One of the biggest threats to a blockchain is something called a 51% attack.
If an individual or group manages to control 51% or more of the validation or mining hashrate it gives them the ability to confirm invalid transactions as well as deny valid ones. Having the majority in this way allows bad actors to effectively hold a blockchain at ransom, gaining financially from the attack.
51 Percent attack are extremely difficult to achieve though not impossible. So far, several blockchains have been the victim of this kind of attack with far reaching ramifications.
In this article we will explain exactly what a 51% is and ask if investors should be concerned about them.
What are 51% attacks
Decentralized blockchains verify transactions either through miners or validators. Miners use computing power and validators use staked currency to add blocks to the chain of transactions that serves as a permanent record.
Because there is no governing body behind decentralized networks, blockchain protocols depend on all miners or validators forming a consensus on which chain of transactions are definitive.
Imagine a user tries to spend the same BTC token twice, creating a split in the network with two conflicting chains successfully validating different transactions. Chain A says the first transaction is valid whereas chain B claims the second was valid.
Blockchain protocols get around this by miners or validators forming a consensus on which chain should be added to. Typically this is simply the longer of the forked chains.
If a single party has more than 50% of the mining or validating power, however, consensus becomes centralized. This individual, mining or staking pool has the power to make the shorter chain definitive, manipulating the consensus mechanism to make the shorter become the longer.
This means the malicious actor can keep adding blocks to the shorter chain, falsifying and rerouting transactions in their own favour, and potentially duplicate coins.
What blockchains have suffered 51% attacks so far?
So far, only smaller crypto networks have experienced 51% attacks. Smaller blockchains tend to have less overall mining power or more concentrated validation, meaning these networks are more vulnerable and easier targets for would-be attackers.
Three of the most significant 51% attacks are:
Ethereum Classic (2020)
After the DAO hack of 2016, the Ethereum network was split in two between those that chose to maintain the original chain, known as Ethereum Classic (ETC) and those that supported a rollback that is considered the de facto Ethereum.
Over the course of July and August 2020, the smaller Ethereum Classic blockchain suffered 3 separate 51% attacks after purchasing hash power to control the network.
The first attack saw the attacker pocket around $65,000 worth of ETC, with the other attacks undetermined.
Bitcoin Gold (2018/2020)
Another notable “51 attack” was that on Bitcoin Gold (BTG), a smaller, hardfork of the original network.
In 2018, an attacker managed to gain the majority of hashrate power and double spend transactions on several different exchanges. This defrauded exchanges out of around $18 million worth of BTG.
Another attack occurred in 2020 where an attacker took control of the blockchain for approximately 6 hours, pocketing around $70,000 worth of crypto.
Bitcoin SV (2021)
During July and August 2021, a hardfork of Bitcoin Cash called Bitcoin Satoshi’s Vision (BSV) suffered several 51% attacks some of which successfully reorganised blocks and double spent coins.
Being such a small network, attackers only needed to spend around $5000 to rent enough hash power to conduct the attacks.
Do investors need to worry about 51% attacks?
Fortunately, despite getting a lot of attention when they happen, 51% attacks are extremely rare.
For big blockchains like Bitcoin and Ethereum, a 51% attack is almost impossible due to the enormous amount of hashrate required to take a majority position.
It would take a state-sponsored attack to defeat the security of major blockchains and for all intents and purposes requires more resources than is feasible.
This means investors can reduce the risk of feeling the effects of a 51% attack by choosing to only invest in cryptocurrencies that have a large market cap, a focus on decentralization, and encourages a distribution of validating power.
Takeaway
While historic 51% attacks have largely left blockchains unaffected, they should be taken seriously. Research should always be undertaken before investing in a cryptocurrency but especially less-established blockchains that may be more prone to attack
