Before we talk about the 51% attack, there are some things you must know.
Firstly, Cryptocurrency is built on blockchain technology, the same way Email and social media are built on the internet. The cryptocurrency market is currently valued in trillions of dollars, and as expected, bad actors are always trying to take advantage of the system in form of hacks.
In this post, we will learn about the most feared hack in all of the blockchain. The 51% attack.
What is The 51% Attack
This is simply when a malicious actor gains control of over 50% of the mining power on a cryptocurrency’s blockchain. When this happens, the bad actors have the ability to delay transactions on the blockchain, modify the order of transactions, prevent some miners from mining, and spend one coin multiple times (Double spending).
Now, it is important to note that controlling over 50% of a blockchain network means that the attacker is now faster and more powerful than any other computer in the network, and as such, can manipulate the network for as long as he/she can until the attack is fixed.
However, the attacker has limits as there are things he/she cannot do despite being in major control of the network. For instance, The attacker:
- Cannot manufacture new coins.
- Won’t be able to stop other users from broadcasting to the network.
- Will not be able to alter the functionality of the block rewards.
- Will not be able to steal coins that never belonged to him/her.
51% Attack in the Proof of Work Consensus
Blockchain is a database where information is stored without the need of a central bank or third party like Paypal to make sure transactions are secure. Cryptocurrencies use blockchain to achieve this, and the transactions are encrypted and secured using a hashing algorithm known as SHA256.
In the Proof of Work(PoS) consensus mechanism, information on the transactions is added through a process called mining. Mining is when computer nodes all over the world are in a race to solve a mathematical equation, the winner gets to update the blockchain and earn a reward in crypto. Now when an attacker, gains over 50% of the mining power, he can hijack that particular network, and cause some damage.
In blockchains that use proof of work, Avinash Shekhar, Co-CEO, ZebPay said 51% of attacks involve the attacker being able to gain control of more than 50 percent of the hashing power. By doing so, he or she is able to manipulate the data in the blockchain,
“However, it’s almost impossible to pull that off in established blockchains like Bitcoin and Ethereum. This phenomenon has been experienced by some small chains that are not really decentralized,” he added.
51% Attack in the Proof of Stake Consensus
The first deployed solution to the 51% attack, is the Proof of Stake (PoS), which is a more secure consensus than Proof of Work. The Proof of Stake block validations are controlled by most affluent users unlikely to sabotage the system. The participants in the proof of stake system are called block validators(Miners), and they are less likely to carry out an attack because before you can become a participant in a proof of stake network, you need to deposit a stipulated amount of the network’s cryptocurrency.
Therefore, it is in your interest to act in favor of the system, rather than sabotaging it. However, if a participant were to act badly, they could lose some of their investment in a process called slashing.
To carry out a 51% attack on the proof of stake consensus, the attacker needs to hold over 50% of the cryptocurrency of the network, and a failed attack would represent a tremendous financial loss.
There are other decentralized alternatives like Delegated Proof-of-Stake (DPoS).
Consider a situation, where the attacker is not after money but wants to take down the bitcoin network and destroy it, no matter what it takes. Even if he is able to disrupt the network, the bitcoin software and bitcoin protocol would quickly respond and react to the attack. Other computer nodes will agree with these changes, and these will all happen very quickly.
Successful 51% Attacks in Cryptocurrency
A lot of 51% attacks have taken occurred in cryptocurrency.
- In August 2021, Bitcoin SV (BSV) was attacked.
- Another Bitcoin fork, Bitcoin Gold (BTG), suffered a 51% attack in 2019.
- Ethereum Classic (ETC), which forked from the original Ethereum blockchain after the DAO hack of 2016, has experienced 51% attacks severally.
- In June 2014, the mining pool GHash.IO reached a level of about 55% of Bitcoin’s hashrate over a 24-hour period, however, GHash.IO acted in the interest of the network.
- Grin experienced the attack where the unknown miner accumulated over 57% of the total Grin hash power. The attacker’s intention remained unknown.
- Vertcoin has experienced multiple 51% attacks over the past years. It is a cryptocurrency project that aims to keep mining power decentralized.
- In 2018, Bitcoin Gold(BTG) blockchain suffered a 51% attack for the first time and incurred massive losses.
It is very difficult for an attacker to obtain more computational power than the rest of the Bitcoin network, this is not so difficult in smaller cryptocurrencies. When compared to Bitcoin, altcoins(coins not bitcoins) have a relatively lesser amount of hashing power securing their blockchain. It is so low it is possible for a 51% attack to actually happen.
Also, note that Bitcoin and Ethereum are the most secure cryptocurrencies on the planet.
If you have any questions or input, please leave it in the comment section and I will do my best to get back to you. For more knowledge about crypto and blockchain technology, visit wayamask.