Before plunging into the 51% Attack, it is essential to understand mining and blockchain-based systems.
One of Bitcoin‘s key strengths and the blockchain technology it uses is the distributed nature of data creation and verification. The nodes’ decentralized work ensures that protocol rules are followed and that all network participants agree on the current state of the blockchain. This means that most nodes must regularly agree on the mining process, the software version used, the validity of the transactions, etc.
The Bitcoin consensus algorithm (the PoW, Proof of Work) ensures that miners can only validate a new block of transactions if the nodes in the network collectively agree that the block hash provided by the miner is accurate (i.e., the block hash proves that the miner has done enough work and has found a valid solution to the problem of that block).
The blockchain infrastructure – as a decentralized registry and distributed system – prevents any centralized entity from appropriating the network for its own purposes, which is why there is no single authority on the Bitcoin network.
Since the mining process (in PoW-based systems) involves the investment of huge amounts of electricity and computing resources, the miner’s performance is based on the amount of computing power it possesses and is usually referred to as hash power or hash rate. There are many miner nodes in various locations competing to be the next to find a valid block hash and be rewarded with newly generated bitcoins.
In such a context, the mining power is spread over different nodes worldwide, which means that the hash rate is not in the hands of a single entity. At least, it is not supposed to be.
But what happens when the hash rate is no longer sufficiently distributed? What happens if, for example, a single entity or organization can obtain more than 50% of the hash power? One of the possible consequences is what is called a 51% attack, also known as a majority attack.
What is a 51% Attack?
A 51% attack is a potential attack against Bitcoin (or another blockchain network). A single entity or organization can control the majority of the hash rate, potentially causing network disruption. In other words, whoever carries out a 51% attack would have sufficient mining power to exclude or intentionally change the order of transactions.
Such an attack would allow the malicious entity to reverse the transactions it made while still in control, which would likely lead to a double-spend problem. A successful majority attack would also allow the attacker to prevent confirmation of some or all transactions (denial of transaction service) or prevent some or all other mining miners from mining, leading to the alleged mining monopoly.
On the other hand, a majority attack would not allow the attacker to overturn third party transactions, nor would it prevent the dissemination of transactions over the network. Changing the block’s rewards, creating Corners from scratch, or stealing Corners that never belonged to the attacker are also improbable scenarios.
What is the probability of a 51% attack?
Since a distributed network of nodes manages a blockchain network, all participants cooperate in the consensus process. This is one of the main reasons why blockchain networks tend to be described as secure. The larger the network, the greater the protection against attacks and data corruption.
For Proof of Work blockchains, the higher the hash rate of a minor, the greater the chance of finding a valid solution for the next block. This is because mining involves many hash attempts, so more computing power means more attempts per second. Pioneer miners joined the Bitcoin network to contribute to the growth and security of the network. With the rising price of Bitcoin as a currency, many new miners have joined the network to compete for block awards (currently set at 12.5 BTC per block). Such a competitive scenario is one of the reasons why the Bitcoin network is secure. Miners have no reason to invest large amounts of resources other than to act honestly and strive for the block reward.
Therefore, a 51% attack on Bitcoin is rather unlikely due to the magnitude of the network. Once a blockchain has become large enough, the possibility that a single person or group will obtain enough computing power to overwhelm all the other participants quickly reaches implausible levels.
Changing previously confirmed blocks becomes increasingly difficult as the chain grows because the blocks are all linked by cryptographic evidence. For the same reason, the more confirmations a block has, the higher the costs of changing or canceling transactions in that block. Therefore, a successful attack would probably only modify the transactions of a few recent blocks for a short period of time.
Going further, let’s imagine a scenario in which a malicious entity is not motivated by profit and decides to attack the Bitcoin network only to destroy it, regardless of the cost. Even if the attacker manages to disrupt the network, the Bitcoin software and protocol would be quickly modified and adapted to this attack. This would require the other nodes on the network to reach consensus and agreement on these changes, but this would likely happen quickly in an emergency. Bitcoin is highly resistant to attacks and is considered the most secure and reliable cryptocurrency available.
Although it is quite difficult for an attacker to get more computing power than the rest of the Bitcoin network, this is not difficult to achieve with smaller cryptocurrencies. Compared to Bitcoins, altcoins have a relatively low hash power to secure their blockchain. Low enough to allow 51% of attacks to occur. Monacoin, Bitcoin Gold, and ZenCash are notable examples of cryptocurrencies that are victims of majority attacks.