Cryptocurrency exchange BTER was hacked yesterday and a significant quantity of funds stolen, including 51 million NXT (then worth $1.7m). NXT was the number one currency exchanged on this platform.
This is by far the largest hack that has ever happened in NXT’s history. Although it was entirely down to BTER’s lack of security, NXT as an economic system has started bleeding. Indeed, the hack concerns over 5% of the total money supply and, notwithstanding the moral issue of a hacker potentially getting away with such a crime, this leaves the NXT community with four problems to face:
- BTER – the major exchange for NXT – is in trouble, and although other exchanges will with no doubt pick up that volume in the future if needs be, this will take time and decrease NXT’s liquidity in the short term.
- Even though the hack had nothing to do with NXT’s security, it casts an unearned shadow over NXT, and some communication work will be necessary to recover from that.
- The money that was hacked was not BTER’s, but that of individual NXT owners. If BTER cannot pay that money back, then the hacker stole it from active members of the NXT community – not all of whom will be able to recover from the financial blow.
- Last but not least, the hacker now finds himself in possession of a lot of NXT. NXT being based on Proof of Stake, this gives him power that the NXT community would clearly want not to be in such hands.
That is why there was talk yesterday among the NXT community about a “rollback”, as was carried out with Vericoin following the Mintpal hack a few weeks ago. The idea was to create a hard fork starting right before the hack and convince people to forge on that fork instead of the normal one.
On the NXT forum, many people – possibly a majority – supported such a fork so that the funds would be returned to BTER to make sure the hacker would not gain from his crime. Others didn’t want to do this, arguing that since this was not a software bug but a lack of security, compromising the NXT blockchain by rolling back would send a terrible message to the market.
That’s when the Proof of Stake system showed its true value: developers created an alternative version of the NXT client so people could choose to forge on the rollback fork if they wished. Some downloaded it and started forging. But the big NXT holders, some of whom had had a lot of NXT on BTER, decided not to forge on that fork, believing that protecting the NXT blockchain was more important than trying to recover funds in a way that would kill NXT value in the mid and long term. The Proof of Stake system worked like a census democracy: those who had the most to lose had more power to decide and the NXT blockchain was protected – at the cost of 51 million NXT.
Tough price to pay: $1.7 million to protect a concept.
Written by: Jean-Laurent TARI, CEO of Crypto Finance Analysis Consulting (cfa-consulting.ch), and NXT expert
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