cryptocurrency What is a 51% attack

Before diving into 51% attacks, it is necessary to take a closer look at mining and blockchain-based systems.

One of the main advantages of Bitcoin and its underlying blockchain technology is the distributed nature of structuring and verifying data. The decentralized work of nodes ensures compliance with the rules of the protocol and ensures that all network participants agree on the current state of the blockchain. This means that the majority of nodes need to regularly agree on the mining process, software version used, validity of transactions, etc.

Bitcoin’s consensus algorithm (Proof of Work) ensures that miners only work if the network nodes unanimously agree that the block hash value provided by them is accurate (that is, the block hash value proves that the miner’s workload is sufficient and is valid for the block. found an effective solution to the problem) to validate new transaction blocks.

As a decentralized ledger and distributed system, the blockchain infrastructure prevents any centralized entity from using the network for its own purposes, which is why there is no single authority for the Bitcoin network.

Since the mining process (in PoW-based systems) involves investing a lot of electricity and computing resources, the performance of a miner depends on the amount of computing power they have, which is often referred to as hash power or hash rate. There are many nodes participating in the mining activity, distributed in different locations, and these nodes compete with each other because they all want to be the next node to find a valid block hash and receive a newly generated bitcoin reward.

Therefore, mining power is distributed across different nodes around the world, which means that the hash rate is not held by a single entity. At least it shouldn’t be.

But what happens if the hash rate is poorly distributed? For example, what if an entity or organization could acquire more than 50% of the hash power? One of the possible consequences is what we call a 51% attack, also known as a majority attack.

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What is a 51% attack?

A 51% attack is a potential attack on a blockchain network where a single entity or organization is able to control a majority of the hash rate, potentially disrupting the network. At this point the attacker will have enough mining power to deliberately exclude or modify the order of transactions. They can also undo transactions that have been made while controlling the network, leading to double-spending problems.

A successful majority attack can also allow an attacker to prevent some or all transactions from being confirmed (transaction denial of service), or to prevent some or all other miners from mining, leading to a so-called mining monopoly.

On the other hand, most attacks do not allow an attacker to revoke other users’ transactions, nor do they allow an attacker to prevent others from creating and broadcasting transactions to the network. Neither can changing block rewards, creating tokens out of thin air, or stealing tokens that do not belong to the attacker.

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How likely is a 51% attack?

Since the blockchain is maintained by a distributed network of nodes, all participants cooperate in the process of reaching a consensus. This is one of the reasons why blockchains are generally more secure. The larger the network, the better the defense against attacks and data corruption.

And with proof-of-work blockchains, the higher the hash rate a miner has, the better the chance of finding a valid solution for the next block. This is true because mining involves an infinite number of hash attempts, and higher computing power means more attempts per second. Some early miners joined the Bitcoin network, contributing to its development and security. As the price of bitcoin as a currency continued to rise, many new miners entered the system, intent on competing for block rewards (currently set at 12.5 bitcoins per block). The existence of this competition is one of the reasons Bitcoin is safe. Miners would not have an incentive to invest a lot of resources if it wasn’t for acting honestly and working hard to get block rewards.

Therefore, a 51% attack is unlikely due to the size of the Bitcoin network. Once a blockchain becomes large enough, the likelihood of a single person or group gaining enough computing power to overwhelm all other participants quickly drops to extremely low levels.

Also, as the chain grows, it becomes increasingly difficult to change previously confirmed blocks, since those blocks are linked by cryptographic proofs. For the same reason, the more confirmations a block has, the more expensive it is to change or undo the transactions in it. Therefore, a successful attack may only modify transactions in the last few blocks for a short period of time.

Next, imagine if a malicious entity attacked the Bitcoin network not for profit, but only to destroy it, at any cost. Then even if an attacker succeeds in disrupting the network, the Bitcoin software and protocol responds to their attack, making changes and adjustments quickly. This requires consensus among other network nodes to agree on these changes, but if the situation is urgent, the process may be completed soon. Bitcoin is highly resistant to attacks and is considered the safest and most reliable cryptocurrency in existence.

While gaining more computing power than the rest of the Bitcoin network is quite difficult for an attacker, it is much less challenging for smaller cryptocurrencies. Compared to Bitcoin, altcoins have relatively low hash power that secures their blockchains. Low enough for a 51% attack to actually happen. Few well-known examples of cryptocurrencies that have been subject to majority attacks are Monacoin, Bitcoin Gold, and ZenCash.

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