Introduction
Blockchains and cryptocurrencies are innovative methods of ensuring secure online payments. However, technology always keeps evolving; therefore, even state-of-the-art systems such as blockchains are not saved from the threat of cyber-attacks. This article is going to discuss and shed light on a major issue related to blockchain security called 51% Attack.
Every cryptocurrency investor who is using any blockchain network in any capacity must learn about the intricacies of such attacks. It is best to share this information with fellow blockchain users to ensure that more people have the right awareness about the appropriate decentralized governance.
What is Blockchain?
A blockchain is a distributed ledger which means that, unlike typical software, it is not installed on a singular server. Instead, blockchains can be stored on various servers that are known as nodes.
It means that blockchains can run democratically rather than under the supervision of one government or private enterprise. Users on the blockchain can make transactions on these platforms using cryptocurrencies.
These transactions are not verified by a bank or any private enterprise; rather, they use the services of miners or validators to check the authenticity of these transactions by computation. Blockchains ensure their security from any cyber intrusion using cryptography.
Blockchains also issue a native currency to make transactions that are called cryptocurrencies. Bitcoin is known as the first-ever blockchain project in the world, with an eponymous cryptocurrency at its core.
What is Crypto Mining?
As mentioned before, Bitcoin and other blockchains employ various types of consensus mechanisms that are used to verify transactions. Without a consensus mechanism, the users on the blockchain would not be able to distinguish between authentic and fake transactions.
Therefore, miners who are appointed to verify these transactions use the rules on the blockchain, also called the consensus mechanism, to make it secure. Blockchain and cryptocurrencies, at their core, are only digital programs; therefore, there is a threat that any hacker can create an artificial cryptocurrency to fake transactions and defraud other users.
However, blockchains use cryptography to ensure that the transactions on these platforms remain away from any type of manipulation. When a user makes a transaction on the blockchain, it is sent to miners who solve the cryptographic puzzle in exchange for the mining fee committed by the transaction makers.
The object of miners is to solve the cryptographic puzzle and to ensure that the transaction is not faked. Once a block containing several transactions has been verified, it can be added to the distributed ledger.
Eventually, miners can also earn new cryptocurrencies released by the blockchain as rewards. Miners also generate a hash rate for a blockchain that determines the total active computation power on the network.
What is a 51% Attack?
A 51% attack is a situation where a blockchain can get hit with a cyber invasion if the miners can seize control of more than 50% of the power. Blockchains like Bitcoin depend on the fact that miners are going to be spread around the world, much like nodes.
The design of the blockchain and the tenets of Consensus models are such that anyone can become a miner with the right skills and equipment. Blockchains aims to be decentralized entities meaning that they do not require banks or any other financial regulator to verify the transaction on them.
Blockchains ensure that it serves the users and are also operated and governed by them democratically. Therefore, they are open-sourced and permissioned networks. The users, nodes, or miners do not require any type of verification or approval from anyone to join the blockchain network.
Miners who wish to verify and earn new cryptocurrencies from their blockchains can join at any given time and from anywhere in the world. They require the correct mining machines and require technical skills to set them up in addition to the energy input.
However, if malicious actors can get hold of more than 50% mining power or hash rate of a blockchain, it can come under threat of getting ransacked.
How does a 51% Attack Work?
Miners who are working for blockchains such as Bitcoin may have to increase their computation power or hash rate to increase their chances of earning profits. Many corporations are performing mining operations on a mass scale. Therefore, individual miners may get very little chance of getting the opportunity to get a mining job done.
Miners usually work for Proof of Work consensus model networks. These models allow the miners to compete against each other, and whoever solves the puzzle first gets the mining rewards. Therefore, by design, the miners who are operating with smaller mining power have little chance of making a profit.
Therefore, most miners join forces with the existing mining farms and work in the form of pools. When Bitcoin was first introduced in 2009, it did not have a lot of miners competing with each other, and the hash rate was nominal. However, in the last few years, Bitcoin prices have grown significantly.
Therefore, the new miners that are joining the network have to compete with the old ones who have increased their mining capacity using the latest machinery and expansion. Some mining businesses recruit new miners to join them and operate in the form of a pool.
In this manner, small-scale miners can also earn considerable profits. However, this situation can lead to an onslaught of 51% attacks. As long as a miner has less than 50% control of the total blockchain hash rate, they cannot manipulate the distributed ledger.
However, if the miners somehow get in possession of more than 50% hash rate, they can hijack the control of the blockchain network and manipulate the data and cryptocurrencies on the forum.
What is Double-Spending?
Double-spending is a situation that arises from the initiation of a 51% Attack on the blockchain network. Once a single miner or a mining pool can get in possession of more than 50 percent mining power, they can start taking hold of the information stored on the network.
The blockchain distributed ledger is spread across various nodes; therefore, it is impossible to copy or manipulate any verified transactions that are available on-chain data on the blockchain network. This system is only secure until the miners have control over more than half of the total hash rate.
Once it happens, the miners who are working as threat actors can manipulate the transaction details available on the blockchain, and they can reject the correct, verified data by overwriting it using more than a 51% hash rate.
The blockchain network automatically rejects all the transactions that are not verified by the majority of the nodes. Hence the malicious miners can now spend their Bitcoins twice rather than only spending them once.
It means that double-spending is a by-product of the 51% mining attack issue. If a blockchain remains safe from a 51% Attack, the miners cannot perform double-spending without getting rejected by other miners and node validators.
Top 51% Attacks of All Time
Here are some of the most notorious 51% Attacks of all time that have taken place on various blockchain networks since the introduction of this nascent technology:
Bitcoin Gold
Bitcoin Gold is the fork network of the Bitcoin blockchain that was created in 2017 as a result of a major protocol change in the genesis Bitcoin network. In 2018, Bitcoin Gold was hit by a 51% attack, and it resulted in the flushing of $18 million worth of its local currency called BTG.
The network suffered from another round of 51% attack in 2020, leading to a loss of 7000 BTG tokens on account of double-spend.
Vertcoin
Vertcoin is an open-sourced GPU Bitcoin variant, and it underwent 51% of attacks in 2018. The attack took place by putting one miner in control of a sizeable hashrate of the network using an ASIC upgrade.
As a result of this attack, this network ended up losing $100K worth of its local currency called VTC. To recover from the damages of this attack, Vertcoin had to reorganize 300 previous and 600 next blocks using a hard fork.
Ethereum Classic
Ethereum Classic is the genesis blockchain of this network that has been determined to remain immutable. This blockchain network has been hit by a 51% attack three times since its inception.
All of these attacks took place in August 2020 on the 1st, 6th, and 29th days subsequently. The network lost $1 million worth of classes, Eth, ETC, as a result of this attack. At the same time, these attacks enticed Coinbase to delist ETC from its platform.
Grin Network
Grin is a privacy-centric blockchain network. Grin suffered from a surprise 51% attack after an anonymous entity took hold of 58.1% of the total hash power of the network. However, the network administrators were able to regain control of the platform eventually.
Bitcoin SV
Bitcoin SV is a fork of Bitcoin Cash. It is interesting to note that Bitcoin Cash was the fork of the genesis Bitcoin blockchain. Bitcoin SV suffered from a 51% attack in 2021 which resulted in a considerable price decline and loss of trading interest in this blockchain project.
The Aftermath of 51% of Attacks
Here are some important areas that are affected when a blockchain is undergoing a 51% attack. Blockchain users can also use these issues as symptoms of an underway 51% attack on the network:
- New transactions on the network will stop getting approved on the blockchain.
- The on-chain data or the recorded transactions will undergo an unprecedented rearrangement.
- Miners would not be able to validate new transactions, and it will become impossible to confirm any new transactions on the blockchain.
- The miners who are outside of the 51% attackers circle would not be able to mine new coins or mint new tokens from the blockchain network.
- The transactions registered on the blockchain will start getting reversed to enable double-spend cryptocurrencies.
How are Cryptocurrency Investors Affected by 51% Attacks?
As mentioned above that 51% of attacks can trample the security and sanctity of a blockchain network. However, the individual cryptocurrency investor may think that they might remain unaffected by such an event.
The truth is that the dangers of 51% attacks also impact the cryptocurrency investors who are associated with the network as nodes or users. Here is how the cryptocurrency investor can get affected by the 51% attackers:
- The cryptocurrency that is associated with the network under attack can undergo massive price devaluation.
- Cryptocurrency exchanges can delist the cryptocurrencies that are frequently affected by 51% attacks that can lead to a decline in available liquidity.
- The traction and trading volume of the native cryptocurrency can drown on account of a 51% attack resulting in increasing FUD.
- The decentralized applications that are operating on the blockchain undergoing 51% attack can be exposed to other technical threats or may stop working altogether.
- The blockchain can suffer from a temporary or permanent halt that can lead to unwarranted delays in transactions.
- The blockchain can suffer from the loss of its native currencies on account of double-spending.
- The blockchain that has already been affected by a 51% attack may require undergoing a hard fork to undo the damage and make a full recovery.
Limitations of 51% Attack
It seems that 51% of attacks can become asunder the blockchain network in every possible manner. However, there are still some areas of the blockchain network that remain safe despite the threat actors that are carrying out the 51% attack. Some of these limitations of 51% attack as given here:
- Attackers would not be able to reverse the transactions that are made by other users on the blockchain network.
- The threat actors cannot alter the total number of coins that are minted by a blockchain.
- The hackers cannot make the blockchain mint new coins without performing proper mining operations following the local consensus model.
- The malicious operators cannot make transactions with cryptocurrencies that are not under their ownership.
51% Attack vs. 34% Attack
51% attack is very much like 34%, with the difference that the latter affects a blockchain network using a Tangle consensus mechanism. This consensus model was adopted by the IOTA blockchain, and it only requires the previous two transactions to be verified for validating the next transactions.
In a 51% attack, hackers can take hold of the entire blockchain network. However, in 34% of attacks, the threat actors are limited to affecting the ability of a blockchain ledger to approve or disprove new transactions only.
Preventive Measures to Avoid 51% Attacks
Here are some precautionary measures that can ensure that the blockchain network remains secure against the threat of 51% attacks:
Imposing Mining Limits
Blockchain core developers can introduce a new rule on the platform that automatically limits a single miner gaining more than 50% hashrate.
This can be done by presenting a new proposal or upgrade on the network and implementing this condition in the core programming of the blockchain in question. In this manner, no single mining enterprise or individual would be able to perform a 51% attack.
Changing Consensus Model
51% of attack is often associated with the Proof of Work mining mechanism. It happens because the miners in PoW are required to compete with each other, which results in an automatic need for miners to pool their hash power.
Therefore, a blockchain network may be able to prevent such threats by switching to other consensus models, such as Proof of Stake or PoS.
Active Community Interaction
An active crypto community can play an important role in buffering the threat of 51% attacks. This is especially true for blockchains that depend on diversified consensus mechanisms such as PoS. In PoS, the users are allowed to vote or elect their validators.
If the community of the blockchain stakeholders has active communication, they can identify any miner that has managed to gain considerable mining power. Hence the community members can start electing other miners to maintain a healthy distribution of the total hash rate.
Blockchains are considered to be a secure and reliable method of performing digital transactions across the globe. Governments of various countries are also trying to adopt this technology to digitize their legal tender and central banking networks. Threats like 51% of attacks show that technology is always emerging and improving.
The users who are associated with these networks can use preventive measures to ascertain whether the blockchain they are using is secure or not.
In the same manner, the users can also take steps to ensure that the blockchain administrators ensure safety to prevent such threats to maintain the goodwill and value of a given cryptocurrency.
Conclusion
51% attacks represent a small threat to blockchain users, and they should not be taken as the inevitable issue that is going to affect every network. Blockchains like Bitcoin and others have proceeded to incorporate preventive measures on these networks to keep improving.
Therefore, despite the possibility of 51% attacks, blockchain users can still enjoy using these networks after ensuring that the core devs have adopted the appropriate preventive measures.