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What exactly is this attack? It would be nice to have a good explanation of how it works and which chains can be effected by this. Does it apply to the bitcoin main chain, or only the newer and smaller alternative chains?

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This is a 51% attack where the attacker sets the block timestamps artificially to lower the difficulty, allowing him to profit more coins than his hash rate would warrant. It works because the difficulty adjustment formula is based purely on timestamps that can be chosen quite freely by the attacker. In particular, the timestamps are not required to be in increasing order. ArtForz explains the attack in detail here.

This attack was used against the new Geist Geld block chain. Geist Geld difficulty adjusts every 16 blocks making the chain particularly vulnerable against this attack. An attacker targeting Bitcoin would have to mine a full set of 2016 blocks at the current difficulty before starting to get any benefit compared to a "normal" 51% attack.

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    While such an attack theoretically applies to Bitcoin, it's not anywhere close to practical. You'd need to mine over 2,000 blocks just to get two difficulty changes in. It won't be long until this attack doesn't apply to any currencies, as it's being studied and it's not particularly difficult to build resistance to. Remember, it's a 51% attack. – David Schwartz Sep 14 '11 at 22:17

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