What is 51% Attack in Crypto?
Introduction: 51% attack and What you will learn here
The specter of a 51% attack is an unsettling scenario for any decentralized network and its participants. Even as the blockchain realm endeavors to uphold the principles of transparency and trust, the specter of external intrusion and the potential wresting of control persists as a risk.
In this blog, we aim to demystify the concept of a 51% attack, elucidating its mechanics and implications. Furthermore, we delve into strategies that can be adopted to thwart such occurrences. This piece will not only expound on the theoretical underpinnings of the subject but also delve into real-world instances of 51% attacks, offering tangible insights into their implications and repercussions.
What is 51% Attack?
In order to grasp the mechanics of a 51% attack comprehensively, it's essential to have a concise understanding of fundamental crypto concepts related to consensus protocols. In the genesis of cryptocurrencies, specifically in 2009, Satoshi Nakamoto, the progenitor of the first cryptocurrency, Bitcoin, unveiled a pivotal innovation: the proof-of-work (PoW) algorithm.
As outlined in the document, every participant within the network, referred to as nodes, is mandated to solve algorithmic challenges by harnessing the computational power of their hardware. This undertaking is undertaken with the objective of appending new blocks to the blockchain.
Upon the attainment of a majority hashing power exceeding 51%, be it by an individual miner or a coalition of miners (referred to as a cartel or a mining pool), they acquire the ability to exert control over the entire network. This level of control grants them the capacity to orchestrate unfavorable actions, including the potential for double-spending their coins. Furthermore, they can wield authority in determining which transactions to process and subsequently incorporate into the blockchain.
Nevertheless, it's crucial to note that a miner who gains control of 51% or more of the network's hashing power does not possess the ability to retroactively undo transactions that have already occurred.
In the context of a network operating on a proof-of-stake (PoS) consensus mechanism, orchestrating a 51% attack necessitates an individual within the network to amass a stake exceeding 51% of the total cryptocurrency in circulation.
51% Attack examples in Crypto History
Instances of a 51% attack are relatively rare within the blockchain industry. Over the course of its decade-long existence, the sector has witnessed several such attacks. Interestingly, on occasion, a deliberate orchestration of a 51% attack may take place with the intention of purging malicious participants from the network.
Bitcoin Cash (BCH)
A notable instance of an intentionally orchestrated 51% attack unfolded within the Bitcoin Cash network in the year 2019.
In May 2019, a consequential event transpired involving two major mining pools, BTC.top and BTC.com. In a strategic maneuver, these mining pools executed a 51% attack to thwart an unidentified miner from appropriating coins that weren't rightfully theirs. According to a series of tweets by Bitcoin enthusiast Guy Swann, an anonymous miner endeavored to allocate a quantity of coins to "anyone can spend addresses," thereby prompting the intervention.
Subsequent to the initial bifurcation in 2017, a substantial volume of coins found their way to "anyone can spend" addresses due to the transaction compatibility of signatures. This situation was exacerbated by the absence of Segregated Witness (#SegWit) on the Bitcoin Cash (#BCH) network, or potentially they might have been replayed from the Bitcoin network onto the Bitcoin Cash network.
In response to the situation, BTC.top and BTC.com undertook a 51% attack, effectively addressing the issue promptly. Nonetheless, this strategy sparked apprehensions about the decentralization of Bitcoin Cash (BCH) and underscored the potential repercussions of concentrating an excessive amount of hashing power within the control of just two entities.
Ethereum Classic (ETC)
In early 2019, the legitimate Ethereum blockchain encountered a malevolent 51% assault. During this incident, malicious actors managed to pilfer ETC tokens amounting to $1.1 million in value. Experts detected an unsettling private mining pool associated with the event.
The attack was reported about 10 hours later.
A mining pool known as the "dark horse" gained dominance over about 63% of the ETC network's hash rate. In response to the theft, Coinbase, the prominent U.S. cryptocurrency exchange, took measures to halt all ETC transactions to thwart the withdrawal of the pilfered funds.
Preventing 51% Attack and Hacker Activity
Large-scale blockchains such as Bitcoin rarely fall victim to 51% attacks due to the near insurmountable challenge of surpassing the considerable hashing power safeguarding the BTC network.
Executing a 51% attack is a financially demanding endeavor. To seize control of more than half the hash rate within a network, a malevolent miner must acquire a substantial amount of immensely potent hardware, necessitating a significant electricity consumption.
A coordinated consortium of malevolent miners can orchestrate such an attack, striving to commandeer over 50% of the network's power. To counter this scenario, it becomes prudent to thwart the emergence of colossal mining pools that amass extensive computational potency from numerous miners.
Shielding the network from a 51% attack becomes imperative, particularly for smaller blockchains characterized by a relatively limited participant base. In such cases, vigilance must be directed towards prominent miners or their associations, commonly referred to as "miners' cartels," within the crypto community.
As a preventative measure, the notion of an alliance among trustworthy miners gains significance. This coalition often takes shape to thwart the occurrence of a 51% attack, strategically establishing a landscape where the majority of computational resources are under their purview.
For substantial blockchains, a sense of security can be derived, as the task of acquiring a significant market share becomes a practically insurmountable feat.
Summary: Blockchain, Attack and Safety
Similar to various domains, cryptocurrencies and blockchain networks encounter their fair share of hacking attempts. However, unlike other digital sectors governed by centralized authorities overseeing the assets of numerous individuals, these attacks manifest more frequently and yield greater success. In contrast, within the realm of cryptocurrencies, where the technology is founded on decentralization, such instances remain considerably uncommon.
Preserving the security of our assets necessitates a vigilant focus on substantial miners' alliances, particularly in the context of comparatively modest blockchains.