- ETH lost more than 7 percent in less than 24 hours after the announcement of the beacon chain block reorganization.
- Ethereum beacon chain experiences a 7-block reorg.
Like other crypto and traditional finance markets, Ethereum is also experiencing intense selling pressure. Our data shows that Ethereum has lost 3.4 percent in the last 24 hours and trades at $1,770. The second leading digital asset’s bad week worsened with this new bearish trend.
ETH’s price has declined by over 16 percent in the last week. Its price of $1,731 as of press, representing a sharp decrease from its price of $2,077 as of May 22.
According to Coinglass data, the loss in ETH value resulted in more than $157m liquidations. Bullish crypto traders were responsible for over 75 percent of these liquidations.
Reasons behind ETH’s recent price dip
There are several reasons for ether’s dip in value. The most notable was the recent suspension of the network’s merge event. The event was already scheduled for August. The event will see the switch of Ethereum from a PoW to a PoS network.
The parallel version of the switch, technically known as the beacon chain, has been operating since December 2020. The completion of this switch will put an end to its PoW version.
However, there was a block reorganization event of the beacon chain on May 25. Such events indicate that there was a temporal fork on the beacon chain. Such forks mean processing several blocks of transactions on another similar version of this beacon chain.
BeaconScan (a top block explorer) claims that the blockchain has been generating blocks without interruption since then. However, Preston Van Loon (a top Ethereum core developer) states that the Ethereum team will soon release a detailed analysis of this event.
A possible high-level security risk
The blockchain reorganization event of the Ethereum beacon chain indicates a possible high-level security risk. A malicious attack or a network failure are the two common causes of a reorganization (also known as a reorg). But, in either case, the blockchain becomes duplicated.
The effects of a reorg become more serious if there is no solution to it quickly enough. Gnosis CEO and an insider on the matter, Martin Koppelmann, claim that the beacon chain’s reorg affected seven blocks.
This reorg is the longest in recent memory. The beacon chain will make native staking on the Ethereum network possible. Through staking, validators can start adding blocks to the Ethereum chain.
Staking enables holders to pledge their assets to a blockchain. It is also one of the most common benefits of the PoS mechanism. Hence, if there are any issues with the beacon chain, it will delay the switch of the Ethereum network from a PoW to a pos consensus mechanism.
According to Koppelmann, the reorg is proof that the merge cannot happen yet. Then, he added that “developers might need to reconsider the current nodes’ attestation mechanism. Then, we can hope that the chain becomes more stable.”
The Ethereum beacon chain experienced a 7-block deep reorg ~2.5h ago. This shows that the current attestation strategy of nodes should be reconsidered to hopefully result in a more stable chain! (proposals already exist) pic.twitter.com/BkQrKuUlw1
— Martin Köppelmann 🇺🇦 (@koeppelmann) May 25, 2022
A reorg will happen when two miners simultaneously add transaction blocks of equal difficulty to a network. When a reorg happens, there is a duplicate version of the blockchain. The technical term for it is a fork. The miner who wants to add the next block needs to choose one section of the fork as the right one.
Thus, the other section is automatically discarded. A 7-block reorg indicates that seven blocks of transactions have been added to the network before developers put away that section of the fork. Etherscan.io data estimates that there is an average of 250 transactions on each block of the Ethereum chain.
It further adds that these transactions are worth 2 ETH. When there are similar versions on a blockchain, someone can spend the same asset twice. This event can happen even if similar versions exist for a brief period.
If it is done in a harmful way, it is known as the double-spend attack. This double-spend attack was the one that occurred on ZenGo Wallet two years ago. Hackers will send a transaction using the least fee during a double-spend attack. Then, increase the fee instantly to motivate miners to verify the transaction fast.
However, they would channel the funds to a new wallet address. But the reason behind this reorg and the possibility of a double-spend attack isn’t malicious. Miners use certain software to determine the section of the fork they will choose.
That’s the attestation strategy Koppelmann referenced in his Twitter thread above. Some of the network’s core developers and Vitalik Buterin shared insights on Koppelmann’s Twitter thread.
What you should know about reorgs
Buterin also made some clarifications regarding whether the miners were using an out-of-date mining software which could have been the cause of the reorg. Last year, Ethereum CEO and Paradigm CTO, Georgios Konstantopoulos, had a lengthy discussion about reorgs.
Part of the summary from their discussion was that a reorg with over five blocks might indicate a malicious attack. They agreed that network latency could cause up to 2-block reorgs, and that’s fine.
They further said a reorg of 5 blocks could happen once in a while due to a combination of network latency and bad luck. However, “any reorgs beyond that is likely an indication of a malicious attack, network failure or client bug.”
In his submission, Terrence Tsao (one of Prysm’s developers) concludes that this reorg might be a possible cause of bad luck. He added it is still a case of bad luck even though the period for which it lasted might be a genuine cause for worry.