Practical Applications of Cryptocurrency Value and 51% Attacks: Evidence from Event Studies

Practical Applications Summary

In Cryptocurrency Value and 51% Attacks: Evidence from Event Studies, from the Winter 2020 issue of The Journal of Alternative Investments, authors Savva Shanaev, Arina Shuraeva, Mikhail Vasenin, and Maksim Kuznetsov analyze cryptocurrency altcoins. Their findings suggest that altcoins with certain characteristics tend to be vulnerable to 51% attacks that result in a significant drop in their value on the day of the attack. The characteristic vulnerable altcoin has a low market capitalization and resides on a proof-of-work blockchain with a low hash rate. Furthermore, when the prices of these coins suddenly increase without a clear explanation, it can signal an impending attack. It is notable that the percentage drop in value due to a 51% attack is much larger than the decrease in stock prices that typically occurs when companies experience a data breach or other cybersecurity attack.

TOPICS: Currency, risk management, financial crises and financial market history