Before plunging into the 51% attack, it is very important to have a good knowledge of mining and blockchain based systems.
One of the main strengths of Bitcoin and the underlying blockchain technology is the distributed nature of data collection and verification. The decentralized functioning of the nodes ensures compliance with the rules of the protocol and the agreement of all participants in the network with the current state of the blockchain.
This means that most sites must regularly reach a consensus on the data mining process, the version of the software used, the accuracy of the transactions and so on.
The bitcoin negotiation algorithm (Proof of Work) is what guarantees that miners can control a new transaction block only if the network nodes collectively agree that the hash of the block provided by the miner is accurate (eg the block confirms that the miner has done enough work and found the right solution for the problem of this block).
The blockchain infrastructure – like a decentralized ledger and a distributed system – does not allow any centralized structure to use the network for its own purposes, which is why there is no single authority in 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 depends on the amount of computational power he has and is usually called hashing power or hashing speed. There are many mining sites in different locations, and they are competing to find each other to find a valid hash block and are rewarded with the help of newly created bitcoins.
In this context, the mining power is distributed to different nodes around the world, which means that the hash rate is not in the hands of a single object. At least it shouldn’t be.
But what happens when the hash rate is not well distributed? What happens if, for example, a unit or organization can get more than 50% of the hashing power? One possible consequence of this is what we call a 51% attack, also known as a majority attack.
What is a 51% attack?
The 51% attack is a potential attack on the blockchain network, in which an object or organization can control most of the hashing speed, which can lead to network interruption.
In this case, the attacker will have sufficient mining power to deliberately eliminate or rearrange transactions. They can also cancel transactions made while under control, which has led to the problem of double costs.
A successful majority attack will also allow an attacker to prevent confirmation of some or all transactions (denial of service) or to prohibit the extraction of some or all other miners, which will lead to the so-called mining monopoly.
On the other hand, the majority attack will not allow an attacker to cancel transactions from other users or prevent the creation of transactions and their transfer to the network.
Changing a reward for a block, creating coins from the air or stealing coins that never belonged to an attacker are also considered impossible events.
How likely is a 51% attack?
Since the blockchain is supported by a distributed network of nodes, all participants collaborate in the process of reaching consensus. This is one of the reasons why they are usually very safe. The greater the network, the greater the protection against attacks and data corruption.
When it comes to the Proof of Work blockchain, the more hash codes a miner has, the better the chance of finding the right solution for the next block. This is true because mining involves many attempts at hashing and more computing power means more attempts per second.
Several early miners have joined the Bitcoin network to promote growth and security. With the rising price of Bitcoin as a currency, numerous new miners have entered the system, trying to compete for block prizes (currently set at 12.5 BTC per block). Such a competitive scenario is one of the reasons for Bitcoin security. Miners do not have an incentive to invest large amounts of resources if they do not act honestly and try to get a reward for unity.
Therefore, a 51% bitcoin attack is unlikely due to the size of the network. As soon as the blockchain becomes large enough, the probability that a person or group has enough computational power to crush all the other participants will quickly fall to a very low level.
Furthermore, the modification of the previously confirmed blocks becomes more difficult as the chain grows, since all the blocks are connected by cryptographic tests. For the same reason, the more tests the unit has, the higher the cost of modifying or returning the transactions in it. Therefore, a successful attack is likely to be able to modify the transactions of multiple recent blocks in a short period of time.
If we go further, imagine a scenario in which the evil entity is not motivated by profit and decides to attack the Bitcoin network only to destroy it, regardless of the costs. Even if the hacker manages to interrupt the network, the Bitcoin software and protocol will be quickly modified and adapted in response to this attack.
This will require other nodes of the network to reach consensus and reconcile these changes, but this is likely to happen very quickly during an emergency. Bitcoin is very resistant to attacks and is considered the safest and most reliable cryptocurrency of all.
Although it is quite difficult for an attacker to get more processing power than the rest of the Bitcoin network, it is not so difficult to get on small cryptocurrencies. Compared to bitcoins, altcoins have a relatively low hashing power, providing them with a blockchain.
Low enough to actually experience 51% of attacks. Some examples worthy of cryptocurrencies that have been the victims of most attacks include Monacoin, Bitcoin Gold and ZenCash.