51% Attack – Everything You Need to Know About it

Beginner’s Guide / 21.04.2020

There is this saying that keeps circling around again and again according to which the strength of a cryptocurrency like Bitcoin is in its network. The greater the number of individual contributors and supporters of the network, the higher its resiliency towards external threats. In blockchain, there is a direct correlation between the number of participants and network security. There is strength in decentralization.

The reason for the interdependence between participants and security, at least for Proof-of-Work coins like Bitcoin, is the amount of work put in. The Proof-of-Work algorithm is a resource-intensive system, meaning that you must contribute certain resources to the network, if you want to get the network reward. As more people join the network, the network’s appetite for resources increases. Thus, making it harder and harder for any single person to hack it.

But wait, what happens if someone does manage to gain enough resources? What if someone, directly or indirectly, manages to gain access to much of the Network’s power? Does Decentralization still help? Is the network still secure and protected?

How to Attack the Bitcoin Network?

The Bitcoin Mining Process is the backbone of the Bitcoin Network. To put it briefly, mining is the process of verifying transactions by contributing computing power to the network, in turn also making it more secure. In return for contributing computing power, the “miners” are rewarded by fresh Bitcoins. As more and more people rush in to get the reward, the network’s ask for computing power increases, making it harder to verify a transaction and even harder to get the reward.

To make changes to a network, you need most of the computing power. By taking charge of the existing 51% miners or by introducing new miners controlled by a single entity, one can start thinking of making changes to the network’s blockchain.

But a 51% majority does not mean that one can do whatever he wants. Most blockchain networks are designed such that even if they are not resilient to 51% attacks, they could reduce the damage done by such attacks.

What You Can Do With a 51% Majority

A 51% attack is a potential attack on a blockchain network, where a single entity or organization can control most of the computing power (hash rate) of the network. The security of a network is in its decentralization. As no single entity is in control and power is distributed across all participants, hacks are unlikely. But if one does manage to take control of 51% of the network participants or their resources, an attack can be likely.

This majority control can potentially cause a network-wide disruption. In a 51% attack scenario, the attacker should have enough hash rate (at least 51% of the network’s power) by which they could intentionally exclude or modify the ordering of transactions. They could also reverse transactions they made while being in control – leading to a double-spending problem. With enough resources, the attackers can even try to reverse past transactions, but only back to a few blocks.

What You Cannot Do With a 51% Majority

There is a limited set of things one can do with a majority. The Bitcoin network, as designed by Satoshi Nakamoto, was not resilient to 51% attacks. And so, as a “Plan B”, the number of things one can do after gaining the majority was made to be extremely limited. By gaining a majority, one does not become the owner of a network. The blockchain will remain distributed and the history of the network will still remain intact.

A 51% Attack is unique in the sense that it is an expensive attack that has to be carried out from within the network. In most cases, the attacker will lose more money to maintain the computation power, than from the reward of attacking. With a majority, one will not be able to reverse transactions or stop other miners from sending their transactions and mining new blocks. Any changes to the network’s protocol also could not be made. One cannot increase the block rewards or make changes to the block rules.

As the strength of the Bitcoin network continues to grow, it gets harder and harder to carry out a 51% attack. Today, Bitcoin uses enough resources for mining, that it could compete with several first-world countries. To stumble upon computing power that is equal to an entire country is extremely unlikely.

A 51% attack is possible, given how powerful some mining groups have become. While it is to be noted that the impact of such an attack would be minor, the damage it causes could highly likely lead to the demise of Bitcoin’s trust altogether.

Examples of 51% Attacks

The history of 51% stacks is not that extensive, as there have been only a handful of cases of successful attacks.

  • The Bitcoin Gold Hack

In January 2020, the Bitcoin Gold network faced a 51% attack, wherein about $70,000 worth of losses were seen by the network users. A similar attack on the BTG network was also seen in May 2018, where several attackers tried to double spend $18 million of BTG from an exchange. Due to this, key players in the apace lost their trust towards Bitcoin Gold and its network resiliency.

  • Ethereum Classic Double Spend

In January 2020 again, a group of hackers tried to gain most of the Ethereum Classic network, given its low hash rate. The hackers effectively got away with $1.1 million of ETC tokens by re-organizing the recent blocks and double-spending transactions. The attack was so fast that the attackers got away before the network realized the attack even happened.

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Sudarshan M is a long time crypto-enthusiast. Pulled in by bitcoin early on, it did not take long for Sudarshan to divert all of his academic attention from business studies to blockchain by doing his Masters and eventually pursuing his PhD in the subject.