to other miners was to continue mining the chain as-is (i.e., work on the chain that included the blocks inserted by the attacker).
  • Later on, BitQuery reported that the attacker double-spent 807,260 ETC (equivalent to $5.6 million) and estimated that the total cost of the hash power used for the attack was 17.5 BTC (equivalent to $192k). On top of that, the attacker also received roughly 13,000 ETC in block mining rewards. It is believed that the address that had the ETC drained from it belonged to OKEx.
  • On August 6, 2020, the network suffered a second 51% attack. The attack was identified by exchange Binance and by crypto mining pool Bitfly. According to Coindesk, the second block reorganization was roughly 4,000 blocks long; deeper than the first one. A few minutes later, Ethereum Classic developers recommended ETC service providers to “significantly raise confirmation times on all deposit and incoming transactions.”
  • As of now, the Committee could not find an estimate of the monetary value of the second attack.
  • From a price action perspective, ETC was mostly rising until the August 1 attack, but it crashed from a high of $8.297 to a low of $6.393 at the end of that day (Pacific Time). Prices then quickly recovered and, as the chart shows, ETC has been trading in the roughly $7.00-$7.30 range since then.
ETC Prices

This is not the first time Ethereum Classic has been 51% attacked. On January 7, 2019, Coinbase detected an attack that totaled $1.1M worth of reorganizations. The exchange then paused all interactions with the ETC blockchain and resumed sends and receives by March 11, 2019.

Rule III.B.i.f of the Bitwise Crypto Index Methodology states that, for a cryptoasset to be eligible for inclusion in the index, it must have “no known security vulnerabilities, including critical bugs, undue exposure to 51% attacks, or other factors, as determined by the Bitwise Crypto Index Committee.” The methodology adds that “This requirement exists to ensure the asset is not knowingly exposed to a critical security risk that could lead to a significant loss in value.”

The Committee took a vote to determine whether ETC was in violation of Rule III.B.i.f given recent developments. The Committee voted 3-0 that ETC was in violation of Rule III.B.i.f. As a result, the Committee determined it would be removed from all relevant indexes on an “emergency basis.”

Rule III.B.ii.b governs the emergency removal of assets from the Bitwise Crypto Indexes. The rule states that all removals will take place at 4pm ET following the publication of the notes of the meeting. As a result, ETC will be removed from the relevant indexes at 4pm ET on Friday, August 7, 2020.

Rule VI.B.ii.g governs the emergency removal of assets from the Bitwise Select 10 Large Cap Crypto Index. The rule states that all removals will take place at 5pm Zurich Local Time following the publication of the notes of the meeting. As a result, ETC will be removed from the relevant indexes at 5pm Zurich Local Time on Monday, August 10, 2020.

Per the rules of the index, the value currently allocated to ETC will be redistributed to other assets already present in the index. Bitwise Crypto Indexes do not replace assets removed on an emergency basis per Rule III.B.i.f until the following reconstitution event.

Item 2: Adjournment

The Chairman adjourned the meeting.

About Bitwise

Based in San Francisco, Bitwise is one of the largest and fastest-growing crypto asset managers. As of March 31, 2022, Bitwise managed $1.2 billion across an expanding suite of investment solutions. The firm is known for managing the world’s largest crypto index fund (OTCQX: BITW) and pioneering products spanning Bitcoin, Ethereum, DeFi, and crypto-focused equity indexes. Bitwise focuses on partnering with financial advisors and investment professionals to provide quality education and research. The team at Bitwise combines expertise in technology with decades of experience in traditional asset management and indexing, coming from firms including BlackRock, Blackstone, Meta, and Google, as well as the U.S. Attorney’s Office. Bitwise is backed by leading institutional investors and asset management executives, and has been profiled in Institutional Investor, CNBC, Barron’s, Bloomberg, and The Wall Street Journal. For more information, visit www.bitwiseinvestments.com.

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