The decentralized nature of the blockchain system and its cryptographic algorithm makes it almost impossible for attacks to occur. However, the Ethereum Classic has been a victim of this crime with an estimated $1.1 million in losses due to 51% attacks. So, what is a 51% attack, and how does it happen?
A 51% attack is a type of blockchain infiltration that can cause network disruption and, ultimately, monopolize the entire mining process. This attack occurs when a miner, organization or single entity gains more than 50% majority control over the blockchain network’s hash rate or computing power. As a result of this attack, criminals gain access to prevent other miners from mining, cancel transactions that occur in the system, and ultimately steal assets.
When a blockchain network is hacked, an attacker will have enough mining power to change the transaction process. Order transactions can be changed, and all mining activities can be stopped. The 51% attack allows the entity behind it to reverse transactions that cause duplicate transactions in the blockchain.
Let’s say an attacker spends 1 BTC in exchange for a product, so the blockchain has to record the transaction. However, an attacker can trigger a refund by reversing the transaction to take possession of more of the BTC and the product.
How Does the 51% Attack Work?
A 51% attack works by controlling the majority of power in the existing network to take over the preset security protocol. This impact can result in heavy losses, but it depends on the attacker’s strength. So, the higher percentage of hash power an attacker has, the easier it is to carry out an attack. Here is an overview of how a 51% attack works on Blockchain and Bitcoin:
Influence on Blockchain and Bitcoin
When one entity controls more than 51% of the computing power on the blockchain, that entity can initiate a 51% attack. When an attack intrudes into the hash power of a blockchain, the attacker can delay new transactions and manipulate the use of the same coin multiple times.
In the event of an attack, blockchains using a Proof-of-Work (PoW) consensus mechanism to validate transactions, can delay the confirmation and arrangement of blocks in chronological order by miners. Let’s say the miner’s computing power decreases, delaying the confirmation of the transaction arranged in the block. This causes the blockchain network to malfunction, allowing attackers to solve equations faster than miners.
As a result, the attacker gains control to reverse unconfirmed transactions for coin transactions twice. In addition, attackers arerewarded with miners’ coins, supposed to be used as compensation for their mining activities and for updating the blockchain.
How Dangerous is a 51% Attack for Blockchain?
A 51% attack can indeed be detrimental to miners and disrupt the blockchain network. Despite that, experts think otherwise. In fact, an attack can be useful if analyzed from a certain perspective. It’s clear that Bitcoin’s hashing power comes from the contributions of like-minded participants, and these people are very logical in their decisions. However, there is still a risk of collusion in the distribution of hashing power when price discrimination occurs. It’s how others benefit from a change of power or at least escape significant losses.
While using the PoW system that underlies Bitcoin remains impervious to blockchain attacks, smaller projects, such as Ethereum Classic, are still vulnerable. That is because any entity planning to attack Bitcoin will need plenty of money to collect mining equipment to generate enough computing power to mine Bitcoins. So even if Bitcoin is under a 51% attack, the manipulation that occurs will not benefit the attacker.
What are the Weaknesses of a 51% Attack?
However dangerous these attacks are, some attempts made on the blockchain are impenetrable. Here are the weaknesses of this crime that you need to know:
- There’s no way a 51% attack can manipulate the per-block rewards from miners.
- Attackers will not have the ability to make transactions.
- When a reverse transaction occurs, it is only possible for the attacker to compromise his private transaction.
- It is impossible to increase the upper limit of tokens or coins that appear on the blockchain network.
Difference Between a 51% Attack and a 34% Attack
The 51% attack and 34% attack pose the same threat to the blockchain and ultimately control mining power. But what differentiates these two attacks is that 34% attacks use the Tangle consensus algorithm by manipulating the blockchain ledger to approve or reject a transaction. On the other hand, a 51% attack gives the attacker complete control over the blockchain network, which can effectively stop any mining or reuse of coins.
Which Blockchain Platforms Have Suffered 51% Attacks?
Theoretically, Bitcoin and Ethereum blockchains are 51% more attack-resistant than smaller projects although, many remain vulnerable. Here are some platforms that have suffered losses from this attack.
GRINs (GRINS):
According to the latest news, privacy-centric crypto network GRIN was compromised by 51% attacks. Anonymous entities have earned a total of 58.1% of the network hash rate as of November 7, 2020, resulting in the discontinuation of the quick payout.
Vercoins (VTC):
As a resistant cryptocurrency monopolized by ASIC mining, some 51% attacks on VTC were surprising. In October and December 2018, VTC lost $100,000 worth of VTC coins due to double transactions by entities that derived sufficient computing power from Nice Hash. As a result, VTC reset more than 300 blocks in the VTC network and another 600 hard forks.
Bitcoin Gold (BTG):
In May 2018, BTG spent twice as much, totalling 12,239 BTG ($18 million). As recently as late January, Bitcoin Gold fell victim to another 51% attack and ended up losing over 7,000 BTG spent twice in two days. The attack resulted from two deep blockchain reorganizations (reorgs) and was deleted.
Ethereum Classic (ETC):
The ETC blockchain has suffered not one, but three 51% attack losses in a month. All three attacks occurred in August 2020, on August 1, August 6, and August 29, respectively. This attack even caused crypto exchange Coinbase to stop all ETC deposits and withdrawals.
How to Prevent a 51% Attack
The 51% attacks prey on cryptocurrencies that use the Proof-of-Work (PoW) consensus algorithm. Meanwhile, the best defence against this attack is the Proof-of-Stake (PoS) consensus. That’s one of the things Ethereum 2.0 is trying to avoid by transitioning from PoW to PoS.
When using the PoS algorithm, the validator can mitigate the risk of infiltration by maintaining the operational capability of the network. For example, PoS helps limit the amount of cryptocurrency staked. So even if a 51% attack were possible, an entity would initially need large amounts of fiat for cryptocurrency to dominate the system. Taking a closer look at the 51% attack, crypto PoS isan unlikely target as the profitability is terrible.
Is There a 51% Chance the Attack Can Happen Again?
The danger posed 51% attacks is valid and maybe repeated, as there are always bugs in the blockchain code. When such an event occurs, an attacker can disrupt the blockchain to generate new blocks more quickly to launch an attack. In theory, this attack is possible again, but the Bitcoin blockchain is much tougher for attackers to overwhelm.
Any emerging technology, including blockchain and cryptocurrencies, is risky and vulnerable. That’s why we need to know what a 51% attack is. While new technologies are emerging to circumvent this drawback, cyber infiltration is still inevitable. On the bright side, such attacks provide a legitimate reason for industries and companies to learn and improve to become the best. So, let’s see what the future holds for this ever-evolving industry.
