Author: Onkar Singh, CoinTelegraph; Translated by: Tao Zhu, Golden Finance

1. Explanation of the Infinite Coin Minting Attack

An infinite minting attack occurs when an attacker manipulates the contract code to continuously mint new tokens that exceed the authorized supply limit.

This type of hack is most common in decentralized finance (DeFi) protocols. This attack compromises the integrity and value of a cryptocurrency or token by creating an unlimited number of tokens.

For example, a hacker exploited a smart contract vulnerability in the Paid network to mint and burn tokens, resulting in $180 million in losses and an 85% drop in the value of PAID. More than 2.5 million PAID tokens were converted to Ethereum (ETH) before the attack was stopped. The network compensated users and dispelled rumors of an inside job (rug pull).

Malicious actors could potentially profit from such attacks by selling illegally created tokens or interfering with the normal operation of the affected blockchain network. The prevalence of infinite minting attacks highlights the importance of conducting thorough code audits and incorporating security measures into smart contract development to prevent such vulnerabilities.

2. How does the infinite coin minting attack work?

In order to create a vulnerability that allows an attacker to mint an unlimited number of tokens, the infinite minting attack targets vulnerabilities in smart contracts, specifically those related to the token minting functionality.

Step 1: Vulnerability Identification

The attack method requires finding a logical weakness in the contract, usually related to input validation or access control mechanisms. Once a vulnerability is found, the attacker creates a transaction that exploits the vulnerability, causing the contract to mint new tokens without the necessary authorization or verification. This vulnerability may allow bypassing the intended limit on the number of tokens that can be created.

Step 2: Exploit

The vulnerability is triggered by a malicious transaction constructed by an attacker. This may require changing parameters, executing specific functions, or exploiting unforeseen connections between various code segments.

Step 3: Unlimited Mining and Token Dumping

The vulnerability allows an attacker to issue more tokens than the protocol architecture intended. Such a flood of tokens could lead to inflation, which would reduce the value of the currency associated with the tokens and could cause losses to various stakeholders, including investors and users.

Token dumping is the practice of an attacker quickly flooding the market with newly created tokens and then exchanging them for stablecoins or other cryptocurrencies. The value of the original token drops dramatically due to the unexpected increase in supply, causing the price to plummet. However, the tokens are sold before the market has a chance to benefit the attacker.

3. Consequences of the Unlimited Coin Minting Attack

Unlimited minting attacks can lead to rapid depreciation of token value, financial losses, and ecosystem damage.

Unlimited minting attacks generate an unlimited number of tokens or cryptocurrencies, causing the affected assets to depreciate immediately and causing huge losses to users and investors. This would undermine confidence in the affected blockchain network and its connected decentralized applications, thereby compromising the integrity of the entire ecosystem.

Furthermore, by selling tokens before the market has fully reacted, the attacker can profit and potentially leave others holding worthless assets. As a result, if the attack leads to a liquidity crisis, investors may find it difficult or impossible to sell their assets at a fair price.

For example, during the Cover Protocol attack in December 2020, investors holding COVER tokens suffered financial losses when the token’s value dropped from over $700 to less than $5 in a matter of hours. The hacker minted more than 40 quadrillion tokens.

A collapse in the value of a token could disrupt the entire ecosystem, including decentralized applications (DApps), exchanges, and other services that rely on the stability of the token. An attack could lead to legal issues and regulatory scrutiny of the project, resulting in fines or other penalties.

4. Unlimited coin minting attack and reentrancy attack

Infinite minting attacks aim to create an infinite number of tokens, while reentrancy attacks use the withdrawal mechanism to continuously consume funds.

Infinite minting attacks exploit flaws in the token creation process to produce an unlimited supply, thereby depressing the value and causing losses to investors.

Reentrancy attacks, on the other hand, focus on the withdrawal process, allowing an attacker to continually drain funds from a contract before the contract has a chance to update its balance.

While any attack can have catastrophic consequences, understanding the differences is critical to developing effective mitigation techniques.

The main differences between an infinite coin minting attack and a reentrancy attack are:

5. How to prevent unlimited coin minting attacks in cryptocurrencies

By emphasizing security and taking precautions, cryptocurrency projects can greatly reduce the likelihood of becoming a target of an unlimited minting attack and protect the investments of community members.

A multifaceted strategy is needed that prioritizes security at every stage of a cryptocurrency project to prevent infinite minting attacks. Thorough and frequent smart contract audits by independent security experts are essential. These audits scrutinize the code for flaws that could be used to mint an unlimited amount of tokens.

Strong access controls must be implemented; minting rights should only be granted to authorized parties; multi-signature wallets should be used for increased security. Real-time monitoring tools are essential to quickly respond to possible attacks and identify any strange transaction patterns or sudden surges in token supply.

Projects should also have strong backup plans and be ready to quickly handle any possible attacks and minimize losses. This requires maintaining open communication channels with exchanges, wallet providers, and the community at large to anticipate possible problems and develop solutions.