Qubic’s Monero Gambit

Monero, the cryptocurrency renowned for its privacy features, is currently navigating a significant security threat.

Qubic, a project spearheaded by IOTA’s co-creator Sergey Ivancheglo, asserts it now commands over half of Monero’s mining power. In blockchain networks that rely on proof-of-work, the same mechanism that secures Bitcoin, this level of dominance could enable a malicious actor to manipulate transaction records, halt transactions, or execute double-spending attacks.

In a statement on their blog, Qubic characterized their acquisition as an “experiment” reflecting a “strategic, and at times adversarial, application of game theory.”

Experts in development, mining, and security are now actively analyzing whether Monero’s decentralized structure is as resilient as previously assumed.

Understanding 51% Attacks

Within a blockchain employing proof-of-work, miners compete to integrate new transaction blocks into the chain. If a single entity or group gains control of more than 50% of the network’s processing capacity, they can surpass all other participants in adding blocks.

This degree of influence paves the way for actions that erode trust in the network. These actions include chain reorganizations, often called “reorgs,” involving the replacement of confirmed blocks with newly crafted ones. It also enables double spending, allowing for the same digital currency to be spent twice.

Perhaps the most concerning aspect of a 51% attack is the ability to censor transactions—preventing specific payments from gaining confirmation. This is particularly critical for Monero, given its core focus on user privacy.

These attacks are not merely hypothetical scenarios. Ethereum Classic experienced multiple successful 51% attacks in 2020, resulting in losses totaling millions of dollars. Bitcoin Gold suffered similar events in both 2018 and 2020. Smaller cryptocurrencies, like Verge, have also been targeted and destabilized by such attacks.

Monero’s Continued Vulnerability

Monero implements the RandomX algorithm to discourage the use of specialized mining hardware (ASICs), encouraging mining via standard CPUs. This design aims to maintain a decentralized network. This is why Qubic’s rapid accumulation of hashrate is particularly concerning. Growing from under 2% of Monero’s hashrate in May, it climbed to over 25% by late July, and now they claim to have exceeded the 51% mark.

Qubic operates a unique “useful proof-of-work” system, converting Monero mining rewards into USDT (Tether), which are then utilized to repurchase and destroy QUBIC tokens. This unconventional strategy combines mining with a deflationary token mechanism, steadily increasing Qubic’s control over Monero’s hashing capabilities.

Ledger CTO Charles Guillemet remarked that “maintaining this attack is projected to cost $75 million daily,” but added while it holds a potential profit, “it might decimate confidence in the ecosystem almost instantly. It disincentives other miners to continue.”

BitMEX research stated: “Qubic’s ultimate goal is to take over all Monero block rewards, amounting to comprehensive and sustained selfish mining. Whether they can achieve this is unclear. If accomplished, the coin’s value may plummet.”

And it has. Monero’s XMR is presently valued at $252, showing a 6% loss in the last 24 hours, compounding a 13.5% loss in the previous week.

Implications for Monero

In their published statement, Qubic indicated that the purpose of their takeover wasn’t to compromise Monero but to demonstrate that strategic mining and coordinated economic incentives can enable a smaller protocol to exert control over a significantly larger one.

Qubic states the experiment aimed to assess the profitability of redirecting mining resources from a target network into the economic cycle of another protocol.

At its peak, Qubic claims its Monero mining activity was almost triple the lucrativeness of normal Monero mining. A restructuring of the reward system, accepted by the community, boosted validator earnings and incentivized miners away from other Monero mining pools.

Qubic’s initial attempt to achieve majority control was met with sustained distributed denial-of-service (DDOS) attacks. These attacks disrupted peripheral network services for over a week but failed to compromise the core infrastructure.

Ivancheglo revealed on X that these DDOS attacks resumed on Tuesday, describing it as “Monero Maxis returning the favor.”

Qubic maintains that it has refrained from fully taking over consensus due to concerns about the potential negative effects on XMR’s price.

Vulnerability of Other Blockchains to Attacks

Bitcoin’s hashing power is so substantial that a 51% attack would be financially unfeasible. However, mid-tier proof-of-work cryptocurrencies are more susceptible. Obtaining majority hashrate on Monero, Ethereum Classic, or Bitcoin Gold is substantially less costly.

Privacy coins additionally contend with another layer of challenge. Their built-in resistance to censorship means that if one party controls the network, it compromises the very privacy that these currencies are intended to ensure.