Cryptocurrency Value and 51% Attacks: Evidence from Event Studies

Abstract

In this article, an event studies approach is utilised to assess the influence of 51% attacks on proof-of-work cryptocurrency prices. The study uses an exhaustive sample of 14 individual attacks on 13 cryptocurrencies. Across multiple event studies techniques, majority attacks on blockchains are consistently shown to immediately decrease corresponding coin prices by 12 to 15 percent. Significantly negative price response is robust in various event windows. Coin prices do not recover to pre-attack levels one week after the event. There is evidence of pump-and-dump schemes prior to the 51% attack, however the market demonstrates high efficiency after the attacks. 51% attacks are suggested to be a fundamental risk factor for cryptocurrency investments, primarily characteristic of small proof-of-work coins with low hash rates.

Keywords: cryptocurrency, alternative investment, 51% attack, event studies

JEL Classification: C33, G14, G23