The blockchain is susceptible to various risks. Nevertheless, some blockchain networks are more resistant to risks than others due to their inherent mechanisms. A 51% attack is a constant threat to the proof-of-work-based protocols such as Bitcoin or Ethereum. This article explains the technicalities and effects of a 51% attack on a blockchain. We will also assess the possibility of 51% attacks on major blockchains.
To understand the concept of 51% attack, we need to grasp the key related terms, decentralization, and proof-of-work. Decentralization means that the control of a blockchain is in the hands of a systematic digital network, not a single person or a few selected people. For a change or a transaction to take place, the majority of the participants should agree on it.
One mechanism of reaching this agreement is called proof-of-work. Primarily, proof-of-work (PoW) is a method of authenticating or verifying transactions on a blockchain by solving complex mathematical problems to prevent anyone from cheating the system. The first network participant, who solves this mathematical puzzle using computing power, will have the task of verifying a given transaction. However, all the participants in the network should prove that the solution is accurate.
51% attack refers to a situation where a single network participant or group of participants controls more than 50% of the network’s computing power. This allows the participants, also called miners, to double-spend the cryptocurrency. Normally, the involved miners rent hash power from a third party. Double spending occurs when a digital currency such as cryptocurrency is spent twice. As you can assume, this results in a loss to the blockchain.
Apart from double-spending the coins, the attackers can carry out other adverse activities. They can prevent the confirmation of some transactions, thus stopping the related payments. They can also reverse some transactions that occurred when they were already in charge of the network. In addition, they can also stop other participants from mining, resulting in what we call a mining monopoly. However, it is not possible for them to reverse the transactions that occurred before they were in control of the network.
The 51% attack can also disrupt the network as it may delay confirmation of transactions or the process of arranging blocks into chronological orders. In turn, the attackers are the ones who can process transactions faster than the other participants.
As a result of the 51% attack, the miners and users lose confidence in the blockchain. These people will question the security, reliability, and trustworthiness of the concerned blockchain. This can also lead to a decrease in the value of its coin or token.
A popular case of the 51% attack is that of Bitcoin Gold which occurred on 18 May 2018. In this case, the attacker controlled more than 50% of the hash power of the blockchain. As a result, these malicious actors managed to double- spend the coins for several days. In all, they stole $18 million worth of Bitcoin Gold.
Ethereum Classic is another example of a crypto project that suffered 51% attacks three times in 2020. As the examples show, 51% attacks are the most significant disadvantage of the proof-of-work consensus mechanism.
Big blockchain networks are less prone to 51% attacks than smaller blockchains. This is because as a blockchain network grows beyond a certain level, it becomes very difficult for an individual or a group of miners to get control of more than 50% of its hash power. In fact, it is very expensive for a group of miners to borrow much computing power required to execute a 51% attack.
More importantly, even if some attackers get control of over 50% hash power of a big network, oftentimes it has enough security to stop any such attacks. This is because it is very difficult to change confirmed blocks as they are all connected through cryptographic proofs. This is the reason why Ethereum and Bitcoin, the two largest blockchains, have not experienced any 51% attacks over the years.
Certainly, there are ways in which blockchains can prevent 51% attacks.
Using proof of stake (PoS): The proof of stake consensus mechanism reduces the chance of getting a 51% attack. The main reason is that the most influential users are the ones who get the most PoS rewards. Hence they are most unlikely to carry out a 51% attack.
A strong community: With proof-of-stake, the community votes for the validators who verify the transactions. As such, the community can vote out the validators that collude to control the entire network. Thus, this method prevents 51% attack as well as double-spending. For example, this is the method which EOS uses to control any form of manipulation of the blockchain.
To summarize, 51% attack is one of the risks that blockchains and users face. The attackers normally take away the coins from the blockchain. There are several small blockchains, such as Bitcoin Gold, that experienced 51% attack. Currently, the attackers have not been successful in attacking big blockchains such as Ethereum and Bitcoin. For the blockchains that are prone to 51% attacks, one solution is to use proof-of-stake rather than proof-of-work. In addition, the blockchain networks should strengthen their decentralization.