51% Attacks in Cryptocurrency Explained
In cryptocurrency a 51% attack is also called a majority attack. It is when an entity gains control of at least 51% of a network with the intent to disrupt it. As a result the entity can cause havoc on the network, but cannot totally destroy the blockchain.
A successful 51% attack will undermine the confidence in the cryptocurrency it happened on. 51% attacks can happen on any blockchain with any consensus mechanism. Whether it is proof of work, proof of stake or any other consensus mechanisms. Additionally it can also occur on oracles.
What Happens During A 51% Attack
Firstly for those that do not know, I have to cover some basics to properly explain a 51% attack.
Proof of work cryptocurrencies have miners. Miners are computers that mine the blockchain and maintain it. Whereas proof of stake blockchains have validators. There is no mining on proof of stake. However validators have to stake (lock) their cryptocurrency funds to become a validator.
Both miners and validators maintain the network by confirming transactions. Hence they are the ones responsible to secure the network.
An entity that wants to attack a network can either act alone or in a group. If he wants to stage an attack he needs to gain majority control of the network. So the entity needs more than 50% authority. Hence why it is called a 51% attack.
In the case of proof of work cryptocurrencies the entity needs to have 51% of the computing power. On the other hand with proof of stake an entity would need to stake his funds. At minimum he has to stake over 50% of the funds in the network.
If the 51% attack is successful the entity would have the ability to control and disrupt the network.
During a 51% Attack A Bad Actor Can:
- Make transactions and reverse them. This creates a double spending problem.
- Stop transactions from being confirmed
- Reorder transactions on the blockchain
Additionally on a proof of work blockchain an attacker can stop miners from mining.
A 51% attack does not grant full control of the network. To clarify, a bad actor cannot do anything they want without any limitations.
During a 51% Attack A Bad Actor Cannot:
- Create coins
- Steal coins
- Change the block reward
- Reverse transactions of other network users
Stop transactions created by other users and that are then broadcast on the network
Attacks With Less Than 51% Network Control
Entities that have less than 51% control of a network can still stage an attack on a crypto. However the chances of success are very much reduced.
Proof of Work Majority Attack
On a proof of work cryptocurrency miners mine the blockchain to get cryptocurrency rewards. For example on the Bitcoin blockchain miners get Bitcoin rewards. The miner that wins a block reward gets to approve a block of transactions and place it on the blockchain.
In a 51% attack the entity would also have the ability to create a separate and private blockchain. The new blockchain would be side by side on the same network and the entity could mine it.
A bad actor with more control will have the ability to mine faster than the other miners. So the entity will create the private chain much faster.
This could go on until the chain in the private blockchain is longer than the original blockchain. Since the blockchain considers the longest chain as the most honest chain, it would start using the private chain instead.
Putting Off A Proof Of Work 51% Attack
On proof of work blockchains there is no way to punish any bad actors. However as a network gets larger it becomes more expensive to stage a 51% attack.
As a result the entity would need to fork out a lot of money for their bad behaviour. In fact it does not incentivise large scale attacks.
Additionally miners can boot off the bad actor. They can undo the damage done and return the blockchain back to normal. So unsuccessful attacks are not worthwhile.
Proof of Stake Majority Attack
Proof of Stake blockchains are maintained by validators. Similarly to miners on proof of work they confirm transactions on the blockchain. However in proof of stake there is no mining. So validators only get paid for processing transactions and collecting the fees.
For the opportunity to become a validator you have to stake (lock) your crypto funds on the network. If you are picked as a validators you have to approve transactions in blocks. After that they are attacked to the blockchain.
Once you have had your turn other computer nodes will get a turn. So you have to wait to become a validator again at a later stage and the process repeats.
With proof of stake you have higher chances of becoming a validator with more net worth of crypto. However someone can accumulate more than 50% of the cryptocurrency on the network. So once someone becomes a validator he can stage a 51% attack.
Putting Off A Proof Of Stake 51% Attack
Validators caught doing anything malicious will end up getting punished. This is because they can lose a portion of their staked coins. This in proof of stake is called slashing.
As a result bad behaviour is not incentivised on the network. The drawback is that proof of stake tends to become less decentralised over time. Hence there is more risk that someone might take advantage of a situation given an opportunity.
On the other hand as the network grows it gets more expensive to attack it. Similarly to proof of work. However a 51% attack on a proof of stake network is still not an impossibility. You should never underestimate other people’s motives and reasons to attack a network.
Chances Of A Bitcoin 51% Attack
In proof of work blockchains, the larger a network is, the stronger the protection against a 51% attack. This is because the network will collectively have more computing power or hashing power.
So an entity will need a lot of resources to out stage the miners. As a result a 51% attack on a large network will take much more effort and cost more.
For example Bitcoin has a very large decentralised network around the world. Miners are incentivised to migrate over to Bitcoin. This is because when they mine Bitcoin they get rewarded well.
Most importantly because Bitcoin price keeps going higher. As a result more miners hop onto the Bitcoin network. Therefore the network keeps getting larger and more resilient to attacks. So it gets harder and harder to stage a 51% attack on Bitcoin.
Firstly because an entity needs to have resources to stage the attack. He needs to buy expensive mining equipment which is an upfront cost. Additionally you have to factor the cost to stage the attack which is expensive. It currently costs over $500,000 per hour to stage an attack on Bitcoin.
In fact Bitcoin is the most secure blockchain to date. So a 51% attack on Bitcoin is almost impossible at this point. On the other hand cryptos that have less miners and hence less hash rate are a lot easier to attack.
The Cryptos Susceptible To A 51% Attack
Different cryptocurrencies have networks of different sizes. As I mentioned previously larger networks need more resources and money to stage a 51% attack. As a result smaller networks are much easier to attack.
The cost of a 51% attack is calculated on an hourly basis. To give you a rough idea here is how much it would cost to attack some proof of work coins.
Bitcoin is almost impossible to attack at this point. Even nation states would have a very hard time mounting an effective attack.
That is to say unless we have an extreme circumstance like war. In this case part of the network could get destroyed as mentioned in the article Bitcoin, gold and war. However at that point no one would have the destruction of a network on their mind.
During normal times attacks are pretty much like throwing money away. This is because anyone could spend billions of dollars to only manage one double spend. In the meantime the other miners would throw the entity off the network.
With proof of stake bad actors have the cost of buying 51% of the funds instead. This is easier because the bad actor does not source expensive equipment. However buying more than half the crypto on a network could cost millions or billions. This depends on the cost per coin on the network and how many coins there are.
The cost of a 51% attack for even one crypto can fluctuate widely. For example, this sometimes can happen with proof of work cryptocurrencies during halving events.
(You can read about the Bitcoin halving which is the same as other cryptocurrency halving events.) In short this is when the block reward of a cryptocurrency gets cut down by half.
As a result of the halving, miners make less profits. Unfortunately some might struggle to remain viable. Hence the network gets smaller because some miners leave the network. The network ends up becoming less secure and more vulnerable to a 51% attack. In fact this happens with Bitcoin Cash.
Examples of 51% Attacks
There have been quite a few 51% attacks in the past on various cryptocurrencies. One of the most recent ones was on Bitcoin SV. You can read the article on CoinDesk; BSV suffers 51% attack.
Ethereum Classic also had a 51% attack happen on its blockchain in January 2019. Bitcoin Gold was also attacked in May 2018. There were other 51% attacks on other cryptos, but they are less known coins. They are Coiledcoin, Feathercoin, Krypton and Verge.
The Aftermath Of A 51% Attacks
51% attacks are the worst thing that could happen to a cryptocurrency. This is because people will distrust the blockchain from then on. If people find out a crypto is affected by a 51% attack some will quickly dump their holdings. The price of the crypto will plummet and it is unlikely to regain credibility.
Frequently Asked Questions
What is a 51% attack?
Is a 51% attack on Bitcoin possible?
How much would a 51% attack on Bitcoin cost?
How to prevent a 51% attack on blockchain?
What cannot happen in a 51% attack?
· Create coins
· Steal coins
· Change the block reward
· Reverse transactions of other network users
· Stop transactions created by other users and that are then broadcast on the network