Kraken Halts Monero Deposits After 51% Network Attack

Kraken has temporarily halted Monero (XMR) deposits following a confirmed 51% attack on the Monero network. The exchange stated that the decision was made as a precautionary measure to protect users and the integrity of its platform. According to Kraken, a single mining pool—Qubic—briefly gained more than 50% of Monero’s total hashing power, enabling it to reorganize the blockchain and rewrite transaction history. This attack resulted in the orphaning of approximately 60 blocks [2].

A 51% attack occurs when a single mining entity controls more than half of a blockchain’s hashing power, granting it the ability to manipulate the ledger, including double-spending and reordering transactions. Kraken wrote on Friday, “As a security precaution, we have paused Monero deposits after detecting that a single mining pool has gained more than 50% of the network’s total hashing power. This concentration of mining power poses a potential risk to network integrity.”

Qubic, a layer-1 AI-focused blockchain and mining pool, claimed it controlled the majority of Monero’s hashrate and reorganized six blocks, prompting initial denials from the Monero community. The mining pool was initially rebuffed in its attempt at a takeover, falling to the protocol’s seventh-largest miner and experiencing an alleged denial of service (DDoS) attack on August 4. The DDoS attack significantly reduced Qubic’s hashrate from 2.6 gigahashes per second (GH/s) to just 0.8 GH/s, according to Sergey Ivancheglo, who claimed responsibility for the 51% attack [2].

Despite these setbacks, Qubic eventually regained its hashing power and briefly controlled a majority of the computing power on the Monero network. “This event marks a pivotal moment in the crypto industry,” Qubic spokespeople noted, highlighting the takeover of a $6 billion privacy protocol by a $300 million AI protocol [2].

Monero, which ranks as the 29th largest cryptocurrency by market capitalization, is known for its strong privacy features that conceal sender, receiver, and transaction amounts. However, its relatively smaller hashrate compared to major blockchains like Bitcoin and Ethereum has historically made it more susceptible to such attacks. The recent 51% attack underscores the vulnerability of mid-sized Proof-of-Work blockchains, particularly when mining power becomes overly concentrated [2].

The move by Kraken reflects a broader industry trend of exchanges taking proactive steps to mitigate risks associated with blockchain network instability. While privacy coins offer unique value to certain users, incidents like this highlight the trade-offs between privacy and security. The attack also raises questions about the long-term viability of smaller blockchains that rely on a less distributed mining network [2].

Kraken did not specify a timeline for when deposits would resume but reiterated its commitment to user security. The exchange also emphasized that such actions are taken only after thorough analysis and confirmation of potential threats. Monero trading and withdrawals remained unaffected and fully operational during the pause [2].

The response from the broader cryptocurrency community has largely aligned with Kraken’s decision. Many industry observers have pointed to the need for enhanced security measures and decentralization within smaller blockchains to prevent similar incidents. The attack also serves as a reminder that even well-regarded protocols can face operational risks if mining power is not effectively distributed [2].

Source: [1] Kraken pauses Monero deposits following 51% attack (https://cointelegraph.com/news/kraken-pause-monero-deposits-after-51-attack)

[2] Kraken Suspends Monero Deposits After 51% Attack (https://cryptodnes.bg/en/kraken-suspends-monero-deposits-after-51-attack-linked-to-qubic-pool/)