Author: Aki Wu on Blockchain

This article does not constitute any investment advice. Readers are advised to strictly abide by local laws and regulations and not participate in illegal financial activities.

In mid-August, the Monero (XMR) network suffered a 51% hashrate attack by the Qubic project, led by former IOTA co-founder Sergey Ivancheglo. Qubic controlled over 50% of Monero's total hashrate, enabling it to reorganize blocks, censor transactions, and potentially perform double-spending operations. This incident sparked widespread concern and discussion within the crypto industry, particularly regarding the potential threat to Monero's network security as a privacy coin. In response, the cryptocurrency exchange Kraken announced that it had suspended Monero deposits as a safety precaution and would resume the function after confirming network security. This week, Cointelegraph reported that the Qubic community had voted to target Dogecoin (DOGE), with a market capitalization exceeding $35 billion, as its next target.

1. Project Qubic and Monero: Useful Proof of Work and RandomX

As a leading privacy-focused cryptocurrency, Monero has long been renowned for its unique technical features. Regarding its consensus mechanism, Monero has adopted the RandomX Proof-of-Work algorithm since late 2019. RandomX, after multiple community upgrades, is a CPU-optimized PoW algorithm designed to maximize resistance to ASIC mining monopolies, thereby encouraging participation from standard processors and maintaining network decentralization. In addition to its consensus mechanism, privacy is another cornerstone of Monero. Since its launch in 2014, Monero has fully concealed the sender, recipient, and amount of transactions through technologies such as ring signatures, stealth addresses, and confidential transactions (RingCT). Each transaction obfuscates the actual inputs, making the flow of funds virtually impossible to track through blockchain analysis. This has made Monero one of the most influential so-called "anonymous coins."

The Qubic project, a key player in this incident, was founded and led by former IOTA co-founder Sergey Ivancheglo (@Come-from-Beyond). Qubic is a layer-1 blockchain originally designed to build a decentralized hosting platform for AI models. Its consensus design emphasizes the concept of "Useful Proof-of-Work" (uPoW). Unlike traditional PoW, which simply performs hashing calculations, Qubic aims to use mining power for truly valuable tasks, such as AI model training, thereby avoiding wasting energy on simple hash collisions. The Qubic chain utilizes the innovative Quorum consensus mechanism, claiming to be able to run in node memory and process up to 15 million transactions per second.

Qubic proposes a radical "mining as token value" approach: instead of mining block rewards directly on the Qubic chain, its miners are directed to mine on external PoW networks like Monero, converting these rewards into token utility within the Qubic ecosystem. The specific mechanism is as follows: Qubic miners utilize their CPU computing power to join the Monero network and mine, earning XMR block rewards. Subsequently, through smart contracts or platform services, these XMR earnings are automatically converted into an equivalent value in the stablecoin USDT. These funds are then used to repurchase Qubic tokens (QUBIC) on the market and then destroyed. This process effectively transforms external mining revenue into continuous repurchase pressure for QUBIC tokens, creating deflation and increasing QUBIC's scarcity. At the same time, the Qubic community also optimized the incentive mechanism through governance voting. Initially, 100% of mining revenue was used for buyback and destruction, but later decided to change it to 50% for buyback and destruction, and the other 50% was directly distributed as additional bonuses to Qubic validators/miners to increase their immediate income. This adjustment further increased the yield of miners through Qubic mining, greatly enhancing its attractiveness to Monero miners.

Through this "useful proof-of-work + token burning" model, Qubic has created a unique closed-loop mining economy: the Monero network serves as the source of "useful work" for the Qubic mining pool, while XMR rewards continuously convert into demand for and burn of QUBIC tokens. Conversely, the rising value of QUBIC tokens allows miners participating in this mechanism to earn returns far exceeding those from directly mining XMR. According to statistics, at its peak, the profit margin from mining Monero through Qubic was nearly three times that of mining directly. This high return has lured a large number of Monero miners to join the Qubic mining pool.

2. Detailed Explanation of the Attack Process: Hashrate Control, Block Reorganization, and Transaction Impact

Qubic's 51% attack on the Monero network wasn't a one-shot operation; it was the product of months of accumulated effort and multi-stage negotiation. According to Coindesk, the Qubic mining pool was a relatively unknown small pool in May 2023, accounting for less than 2% of the network's hashrate. However, starting in late June, with the launch of Qubic's Monero mining incentive program (the aforementioned uPoW mechanism), its share of the network's hashrate began to surge.

By the end of July, the Qubic mining pool had climbed to over 25% of the total network hashrate, even topping the Monero network hashrate rankings for several days. This unusual growth alarmed the Monero community. Beginning in late July, discussions on community forums and social media questioned Qubic's intentions. The first phase of the infighting unfolded between late July and early August. At the time, the Monero community characterized Qubic's actions as an "economic attack" and called on miners and enthusiasts to take countermeasures. Reports indicate that at the end of July, the Qubic mining pool's hashrate plummeted from first place to seventh overall. This was attributed to a variety of community-initiated countermeasures, including miners voluntarily migrating to other pools or switching to the decentralized P2Pool, as well as DDoS attacks against Qubic's infrastructure. During this DDoS attack, which lasted approximately six hours, the Qubic mining pool's hashrate plummeted from approximately 2.6 GH/s to just 0.8 GH/s.

The second phase culminated on August 11th. Qubic later announced that on that day, they launched their final "selfish mining" strategy, achieving control of 51% of the Monero network's hash rate. Selfish mining involves a mining pool temporarily concealing blocks when it has a dominant hash rate, allowing competing miners to continue mining on the old chain. Once Qubic has accumulated a critical mass of hidden blocks, it suddenly releases its own long chain, causing many existing blocks to become orphans. According to Qubic officials, on and around August 11th, they engaged in multiple rounds of secret mining and successfully orchestrated deep block reorganizations. At one point, a six-block deep reorganization occurred on the Monero chain, resulting in approximately 60 blocks being orphaned. This is an unprecedented deep reorganization in Monero's history, demonstrating that the attacker was able to overturn several recent block records through their hash rate advantage. According to community monitoring data, during a window of 122 blocks (block heights 3475729 to 3475850), the Qubic mining pool monopolized 63 blocks, exceeding 51% of the total. This means that Qubic can tamper with on-chain history, launch double-spend attacks, and censor any transaction. Ivancheglo himself warned that Monero users should expect an increase in orphan blocks at some point and wait for at least 13 confirmations before considering transactions stable.

3. Community self-help and industry disputes

After the incident, the Monero community and crypto industry practitioners expressed their views on it:

The Monero community, from developers to ordinary miners, expressed a strong sense of crisis and resistance. Many Monero supporters took to social media to accuse Qubic of "overstepping" the spirit of decentralization. Some even engaged in aggressive, threatening comments in forums. While this was an extreme case, it reflected the community's anger and distrust of this "experiment." Monero's core developers and technical staff quickly engaged in discussions to assess the impact on the network. According to Cointelegraph, Luke Parker, head of development at the SeraiDEX exchange, stated that a single six-block reorg did not necessarily mean the attack was a complete success—it could simply be that the attacker "just happened to get lucky" by winning consecutive blocks. He believes that determining whether a 51% attack has been truly successful requires observing a longer period of unrestricted deep reorgs and the complete suppression of other miners. In other words, whether Qubic can maintain its absolute computing power advantage in the long term remains to be seen. It is estimated that the cost of sustaining this attack is as high as $75 million per day.

Qubic insists this action is a "strategic experiment" designed to help the Monero community rehearse possible future malicious attack scenarios. Qubic claims it has no intention of destroying Monero, but rather uses game theory to demonstrate the impact of economic incentives on consensus security. However, most observers are unconvinced. Dan Dadybayo, a researcher at Unstoppable Wallet, stated, "Intentions don't matter; centralization itself is a risk." He noted that even if Qubic claims good intentions, the fact that a centralized mining pool controls hashing power inherently weakens the network's censorship and attack resistance. Some in the community suspect Qubic's actions are primarily motivated by profit or publicity. They point to the fact that the QUBIC token's price rose against the trend during the incident, suggesting Ivancheglo is using the Monero network as a "test subject" to demonstrate the power of his project model and thus boost Qubic's market recognition. This view argues that Qubic's claim of "stress testing" Monero is mere pretext; at its core, it remains a self-serving attempt to hijack hashing power at the expense of others.

According to Bitcoinist, once Qubic fully captures Monero's hashrate, half of the approximately 432 XMR mined daily (worth approximately $118,000 at the time) would be used to purchase and destroy QUBIC tokens, equivalent to a monthly burn of approximately $1.656 million. This strong influx of funds undoubtedly drove up the price of the QUBIC token. In fact, the market once viewed Monero and Qubic as a seesaw: while Monero was selling off, QUBIC was favored by speculators as it proved its model was "successful." This also reinforced the community's skepticism about Qubic's motives—regardless of its original intentions, this action objectively brought exposure and increased the value of the QUBIC token.

Over the weekend following the incident, a large number of previously dispersed CPU miners responded to the call to join the decentralized P2Pool or other smaller mining pools, diluting Qubic's share of the hashrate. According to Coinspeaker, the distribution of Monero's hashrate improved significantly in mid-August, with P2Pool's participation increasing and Qubic's hashrate share declining to a safe level. This, to a certain extent, weakened Qubic's attack: By August 17th, Qubic no longer held a majority of the hashrate, and the Monero network had returned to a state of normal multi-party participation, leading to a rebound in XMR prices. @smartsdegen criticized Kraken's decision to suspend trading and deposits, suggesting that it was an overreaction and exacerbated panic, given that no actual theft or attack had occurred on the network. While Kraken's actions may have objectively amplified market volatility, they are understandable from a risk management perspective. Exchanges must diligently protect user assets and proactively mitigate the risk of double-spend attacks.

4. The Double-Edged Sword of Regulation and Economic Incentives

Monero, a leading privacy coin, has long been under close scrutiny from regulators. The recent 51% attack has further sparked discussion about regulatory risks. Monero, touted as ASIC-resistant, has been controlled by a small group through economic means, undoubtedly underscoring the vulnerability of its medium-sized PoW network. This could raise concerns about investor security in these privacy coins, potentially leading regulators to further restrict trading in these high-risk assets under the guise of investor protection. The attack on Monero, essentially an attempt by an anonymous group to infiltrate the privacy coin network, could reinforce regulators' distrust of privacy coins, believing they are more susceptible to manipulation by unidentified forces. In particular, if regulators characterize Qubic's actions as malicious attacks or market manipulation, future legal measures against privacy coins could become even more stringent, such as prohibiting mining pool concentration or requiring operators to register their real names.

This incident also clearly demonstrates the double-edged sword of economic incentives. In the past, people often assumed that a 51% attack required enormous capital and equipment investment, a reality rarely seen. However, Qubic, through a clever economic model, leveraged the hashrate of a network like Monero, with a market capitalization of $6 billion, using relatively little capital (the QUBIC token's market capitalization was only approximately $300 million). This demonstrates that by designing an attractive incentive mechanism, it is possible to drive a large number of miners to voluntarily cooperate in an attack, without the attacker having to purchase massive amounts of hardware themselves. If a malicious actor were to issue a token and use part of the funds to reward miners for jointly mining another chain, thereby controlling that chain's hashrate, this would lead to "competitive evolution between protocols." This is fundamentally different from previous attacks that involved purely technical means, being more deceptive and disruptive. The Qubic incident directly foreshadowed the potential for similar risks facing other major PoW coins. As a result, after the Monero setback, Qubic quickly turned its attention to Dogecoin. In late August, the Qubic community voted to target Dogecoin, a coin with a higher market capitalization, as its next target.

5. Conclusion

The story of Qubic vs. Monero epitomizes the ongoing evolution of the crypto industry. It demonstrates that the blockchain space is never short of surprises and unexpected events, and each major event drives the industry toward maturity. For Monero itself, while this turmoil was daunting, the network ultimately weathered the storm safely, avoiding the worst-case scenario of transaction theft or a permanent chain split. The Monero community demonstrated remarkable cohesion and resilience, with miners, developers, and users working together to fend off external computing power attacks. XMR's price rebounded quickly after a sharp drop, demonstrating continued market confidence in Monero's fundamentals. In the future, we may see accelerated innovation in consensus mechanisms, resulting in improved algorithms more robust against economic incentive attacks; a reshaping of the relationship between miners and the community, and more comprehensive and transparent governance mechanisms; and a shift from independent operations among public chains to greater collaboration to jointly defend against cross-chain threats. In this incident, the fact that a small community with only a few hundred followers (Qubic) could challenge a large network with tens of thousands of users (Monero) underscores the unpredictability and drama of the decentralized world.