Crypto enthusiasts have heard about 51% attack, but aren't sure what they are or if they represent a real threat. In this comprehensive post, you will learn all the specifics as well as solutions for reducing the likelihood of a 51% attack.
51% attack: What is it?
It's a form of attack connected with blockchains that use proof-of-work (PoW). A blockchain is a digital distributed ledger system that keeps track of all transaction data.
Cryptocurrency miners are rewarded for utilizing the Proof-of-Work method to verify blockchain transactions. One organization or individual controls the majority of the computational power on a blockchain network in a 51% attack.
51% attack works in what way?
Powerful computers are utilized to tackle complicated mathematical problems in cryptocurrency mining. The miner produces a new blockchain section with just-confirmed transactions when one of the problems is solved. The miner who solves the challenge first earns a set quantity of cryptocurrency as a reward.
Each arithmetic problem's solution is referred to as a hash. The cumulative computational power of all miners on a given blockchain is represented by blockchain hash rates. As a result, an attacker who controls 51 % of the blockchain's hash rate is affiliated with the majority of its hash rate.
A blockchain's structure is comprised of sets of blocks that include data bundles. The information authenticated on the blockchain within a given period of time is recorded in each block. On the Bitcoin blockchain, for example, a new block is added every 10 minutes.
In general, a cryptocurrency miner's computational power determines how good they are at solving arithmetic equations. Because computing power is frequently scattered around the globe, after crypto miners have completed transactions, the data cannot be modified by anyone else.
51 % attacks are troublesome because they allow the dominating party to influence the hash rate and hence interfere with fresh blocks. They might create all of the new ones, earning them rewards.
How does 51% attack pose risk?
If a malevolent actor or group obtained control of a blockchain network through a 51 percent attack, several negative repercussions may occur. They could, for example, impede confirmations for some or all transactions, resulting in an issue known as transaction denial of service.
Furthermore, a 51 percent attack allows responsible parties to monopolize mining by blocking all or partial blockchain miners' actions. Furthermore, the perpetrator of the 51 percent attack may face a double-spending problem. It happens when people delete transaction evidence or post fraudulent copies of transactions without spending any money.
This person, on the other hand, was unable to erase transactions done by others. They would also be unable to produce new currency by circumventing mining or stopping the blockchain from publicizing its transactions to others.
What are the chances that 51% attacks will occur?
With a large number of participants in blockchain networks, it is more difficult for an attack to occur. Their combined computing power is often greater than what an individual or group working together can handle.
According to analysts, the most vulnerable cryptocurrencies are smaller, mining-based currencies. To hack a well-established blockchain for coins, a hacker only needs to know the algorithm it uses.
In one month during 2018, there were five 51% attacks, all against relatively small blockchains. There was a presumption beforehand that hackers would never attempt the larger chains. These would take too much computing power and be too expensive to attack successfully.
People worried about larger networks becoming vulnerable to 51% attacks, as well, as 51% attacks became more common.
On the website Crypto51, you can find examples of how much a 51% attack would cost for one hour on certain blockchains. The current rates for larger blockchains top out at USD 716,072.00, but for smaller ones, the cost is only a few dollars or less.
How has a 51% attack actually been carried out in the real world?
Initial discussions of 51% attacks were theoretical. However, in 2016, two smaller blockchains cloned from Ethereum, called Shift and Krypton, were attacked by The 51 Crew. Aside from the ransom note, the criminals tampered with the blockchain's software code and double-spent the cryptocurrency.
However, those events were just the beginning. Hackers compromised the Bitcoin Gold blockchain's security in May 2018 with a 51% attack that lasted for more than three days. Due to that incident, cryptocurrency exchanges that offered Bitcoin Gold suffered. The parties involved also perpetrated double-spending.
One of the worst years of 2018 was also for a cryptocurrency coin called Verge, which suffered two 51% attacks within as many months. One attack resulted in hackers getting approximately USD 1.75 million.
The Firo coin was recently the victim of a 51% attack on the 18th of January in 2021. Hackers changed large amounts of previously confirmed blocks on the blockchain, causing Firo's price to drop by more than 15%.
In light of these examples, it is clear that a 51% attack is no longer a theoretical threat. Additionally, it isn't limited to the cryptocurrency community. Many business owners have devised measures to prevent a single party or group from gaining too much control.
What can blockchain networks do to prevent 51% attacks?
For the first time, Bitcoin's blockchain relied on the PoW model for its consensus. Each miner that is a node in the blockchain must follow a process to accomplish work and verify the validity of a transaction.
Bitcoin's creator, Satoshi Nakamoto, outlined the PoW process in a white paper. This process assumes that most miners will be honest and safeguard the blockchain from attacks.
An application-specific integrated circuit (ASIC) miner is a type of cryptocurrency mining equipment that is specifically designed to mine a certain kind of cryptocurrency.
These blockchains prevent people from dominating blockchains with expensive and powerful ASICs. Having more miners participate also increases their overall computing power.
The proof of stake (PoS) model can also reduce the likelihood of 51% attacks. A PoW model rewards those who have the computing power needed to solve the mathematical equations.
In contrast, PoS allots mining power to people based on their coin holdings. Additionally, a miner can only confirm a percentage of transactions based on their cryptocurrency holdings.
In this model, outsiders are prevented from gaining control and people are also prevented from orchestrating sudden attacks. This is because it would take extraordinarily large amounts of resources for anyone to possess a majority of coins.
SwissBorg (CHSB) is an example of an option that maintains a power balance via staking. By staking their tokens, users enjoy premium benefits such as 0% fees for a predefined period of time.
In conclusion, 51% attacks are no longer theoretical. Fortunately, taking action, such as moving away from the PoW model, can make them more unlikely to happen.