Investment and 51 Percent Attack: The Fundamental Value of a Crypto Currency

As the recent discussion about a 51 percent attack shows, security will have something to do with it. A study by Husam Abboud tries to create such an index.

In an article on June 2, we discussed the “investment case” of 51 percent attacks. We presented page 51crypto, which calculates the cost of a 51 percent attack based on Nicehash prices.

“What is the value of a crypto currency?”

However, to call such an attack an “investment case” is certainly ironic and should not be recommended. A consideration of the resilience of a system against majority attacks belongs however to the evaluation of a crypto currency.

Decentrality is the original idea behind Bitcoin and thus behind crypto currencies. As emphasized elsewhere, the properties associated with scalability are important, but if the central motivation behind crypto currencies is ignored, the question arises as to what is so bad about existing financial systems.

The page are we decentralized yet considers different crypto-currencies with properties related to a degree of decentralization. In addition to the concentration of capital, this includes the number of client variants used and the number of nodes as well as the number of entities that together make up more than 50 percent of the hashrate. Although these individual values are represented, they are not included in an overall view, which could be the basis for a decentralized index.

The H/R Index: A Measure of the Stability of a Crypto Currency

Husam Abboud presented another approach focused on 51 percent attacks to the FECAP in São Paulo in a paper. The H/R index he developed captures and evaluates the hashing power and stability of a crypto currency.

The core hypothesis of the paper is that the security of a crypto currency is the backbone of it. On this basis, Husam Abboud defines the underlying computing power as a measure of the intrinsic value of a crypto currency and thus the hashrate.

Another important measure is the cost of a 51 percent attack. The higher the costs, the more secure the system is. These costs consist of the initial costs for the hardware and the current electricity costs. A related index is more generally the security of a cryptography underlying the crypto currency.