The traditional brute force collision attack is generate $2^{N/2}$ (unique) random strings, hash them and this results in ~50% chance for collision. The attack talked in the question's title is generate hashes by the sequence $H_0 = F(S), H_n = F(S||H_{n-1})$, where $S$ is a string to make collision with, $F$ is the hash function, and the sequence stops at $2^{N/3}$.
The above attack needs less calls to the hash function because it relies on the fact that each sequential hashing reduces the number of possible hashes. When hashing $2^N$ random strings, there will be $(1-(1-\frac{1}{2^N})^{2^N})2^N$ possible hashes because of all the collisions.
The sequence that tells the fraction of the possible hashes for each hash in the sequence is $P_0 = 1, P_n = 1 - (1-\frac{1}{2^N})^{2^NP_{n-1}}$, which roughly approximates to $P_n = P_{n-1} - \frac{P_{n-1}^2}{2}$ as $\lim_{P_{n-1}\to 0}$, which can be approximated into a function $P(n) = \frac{2}{n + 2}$. (these reductions in precision make it easier for future calculations)
The chance for a collision to NOT happen for a hash in the sequence against all of it's following hashes is $C_n = (1 - \frac{1}{P_n2^N})^{M - n - 1}$ where $M$ is the sequence's length, because the fraction is so close to $1$, it can be approximated to $C_n = 1 - \frac{M - n}{P_n2^N} = 1 - \frac{Mn - n^2}{2^{N + 1}}$. Now to approximate the multiplication of all $C$s ($C_0C_1...C_M)$ to get the chance for collision for all hashes combined, we can discard the multiplication (because again, $C_n$ is very close to $1$) and add all the subtracted parts and subtract them from $1$, which results in $1 - \frac{M^3/2-M^3/4}{2^{N+1}} = 1 - \frac{M^3/4}{2^{N+1}}$, and to reach ~50% collision rate $M = 2^{(N+3)/3-1}$, which is just $2^{N/3}$.
Is there a reason why this won't work?
The above attack needs less calls to the hash function because it relies on the fact that each sequential hashing reduces the number of possible hashes.
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