51% Attacks

What is a 51% Attack?

A 51% attack occurs when a bitcoin miner or group of miners takes possession of more than 50% of the blockchain of a network. The 51% attack possibility is uncommon, particularly for more established cryptocurrencies, because of the logistics, hardware, and costs involved. However, a successful block assault may grant the attacker entire network control, allowing them to double-spend bitcoin, restrict other transactions from completing, and prohibit other miners from mining.

A single malicious user, or a group of bad users operating together, can override the network's consensus process and engage in a fraudulent activity like double spending if they control more than 50% of the total network hashing rate for a blockchain. 

The attacker would have sufficient mining power to change the sequence of transactions on purpose, preventing some or all of them from being confirmed (aka. transaction denial of service). Additionally, he would have the power to stop some or all other miners from working, creating a "mining monopoly."

Also Read - Bitcoin Price Prediction

Examples

For instance, a bad attacker may conduct an offline OTC (Over-the-counter) deal by sending some Bitcoins to a cryptocurrency wallet in exchange for USD if they managed to seize 51% of the network's hashing power. Given the supposed immutability of the blockchain, the buyer would foolishly give the fraudster the USD as soon as the transaction is approved by the network nodes.

The bad attacker might then go back to the block before the Bitcoin transfer was confirmed and build an alternate chain that does not include the BTC transfer. The dominant share of networking power would guarantee that this is forced to be accepted as a valid transaction by the remainder of the network.

51% Attack is more than just a theoretical threat. A few prominent instances of 51% assaults have occurred in the past, including:

• Over $18 million in BTG (Bitcoin Gold) was twice spent in 2018 as a consequence of an assault on cryptocurrency.

• In 2018, there were several attacks on Vertcoin (VTC), which caused the price of VTC to double.

• A 2019 attack on Ethereum Classic (ETC) led to the double spending of more than $1 million on the cryptocurrency. Three assaults were also made against cryptocurrency in 2020.

• The Grin (GRIN) blockchain was attacked in 2020, but it was able to retake control.

• In 2021, Bitcoin SV (BSV) was the target of three attacks, which diminished its standing.

The majority of 51% assaults target smaller cryptocurrencies. Major cryptocurrencies are unlikely to be the target of a successful 51% assault, according to experts, as seizing more than half of the mining power would be too expensive.

How does a 51% Attack work?

Consider bitcoin, which creates a new block approximately every 10 minutes. Once a block has been completed or mined, it cannot be changed since a tampered-with version of the public ledger would be rapidly detected and rejected by the network's validators.

However, this fraud is theoretically possible if a group of miner nodes band together and control the majority of the mining hash rate, resulting in a 51% attack. An attacker or group of attackers may therefore disrupt the process of recording and adding new blocks to the crypto network by controlling the bulk of the computational power on the network.

They can use this monopoly to influence the mining of new blocks to maximize mining profits in their favour.

 

Source: Ethereum Research

The crypto network is affected when one or more miners control a majority of the hash rate. This interruption represents a 51% assault. Those that carried out a 51% attack would then be able to:

• Prevent the recording of new transactions.

• Change the transaction ordering.

• Prevent transaction validation or confirmation.

• Prevent other miners in the network from mining money or tokens.

• Reverse transactions to spend coins twice.

These consequences of a block assault might be troublesome for cryptocurrency investors and merchants who take digital currencies as payment.

The Effects of a 51% Attack on Blockchain

Interrupts Network Activity

To validate transactions, each blockchain employs a Proof-of-Work (PoW) algorithm. The attackers disrupt the network by delaying confirmation and arranging the blocks in chronological order.

It should be noted that a 51% attack has a significant impact on the miner's computational resources. This creates delays in the confirmation and storage of the transaction in a block. As a result, the blockchain network becomes corrupted, allowing attackers to execute transactions more quickly than miners.

Reduced Mining Rewards

A 51% attack allows attackers to cancel a transaction before it is verified. This results in a coin being spent twice. Furthermore, legitimate miners get less money for updating the blockchain since attackers take their shares.

Delay in New Transactions

The attackers invaded a bitcoin's hashing power in a 51% attack. They can postpone new transactions and commence the use of the same currency several times.

The Role of the Nakamoto Coefficient in 51% Attack

The Nakamoto Coefficient indicates how many validators or nodes are needed to agree to modify the blockchain and prevent it from exploitation. The larger the value concerning all validators, the less likely anything similar would happen and, as a result, the more decentralized the network.

Bitcoin, for example, the Nakamoto coefficient is four because controlling the four largest mining pools would give enough hashrate to carry out a so-called 51% assault.

Source: Blockchair

The Nakamoto Coefficient's limit threshold for significantly corrupted subsystems is commonly set at 51%. however, this can vary.

 

Source: Twitter

 

Source: Messari

Risks Associated with 51% Attack

A 51% attack results in the loss of digital assets or even real money for crypto users. This raises critical questions regarding a blockchain's dependability, security, and integrity. The trust of its consumers and miners is severely shaken if a network is compromised and the funds are lost.

Attackers can trick unskilled and new users into validating and confirming transactions that they can subsequently invalidate. The reason for this is that attackers can disrupt unconfirmed blocks and transactions on a blockchain.

Note: Till this time, there has been no confirmed 51% Attack ever noticed on Bitcoin as its NH-able value is under 1%. As the network expands, the chance of a single person or entity acquiring enough computer power to overwhelm all other users becomes increasingly unlikely.

Conclusion

When it comes to fast-growing, promising technologies like bitcoin and blockchain, risks and weaknesses are inevitable. This article has discussed the hazards of 51% attack as well as potential mitigation measures.

The forthcoming technology claims to address these security issues while also improving the system. This kind of network assault, on the other hand, should assist firms and industries learn new preventative methods and strengthen their present platforms for the future. The future seems good in this subject as well, and we can't wait to see more advancements in the business.