able to alter the blockchain on which transactions in AVAX rely by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could also control, exclude or modify the ordering of transactions, or prevent blocks from finalizing onto the Avalanche blockchain. Although the malicious actor or botnet may not be able to generate new digital assets or transactions using such control it could “double-spend” its own digital assets (i.e., spend the same tokens in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control. To the extent that such malicious actor or botnet did not yield its control of the validating power on the Avalanche Network or the AVAX community did not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Further, a malicious actor or botnet could create a flood of transactions in order to slow down the Avalanche Network. For example, in August 2020, the Ethereum Classic Network, a proof-of-work network, was the target of two double-spend attacks by an unknown actor or actors that gained more than 50% of the processing power of the Ethereum Classic Network. The attack resulted in reorganizations of the Ethereum Classic Blockchain that allowed the attacker or attackers to reverse previously recorded transactions in excess of over $5.0 million and $1.0 million. In addition, in May 2019, the Bitcoin Cash Network, a proof-of-work network, experienced a 51% attack when two large mining pools reversed a series of transactions in order to stop an unknown miner from taking advantage of a flaw in a recent Bitcoin Cash protocol upgrade. Although this particular attack was arguably benevolent, the fact that such coordinated activity was able to occur may negatively impact perceptions of the Bitcoin Cash network. Although the two attacks described above took place on proof-of work based networks, it is possible that a similar attack may occur on the Avalanche Network, which could negatively impact the value of AVAX and the value of the Shares. Although there are no known reports of malicious control of the Avalanche Network, if groups of coordinating or connected AVAX holders that together have a sufficient amount of outstanding AVAX were to stake that AVAX and run validators, they could exert authority over the validation of AVAX transactions. This risk is heightened if such amount of the validating power on the network falls within the jurisdiction of a single governmental authority. If network participants, including the core developers and the administrators of validating pools, do not act to ensure greater decentralization of AVAX, the feasibility of a malicious actor obtaining control of the validating power on the Avalanche Network will increase, which may adversely affect the value of the Shares. A malicious actor may also obtain control over the Avalanche Network through its influence over core developers by gaining direct control over a core developer or an otherwise influential programmer. To the extent that the AVAX ecosystem does not grow, the possibility that a malicious actor may be able to maliciously influence the Avalanche Network in this manner will remain heightened. If a malicious actor were to compromise one or more of the non-core blockchains running on the Avalanche Network, such activity might undermine trust in the Avalanche Network, which could adversely affect the value of the Shares. The Avalanche Network allows users to create non-core blockchains historically called “subnets,” which are managed by distinct validator sets, responsible for their own security, and which can follow custom rules. Because these non-core blockchains do not share the Avalanche Network’s overarching security, they may be more susceptible to attack. While a successful attack on a non-core blockchain has no direct impact on the performance or safety of the main Avalanche blockchains, such an event could undermine the public perception of the Avalanche Network’s security, and could therefore have a negative impact on the performance of the Trust and the value of the Shares. If the digital asset awards or transaction fees for recording transactions on the Avalanche Network are not sufficiently high to incentivize validators, or if certain jurisdictions continue to limit or otherwise regulate validating activities, validators may cease expanding validating power or demand higher digital asset awards, which could negatively impact the value of AVAX and the value of the Shares. If the digital asset awards for validating or recording transactions on the Avalanche Network are not sufficiently high to incentivize validators, or if certain jurisdictions continue to limit or otherwise regulate validating activities, validators may cease expending validating power to validate transactions on the AVAX Network could be slowed.
29
Made with FlippingBook - professional solution for displaying marketing and sales documents online