51% Attack: Definition, Risk, & Prevention

What is 51% Attack?

When one miner or group of miners controls more than half of the hash rate or processing power of a blockchain network, this is known as a 51% attack.

Once a hacker gains control of a blockchain network, they can manipulate the data stored in the blockchain to reverse some of their own previous transaction records, a problem known as “double spending”.

It redirects the priority of newly computed transactions, and even prevents transactions from occurring altogether.

All of the past data regarding transactions made over the blockchain network is stored in a string of code called a blockchain.

All of a blockchain network’s miners—the specialized computers that verify transactions and upload new blocks of data to the blockchain—are given access to the code.

A blockchain network becomes decentralized when this code is distributed to all miners, which prevents any one minority party from unfairly adding or changing blocks of data.

A block of data cannot be added to the chain unless all participants have agreed that it is valid.

However, a hacker or group can establish its own consensus on block validity by controlling more than half of the processing power used by the blockchain.

The miner can reorder transactions that are waiting to be processed or prevent new transactions from occurring when a majority is reached.

How does a 51% Attacks happen?

If one party in the network has more computing power than everyone else combined, it could try to choose the current block, start mining, and then keep the blocks it has mined hidden.

This rival chain will then surpass the original chain when it is broadcast, omitting all transactions made since the split and thereby causing damage to the immutability of the network.

The offending party might potentially blacklist specific Bitcoin addresses or refuse to accept blocks mined by other network users, guaranteeing that the rivals never earn a fair share.

A real 51% attack only takes a few simple steps to complete.

• Before attacking the network, the business or individual wishing to do so would need to acquire sufficient hash power to mine blocks on an alternative duplicate chain.
• This hidden chain continues to run concurrently with the original.
• Thus, purchasing a network’s hash power is essential to executing a 51% attack, thus this must be done at the highest potential cost.

A 51% attack cannot happen if a hostile party cannot afford to take over a network.

The purpose of transaction fees in the Bitcoin network is to incentivize nodes to maintain their integrity, as described by Satoshi Nakamoto in his whitepaper.

A single miner or group intending to attack the network will likely fail to create an alternative or significantly longer blockchain if proper precautions are in place.

Talking about 51% attack on Bitcoin network, no single miner, group of miners, or mining pool controls more than 50% of the Bitcoin network’s processing power. Because of the size and hash rate of the Bitcoin network, a 51% attack on the network appears impossible.

Notable 51% Attacks

Although 51% attack is most likely to be executed on almost any blockchain network, however, it is primarily targeting the cryptocurrencies with low hash rates.

There are few cryptocurrencies that have experienced heavy losses and damaged their reputation to a certain extent.

Let’s take a look at these cryptocurrencies and look back at the instances that happened to them:

• Bitcoin Gold(BTG) – 2018

Bitcoin Gold as you all know is a fork of Bitcoin and it was one of the major blockchain to witness the 51% attack in 2018.

The attackers who executed the attack somehow managed to double-spend the Bitcoin Gold worth $18 Million.

This was a major highlight that made it obvious that the networks with smaller hashrates are now prone to 51% attack.

• Verge(XVG) – 2018

Verge experienced a total of two 51% attacks within two months which was such a dangerous thing for a network to experience.

The very first attack led to a theft of 250,000 Verge tokens and the second one led to heavy loss of almost 35 Million tokens.

• Ethereum Classic(ETC) – 2019

Ethereum Classic, one of the significant blockchain networks, experienced multiple 51% attacks ranging from 2019 to 2020.

The most notable one took place in January 2019 when the attackers double-spended $1.1 Million worth ETC tokens.

The security was later decreased to a greater level to avoid such destructive attacks.

• Grin(GRIN) – 2020

Grin, which is known to be the privacy coin itself, suffered a 51% attack in the year 2020.

Although it didn’t suffer that amount of damage due to its robust security properties there was just a subtle reorganization.

There were no amounts or funds that were stolen however, this attack marked the higher vulnerability of the smaller hash rate networks.

What are the Risks of 51% Attack?

There are several risks associated with the 51%, which includes the following:

1. Double Spending

The consequence that most people fear the most is double-spending.

The hacker has the option to spend their funds twice: once through a standard transaction and again by altering the blockchain to indicate they never touched the money.

2. Denial-of-Service Attack (DoS)

The hacker seizes control and temporarily blocks the addresses of other miners. This prevents the miners from regaining control of the network.

The attacker’s fictitious series of transactions may thus end up being irreversible.

3. Reversed Transaction

An attacker may prevent payments from being made by any or all users. This interferes with the network’s regular operation.

It may result in long delays in transaction confirmations, destroying users’ trust in the reliance of the system.

4. Credibility Loss

The attack has the potential to seriously harm a blockchain’s reputation. This may cause a decline in confidence among present and prospective users, which would discourage new users or investors from joining the network.

It can also cause a sharp decline in the value of the corresponding cryptocurrency which is definitely not a good thing.

How to Prevent 51% Attack?

Since a 51% attack is a possibility, the crypto community is aware of the risks involved and is working hard to create effective defences.

Among the most promising strategies are the following ones:

• Use Alternative Consensus Mechanism

Refrain from relying solely on Proof-of-Work and adopt consensus mechanisms like Proof-of-Stake, which enhance security and reduce energy consumption.

This will save energy costs and enhance network security, making the blockchain more scalable and ecologically friendly.

• Promoting Decentralization

With increased network extension and decentralization, it is more difficult to concentrate controlling power the more nodes are involved in upholding consensus.

Numerous initiatives use reward systems to encourage the addition of new nodes.

• Keen Observation of Mining Activity

Increased observation of mining activities in order to spot fake nodes before a potential assault even occurs.

The hashrate distribution analysis will enable the prompt identification of suspicious power concentrations.

• Use specialized mining method

Switch to ASIC mining, which necessitates the use of costly specialist machinery.

A 51% control over Bitcoin’s hashrate would require technology estimated to cost billions of dollars, making such attack financially unfeasible.

• Real Time Monitoring

Real-time blockchain monitoring to spot questionable activity right away. These systems enable prompt action in the event of an assault.

It monitors and restricts the misuse of rented hashrate through speculative mining pools, reducing vulnerability to attacks.