Kraken halts Monero deposits as Qubic seizes 51% hashrate

Crypto exchange Kraken has temporarily suspended Monero deposits following an alleged 51% attack on the privacy-focused blockchain, sparking heated debate within the crypto community.

This type of attack occurs when one mining pool controls more than 50% of a blockchain network’s total hashing power. This gives way to double-spending and reordering transactions on the ledger. In a statement, Kraken explained that Monero deposits were paused as a precautionary measure to protect network security.

“As a security precaution, we have paused Monero deposits after detecting that a single mining pool has gained over 50% of the network’s total hashing power. This concentration of mining power poses a potential risk to network integrity.”

Kraken halts Monero deposits amid rising network threats

The suspicious activity was attributed to Qubic, a layer-1 blockchain and AI-mining pool. Earlier this week, Qubic said it achieved majority control in Monero hashrate and reorganized six blocks on the blockchain. This prompted denials of the attack from the Monero community.

Monero, the 29th largest cryptocurrency by market capitalization according to CoinMarketCap, is a leading privacy-focused protocol. The ongoing 51% attack on its network has rattled the community, sparking a flurry of reactions.

“After a month-long, high-stakes technical confrontation, Qubic reached 51% of Monero’s hashrate dominance, successfully reorganizing the blockchain,” spokespeople for Qubic wrote on Tuesday.

The mining pool was initially rebuffed in its attempt at a takeover, falling to the protocol’s seventh-largest miner. It was hit with an alleged denial of service attack on August 4. A distributed denial-of-service (DDoS) attack overwhelms a computer, network, or server with excessive fake traffic, clogging the system and blocking legitimate requests from being processed.

According to Sergey Ivancheglo, who claimed responsibility for the 51% attack, the DDoS assault slashed Qubic’s hashrate from 2.6 gigahashes per second (GH/s) to just 0.8 GH/s. The Qubic pool eventually regained its hashing strength, seizing majority control of the Monero network’s computing power.

“This event marks a pivotal moment in the crypto industry,” Qubic spokespeople continued, while highlighting the takeover of a $6 billion privacy protocol by a $300 million AI protocol.

Monero, which trades as XMR, is currently the third-worst performer among the top 100 cryptocurrencies by market cap, and it’s down almost 25% in the last month.

Economic incentives replace traditional malicious attacks in mining wars

The 51% attack on Monero would be especially critical in the eyes of money launderers searching for untraceable transactions and iron-clad privacy features -innate Monero virtues.

The network’s RandomX algorithm was explicitly created to deter ASIC mining and promote CPU and GPU mining in the game of decentralization. 

But Qubic introduced a unique “useful proof-of-work,” or uPoW, module, which it has also been using to incentivize the Monero CPU mines to be redeployed in support of its token economy. However, it plans to convert mined XMR into USDT stablecoins in order to purchase and burn QUBIC tokens using a deflationary model on its native coin.

Instead of establishing a traditional attack for profit or disruption, the project has formed economic incentives that push miners away from distributed pools toward their centralized operation. This new attack category doesn’t rely on malicious intent but superior economic incentives.

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