The whole strength of Bitcoin lies on the formidable blockchain technology that is the distributed nature of adding and verifying data through blocks. The Bitcoin consensus algorithm (also known as Proof of Work) reassures that the miners can validate a new block only if the network nodes agree that the block hash provided by the miner is accurate.
Now, the whole blockchain infrastructure works as a decentralized ledger and it’s well distributed. Thus, it automatically prevents any centralized organisation from using the network on their own advantages.
As far as the performance of a miner is concerned it depends on the computational power the miner holds which is referred to as hash rate. The mining power has been circulated through different nodes across the world. But what happens if this distribution goes wrong and a single entity gets hold of more than 50% of the hashing power? The obvious consequence to this is known as 51% attack. However, to understand the whole concept of 51% attack you will have to know how blockchain works. Check out the article now to clearly understand what is 51% attack and the history behind it.
Concepts Related to 51% Attack
There are some very important concepts, and without knowing these, it is impossible to understand 51% attack. So, let’s talk about these concepts first.
Blockchain technology is the one that has made Bitcoin’s existence possible. A blockchain is a series of blocks, an ordered sequence that records the transactions occurring within the blockchain network and records them in the distributed ledger. Every block in the blockchain contains data related to certain verified transactions.
Mining refers to adding new blocks to the blockchain after validation. Validation requires hashing and falling into certain predefined criteria. Hashing is the process of converting a digital document into a number. A block contains a Nonce, list of transactions, timestamp, and the details of the previous hash.
Miners add transactions, verify them, and create a hash, and as it is validated, they are paid 6.25 Bitcoins.
Bitcoin is praised for its distributed ledger technology. A ledger is something that records transactions. In the traditional economy, a bank keeps the ledger and has the sole authority over the ledger. If ledgers go in the wrong hands, the results can be drastic.
However, Bitcoin has a distributed ledger which means that a single authority does not keep the records. It is distributed, which makes it safe from attackers.
Bitcoin’s blockchain technology works on two consensus protocols that are namely Proof-of-Work (PoW) and Proof-of-Stake (PoS). For crypto mining, PoW is the one you need to know about. A consensus protocol aims to protect the network and resolve inconsistencies between the ledger versions.
What is a 51% Attack?
A 51% attack is an attack where one entity gets most of the hashing power, i.e. the computational power to mine blocks. Several miners are mining blocks within Bitcoin’s blockchain network, which requires a lot of electricity and computational power. When a miner creates a block, it is added to the blockchain only when the majority of nodes validate it. The different nodes on the network agree on a set of rules. This agreement is called consensus protocol. Only after getting the consensus from the majority of the nodes, the new block joins other blocks in the blockchain and the miner receives 6.25 Bitcoins as a reward, and the race to mine another block starts again.
Now take this scenario where one entity gets the majority hashing power. What will happen? It will not approve the blocks mined by other miner groups. That entity can modify the transactions as they want, decide the order of transactions to be picked, and create a monopoly.
Not only creating monopoly but a miner or group of miners having the required mining power can deliberately modify or even exclude the transactions order. They can theoretically reverse transactions that they have made previously resulting in a double-spend problem.
Implications Of The 51% Attack
Satoshi Nakamoto had created Bitcoin or we can say, cryptocurrency, to remove power from the hands of central authorities. The 51% attack defeats that purpose. It has the following implications:
- It leads to the loss of digital assets.
- It questions the reliability, security, and trustworthiness of the blockchain system.
- It shakes the confidence of cryptocurrency users.
- Many governments around the world are finding a way to sweep away the use of cryptocurrencies. The existence of such an attack gives them a good reason to talk against the technology.
The effects are drastic. Now, you must be thinking if this attack is only a theory or if it has ever happened. So, let’s dive into the history of the 51% attack.
History Of 51% Attacks
In the history of blockchain networks, these cryptocurrencies have borne the 51% attack.
1. BTG Attack
The BTG attack is considered to be the biggest 51% attack in history though no user lost their money. The attack was made between May 16 and May 18, 2018, on several exchanges including Bithumb, Binance, and Bitfinex involving the double spending of 388000 BTG (Bitcoin Gold). At that time, the estimated value of 388000 BTG coins was $18 million.
In January 2020, once again, BTG was targeted by attackers. On January 23 and January 24 this 51% attack resulted in a double-spending of $72000 worth BTG.
2. ETC Attack
ETC suffered a 51% attack between July 29 and August 1, 2020. The attacker withdrew 807000 ETC through indiscernible exchanges and bought a hash rate on the blockchain. Also, the attacker mined approximately 4280 blocks in 12 hours and published them at the end of the attack. It was a large time span, and the attacker split the operations and evaded the eye. The attacker mined rewards worth $65000 and robbed the blockchain of $5650820.
On August 6, 2020, the ETC network was struck by another blow and the amount of loss is yet to be known. If it had ended here, ETC was lucky, but then, another attack on August 29 resulted in the mining of approximately 7000 blocks in two days.
3. VTC Attack
Vertcoin is known for its ASIC policy, which discourages mining monopoly. Despite this, the currency had to deal with an attack between October and December 2018 when the attacker reorganized approx 300 blocks on the network. It was a hard blow costing the network approx $100000.
But the attackers didn’t stop there and within a year, attacked the network once again. This time the loss was more severe, reorganizing 600 blocks. Though the attackers were unable to double spend the money as Bittrex disabled the wallet before the punch could be landed.
The GHash.io Incident
You can call it the first 51% attack, but the fact is that it was not an attack in reality. It only made the crypto creators realize that 51% of attacks are quite possible. It was June 2014 when GHash.io gained approx 55% of Bitcoin’s hash rate. But the attack never came as they did not rob the crypto network. GHash voluntarily gave up the shares, and in one month, their total share dropped to 38%.
Is It Easy to Launch a 51% Attack?
The answer is a clear no. It is difficult to organize and launch the 51 % attack, and not every 51% attack can be successful; there are many reasons for that.
The first one is the randomness of the mining process. Satoshi Nakamoto had talked about it in his whitepaper. A group of miners needs the hash to fall in the criteria in order to be validated. It requires luck. Even if the majority of miners mine a block, they need a valid hash and good luck.
The second reason is the existence of a large number of distributed nodes. All of these nodes are required to participate in the consensus process. A bigger network means a more secure blockchain.
The third reason why it’s very difficult to arrange a 51% attack is the huge amount of resources required to hold a monopoly over the blockchain network.
You can say that the smaller blockchains have a greater chance of falling prey to the 51% attacks. If we talk about Bitcoin, the size of the network will upset any attacker.
The occurrence of 51% attacks in the past has inspired many blockchain networks to invest more in their security measures. Considering these vulnerabilities, the crypto fraternity is very likely to shift its focus towards much more secure altcoins. In fact, Ethereum is prepared to launch Ethereum 2.0 which is based on the Proof-of-Stake model. Ethereum says that it will leave the Bitcoin network behind in terms of security.