A 51% attack can occur when a miner takes control of more than 50% of a blockchain network. Owning more than half of the nodes in a network gives agents a chance to manipulate the recorded information on a blockchain.
Understanding 51% Attacks
In a distributed ledger like a blockchain, the transaction records are verified collectively, in a manner that ideally, it is not possible to authenticate incorrect transactions or double-spend. The verification of the majority is required to authenticate transactions, and when one agent owns the majority, they hold the power to manipulate the transactions. This disruption is called a 51% attack.
The attackers can prevent transactions from being confirmed, cease payments and transfers for one or more users, or approve double-spending. Although it poses a great danger, 51% attacks are rare in large, public blockchains as they have complex logistics, hardware, and capital requirements.
This guide explains how 51% attack works along with what makes a vulnerable network, prevention methods, and past examples.
How a 51% Attack Works
To understand how a 51% attack works it’s crucial to establish how a blockchain functions.
A blockchain is essentially a distributed ledger system where all information is stored in blocks, and participants (nodes) are responsible for adding and verifying blocks by taking the approval of the majority of the network.
Each block can hold a finite amount of transaction data, and miners or validators, depending on the network, mint new blocks by verifying the transactions bundled in it. When their work is confirmed by the majority of the nodes, the new block is added to the chain. These blocks are cryptographically sealed.
Most blockchain networks follow the proof of work (PoW) consensus mechanism to realize this process. The mechanism follows a miner solving the cryptographic puzzle using computing power, which serves as proof that they’ve done the work. The computing power required to mine blocks is called the hash rate.
Proof-of-Work is intended to make it prohibitively expensive for an attacker to rewrite the blockchain and reverse transactions that are considered settled.
A 51% attack occurs when an attacker gets a hold of more than half of all network’s mining hash rate. If the attempt is successful, they could block other transactions or approve double spends. They could also prevent other miners from mining and form a mining monopoly, also known as denial of service (DoS).
Who is At Risk?
High nodal participation often means low chances of such malicious attacks. The higher the network grows, the harder it becomes for bad agents to take over the majority of mining power.
Take Bitcoin, for example, whose largest miners are as follows;
AntPool, owns 23.61% of the total hashrate
FoundryUSA, owns 20.60% of the total hashrate
F2Pool, owns 19.21% of the total hashrate.
Combined, these agents amount to over 60% of the network hashrate. It's crucial to remember that mining is an intensive job in terms of computational power and thereby energy use — according to Investopedia’s calculations, it would take over 511,373 S19 XP Hydros, the most advanced ASIC miner on the market with a price tag of over $19,800. This does not include the cost of electricity, cooling, or facility.
Therefore it's not economically viable to plot a 51% attack for a large network with immense nodal participation and high hashrate, such as Bitcoin.
51% Attacks are Preventable
The blockchain community is taking active steps to prevent schemes like 51% attack from happening by improving the major weak points of the networks.
Scalability — Due to the distributed nature, blockchains are limited in how many transactions they can approve in a given time, also referred to as throughput. This means that they struggle to accommodate the rising number of participants and demand for transactions, and may result in a poor user experience yielding high transaction fees and long waiting times, ultimately discouraging new users to engage.
On the other hand, networks need new users to prevent things like 51% attacks from happening. Along these lines, developers have been building on and off-chain solutions to increase network throughput. Most notable examples include sharding, which partitions a network into different sections, and layer 2 solutions, which function as third-party integrations allowing main blockchains to offload some of the processing work.
Change in consensus mechanisms — Ethereum famously switched to the proof of stake consensus mechanism in September 2022. This method not only savors more energy but also makes it less viable to perform a 51% attack.
In networks using PoS, validators are chosen among those who stake a certain amount of coins. The more coins they stake, the more chances they get to become validators. Other nodes with stakes in the network confirm the validator's job, and the new block is added to the chain thereafter.
In this case, attackers need to get a hold of the majority of circulating supply to stake the most, which would cost a whole lot more, making the attacks as such far less likely.
Past Examples of 51% Attacks
Although 51% attacks are dubbed as unlikely time and again, they do occur and may result in very high losses. In 2018, for example, Bitcoin Gold was attacked by an unknown agent, who end up pulling 388,000 Bitcoin Gold which was worth approximately $18 million at the time (1 Bitcoin Gold was ~$46). Similarly, a 2019 attack on Ethereum Classic resulted in a loss of $1 million.
In 2018, Vertcoin experienced a series of attacks that resulted in 22 deep-chain reorganizations. The attackers manipulated the block transaction histories and ended up stealing $100,000 worth of VTC.
Sometimes networks come through, though. When GRIN was attacked in 2020, an unknown agent took control of 58% of the network’s hashrate. The network announced a stoppage of payouts and warned its participants to stop users transactions immediately, and prevented the attackers from compromising the whole network.
Can Blockchain Eliminate 51% Attacks Completely?
It's important to remember blockchain-based technologies as works in progress that are constantly being developed to uphold the properties they are taunted for, like decentralization, immutability, and autonomy. Although 51% attack poses an existential threat to public blockchains, it is preventable and solutions are being developed left and right.
The introduction of preventative methods such as increasing the resources which can help networks host a larger number of participants or different mechanisms like PoS which makes it less financially viable to attempt such an attack and makes it easier to detect it at the same time signals an optimistic future for public blockchains.
