Everything you need know about the dreaded 51% attack or MArjority Hashrate Attack on a cryptocurrency network.
One of the most complex yet theoretical problems that a blockchain like the one that Bitcoin employs, could face, is the 51% attack. Such an attack – also referred to as a majority attack – would allow miners who control more than 50% of the mining power in the network, to reverse, alter or otherwise tamper with transactions. There are, however, many myths, half truths and hyperbole surrounding the 51% attack. We will explore some of them in an effort to establish what is fact, what is fiction and how prevalent the risk of a 51% attack on Bitcoin really is.
What is a 51% Attack on Cryptocurrency?
To understand how a 51% attack might be possible and what it is exactly, it is necessary to understand a few basic concepts:
- 51% attacks are possible on PoW blockchains
- A 51% attack involves mining power
- Non-mining nodes still function as established by the protocol during a 51% attack
- Since PoW blockchains depend on decentralization of processes and a public ledger in which transactions are written on block with each block having a reference to the block before it on the chain, controlling more than 50% of the mining power will allow miners to manipulate these records
- Miners who have this kind of mining power will be able to attack the blockchain only while they have more than 50% of the mining power
- Confirmed transactions that were made before the 51% attack will not be affected
A 51% attack is an attack on a blockchain based cryptocurrency network where the attacker controls at least 51% of the mining power (hashrate) that allows them to reorder transactions, reverse their own transactions and prevent other transactions from confirming.
Implications of a 51% Attack
The scope of the 51% attack on Bitcoin and on any other PoW coin is so limited that there are no other ways to profit from the attack apart from double spending. During a 51% attack, the malicious actor cannot do the following:
- Change block rewards
- Steal coins that are secured in other people’s wallets or deal with coins that do not belong to him
- Create more coins
In a 51% attack, the malicious actor will be able to hash the majority of the blocks. This actor will also be able to prevent other miners from hashing blocks. Controlling a majority of the blocks released allows the malicious actor to delay the recording of transactions, alter it or even reverse it, enabling double spending.
A Successful 51% Attack
The technical side of a 51% attack must be paired with an advantageous strategy founded in game theory to be successful. Ultimately, even if a malicious actor can control more than 50% of the mining power of any given PoW coin, it cannot capitalize on the attack unless credibility in that blockchain is restored. Therefore, these attacks cannot last for too long even if successful. Otherwise the monetary value of the asset associated with the blockchain that is under attack, will plummet.
51% attacks are also costly. They require the accumulation of hashing power, which involves investment in capital – computers – and energy – electricity essential to make the computers work. If the cost of attaining the amount of computing power needed and the cost of energy are low enough, it might be worth it to launch an attack. That is, if the attack itself doesn’t damage credibility in the blockchain that is being attacked to a point at which the attacker’s bounty becomes worthless.
Incredibly Difficult to Launch a 51% Attack Against a Coin that is Worth it
This means that attacking a coin that has the monetary value necessary for a worthwhile attack is:
- Expensive – monetary rewards for mining on valuable coins are high so mining power on these networks is often too high to allow a malicious actor to accumulate enough computing power
- Too damaging – a 51% attack on a valuable coin could get so much attention that people could lose credibility and the malicious actor might only be able to achieve a pyrrhic victory
51% Attacks on Bitcoin are Virtually Impossible
A 51% attack on Bitcoin for example, is considered to be highly unlikely. Bitcoin is one of the most profitable – if not the most profitable – PoW network to mine in. This has attracted thousands of miners who combine their efforts through mining pools. It is difficult to pool enough individual miners together for a 51% attack. Individuals attempting the attack would have to invest millions in equipment and electricity for a 51% attack that is so limited in terms of its time frame, that it is better to invest the money elsewhere.
Bitcoin’s protocol also protects it from a 51% attack. If there is a successful attack on Bitcoin and the attack is prolonged, nodes can decide to fork. Such a fork would entail changing the protocol to “fire” current miners and “hire” new ones, which effectively gets rid of the attacker.
Good News for Bitcoin!
If miners somehow muster the computing power needed for a 51% attack on Bitcoin, the incentives are against them. Not only would they have to put a lot of money up front. They could also get “fired” and they could damage the reputation of Bitcoin so badly that the coins they can accumulate through double spending would be worth significantly less. This is why the Bitcoin Wiki article on weaknesses categorizes the 51% attack as “probably not a problem.”