51% Attack: Everything to Know
By Beluga Research August 28, 2023
- A 51% attack occurs when a block of cryptocurrency miners that control over half of a network's mining power attack the network to manipulate transactions
- This type of attack can result in the bad actors double-spending coins and engaging in reverse transactions
- A 51% attack undermines the trust and immutability of a network
- Reducing the chance of 51% attacks requires increasing the network's computational power (hashrate), establishing penalties and discouraging the concentration of mining
A 51% attack occurs when a block of cryptocurrency miners that control over half of a network's mining power attack the network to manipulate transactions. A cryptocurrency network relies on a decentralized consensus mechanism. It achieves this through a consensus algorithm like proof-of-work (PoW) or proof-of-stake (PoS). Such algorithms ensure that transactions are validated and recorded by a network of participants, known as nodes or miners. A 51% attack exploits a fundamental weakness, typically in a PoW consensus model.
A Brief History
The launch of Bitcoin made it possible for bad actors to inflict a 51% attack. In its early days, Bitcoin had a relatively small network, which made it susceptible to attacks. As the network grew, the likelihood of a successful 51% attack diminished. This is because the network came to be so large that malicious actors would need a great deal of computational power to inflict an attack. Currently, 51% attacks are possible in smaller networks, especially those that allow more centralization of power.
51% Attack: Everything to Know
A 51% attack occurs when an individual or group of bad actors gain the necessary computational power of a network to inflict an attack and then inflict the attack. The majority control enables the attackers to manipulate the network's operations. Attacks typically involve double-spending coins, preventing transactions from being confirmed and rewriting the network's transaction history.
One or more bad actors can inflict an attack through deploying substantial computational resources, including mining hardware and electricity. The bad actors perform the attack by creating an alternative version of the blockchain, known as a "fork." A fork outpaces the honest participants in mining new blocks. The existence and addition of blocks to the fork allows the bad actors to exercise control over the network and reverse transactions.
The implications of a successful 51% attack are severe. Double-spending is one of the most concerning outcomes. In this scenario, an attacker spends their coins on one chain. They then reorganize the blockchain to erase that transaction, effectively regaining the spent coins.
Cryptocurrencies that utilize PoW consensus algorithms, such as Bitcoin and Ethereum, are more susceptible to 51% attacks than those that use PoS and other consensus mechanisms. This is because PoS-based networks introduce additional security measures. They require participants to hold a certain amount of cryptocurrency as a stake. This discourages malicious behavior.
Mitigating the risk of 51% attacks requires a combination of technical and economic measures. A network that increases its hashrate by attracting more miners. This will make it harder and more expensive for attackers to gain control. A network can also enhance security by penalizing malicious behavior and taking steps to limit the concentration of mining power.
- A 51% attack involves gaining control over the operations in a blockchain. By creating a false version of the blockchain, the bad actors gain access to other users' coins.
- These attacks undermine the security of information in the network. The bad actors can create false sets of information, which undermines users' trust in the network.
- 51% attacks can be used to target certain individuals or groups, to exclude them from the network and erase their history. Such unfair actions can lead to divisiveness and allegations of bias in the community.
- A 51% attack contributes to distrust of the network and the crypto ecosystem as a whole. A network that does not take measures to protect or compensate its users in the event of a 51% attack is seen as unreliable and underperforming.
- Typically target networks that rely on PoW consensus. In a PoW-based blockchain, the miner who successfully solves the computational puzzle first gets to validate the block and add it to the chain. If a single entity or a group of colluding entities controls over 50% of the network's mining power, they could monopolize the mining process. This dominance grants them the ability to disrupt the normal functioning of the blockchain.
- Allow bad actors to double-spend coins. Double spending occurs when an individual spends the same cryptocurrency twice, essentially creating new coins out of thin air. By controlling the majority of the mining power, the attacker can rewrite transaction history. This allows them to spend the same coins repeatedly without detection.
- Exclusion or censorship of specific transactions, preventing them from being included in blocks. This selective transaction censorship can be economically motivated or used to target specific individuals or organizations. It undermines the neutrality and fairness of the network.
- Double Spending. Bad actors can spend their cryptocurrency twice by creating a transaction and then creating an alternate blockchain where the transaction never occurred. The bad actors reverse their own transactions and profit from these actions.
- Block Withholding. The attackers can choose to withhold certain blocks from being added to the blockchain. This will disrupt the network's consensus mechanism. Block withholding results in delays or even halts the confirmation of transactions. The phenomenon will frustrate users. One or more 51% attacks will decrease the credibility of the blockchain project.
- Network Influence. Bad actors can exert influence over network decisions like protocol upgrades or changes. They can manipulate the consensus rules, implement new features and reverse transactions. This level of control can be seen as an advantage for entities who want to gain a profit and undermine the integrity of the network.
- Network Damage. A successful 51% attack severely damages the reputation and trustworthiness of a cryptocurrency project. Users will lose confidence in the network's security and reliability. This will lead to a decline in adoption and value. The negative publicity resulting from such an attack can have long-lasting consequences for the affected cryptocurrency.
- Centralization Concerns. The occurrence of a 51% attack highlights the centralization risks associated with cryptocurrencies. If a single entity or group can amass such a significant amount of mining power, investors and regulators will question the value of decentralization. Many 51% attacks, especially in a short time period, can lead to stricter regulations and fewer opportunities for users to benefit from the network.
- Economic Consequences. A successful 51% attack can disrupt the economic stability of a cryptocurrency. It will hinder the growth and adoption of the coin. The attacker can manipulate transactions, create uncertainty and cause users and businesses to suffer financial losses. The resulting chaos and uncertainty can harm the overall ecosystem.