While blockchains seem fairly secure, there are nonetheless some events that can bring the new technology down to its knees. Among these, the greatest threat is the 51% attack.
To understand the 51% attack, first we need to do a quick review of how the transactions are broadcast and how the miners contribute to the network:
Blockchains, such as that of Bitcoin, broadcast transactions through a process known as the Proof-of-Work (PoW). PoW simply means that miners use their own processing power to compete in computing a higher number of hashes. Therefore, the more power they contribute to the network, the more hashes they are able to compute and the more they are rewarded for their work (have this in mind as we check out both scenarios below). For more info on hash functions, check out my previous article: What the Hell Are Hash Functions.
The first scenario is pretty clear, but also less probable. It shows a single individual or an entity who possesses enough capital to buy out tons of mining rigs, so they can take over more than 51% of the blockchain’s hashing power. In theory, it makes sense, however, in practice it is more complicated — taking into account the cost of buying tons of mining rigs, as well as the additional electrical expenses. Crypto enthusiasts theorize that once the government gets more involved in the crypto space, such a scenario would certainly become more probable.
The second scenario concerns the mining pools. Since the crypto mining has become such a competitive field, only the biggest mining rigs and companies that specialize in the crypto mining, end up with a profit in their pockets. Going solo in mining is very hard as the big players will usually take over all of the transactions, leaving nothing for the individuals. Consequently, many solo miners think: “if you can’t beat them, join them” and usually join a mining pool. The pool takes a certain fee but allows individuals to take part in the crypto mining profit. Also, the more miners join a single mining pool, the bigger it gets. The problem crops up when a single mining pool exceeds 51% of the total network’s hash rate.
What happens when a blockchain is under a 51% attack?
Basically, the attacker becomes the administrator of the network and in turn gets the ability to:
Take all the rewards for themselves.
Cancel new transactions that are broadcast to the network.
Create new hardforks — this can happen for a lot of reasons but it is usually associated with double-spending a coin, which occurs when a chain splits.
Double-spend coins — the thing everyone is afraid of. It means making multiple transactions of a single coin. In a normal situation, such transactions would fail, as other miners would render it invalid. In this case, however, since the attacker possesses more than 51% of all the network’s hash power, they can confirm all the transactions on their own, making such coins invaluable.
Watch Tim explain this topic on video:
This article is a part of our Blockchain 101 series. See all articles or jump to:
Blockchain 101 | Part 1: What the Heck Are Permissioned and Private Blockchains?
Blockchain 101 | Part 2: “FCD3 6880 ADD7 FB45?” or “What the Hell Are Hash Functions?”
Blockchain 101 | Part 3: What Makes Bitcoin Secure? Hint: Merkle 🌳
Blockchain 101 | Part 4: Biggest Threat for Blockchain: 51% Attack?
Blockchain 101 | Part 5: The Story Behind the Byzantine Consensus
Blockchain 101 | Part 6: Just How “Smart” Are Smart Contracts?
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