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Blockchain technology has merged decentralization and the capability of disrupting conventional industries by using consensus algorithms for validation and enhancement of the blocks.
Proof of Work (PoW) forms the basis of consensus on many famous blockchain platforms like Bitcoin and Ethereum before it plans to adopt a Proof of Stake model.
Stake and validator consensus models rely on miners or validators to contribute their efforts to keep the blockchain network secure. In blockchain, which generally guarantees data security due to decentralisation, there is a 51% attack that threatens to compromise it.
This article will discuss a 51% attack, the mechanism behind it, a brief description of how it threatens blockchain security, and the precautionary measures being taken against such attacks.
With this in mind, it is easier to comprehend the number of struggles that the blockchain industry has in front of it and the necessity for enhancing its safety.
What Is a 51% Attack?
A 51% attack is a scenario where an attacker or a group of related attackers obtain more than half of the entire network’s computational hash power or the staked tokens in some form of a blockchain that employs either the proof of work or proof of stake consensus algorithms.
The 51% attack name comes from the fact that whoever controls over 51% of the network’s resources will be able to compromise the essence of the blockchain system by providing more blocks in a shorter period than the entire network.
To understand how a 51% attack works, it’s essential to first understand the consensus mechanisms:
Proof of Work (PoW): In PoW blockchains (like Bitcoin), the miners fight one another to solve complex mathematical puzzles. Solving the puzzle puts you in a position to reward with cryptocurrency while adding a new block to the blockchain.
Computational power is a critical element of the network, as it determines how costly and resource-intensive it would be for an attacker to take control of 51% of the computational power of the network, and therefore no attacker can take 51% control over the network without the computational power level that would determine the computational power at stake.
Proof of Stake (POS): On POS blockchains like Ethereum 2.0, users have the right to propose blocks, i.e., add new blocks to the blockchain and validate it. This is granted to them based on the number of tokens they hold. Importantly, the amount of collateral they are willing to stake’ in their name.
On top of that, to perform a 51% attack (as it’s called), the attacker would need to gain > 51% of total staked tokens. POS systems are generally less energy-intensive than PoW but are not insensible to this form of attack.
How Does a 51% Attack Work?
An attacker in PoW and POS systems does a 51% attack to take the node under control so it can do the validation process, launching new transactions and new blocks. This could also help an attacker to do his work.
Double Spending
It is one of the most notorious risks that a 51% attack will allow. Once confirmed in a blockchain, a transaction is said to be immutable. However, if an attacker controls 51% of the network’s resources, they can reverse transactions of previous transactions and effectively “spend” the same cryptocurrency twice.
For cryptocurrencies such as Bitcoin, where users rely on the blockchain to prevent fraudulent ability to spend, this is a big risk for transactions.
Let’s suppose, for example, that Alice sends 1 BTC in exchange for goods to Bob. So long as a 51% attacker controls the network, they could, in theory, reverse the transaction, get the BTC back to Alice’s wallet, and let Bob take the goods. Alice can actually ‘actually spend’ two Bitcoins (fraudulently) and defraud Bob.
Transaction Censorship
In a 51% attack, malicious actors could have censorship of transactions as well. Since they’ or ‘are validators’ of the majority of the network mining power, they can simply prevent certain transactions from being added to the blockchain.
Additionally, imagine your attacker doesn’t want certain transactions to be processed (or they have political, economic, or personal reasons), and they simply ignore or reject the transaction in question, delaying or even completely blocking out funds from making it to the users.
Another big headache for decentralised applications (dApps) is that this censorship would be a real killer for them, as apps extensively rely on the blockchain to carry out transaction processing that is fair, very transparent, and, more importantly, free from any infractions, be it fake news or anything else that can be censored out of the blockchain.
An attack that can reach 51% represents an extreme case, one that could cause the stoppage of the entire network for some time thereafter.
Blockchain Forking
A 51% attacker can also fork the blockchain. With raw control of the spot or staking power that mines to validate transactions, they could engineer a second version of the blockchain, which will record transactions in a different order and, theoretically, potentially invalidate many of the transactions that have already been confirmed.
This would result in consequences where two competing chains will exist, creating a confused and unstable blockchain integrity.
Even though we see plenty of forking happening within the blockchain community (Bitcoin Cash having forked from the original Bitcoin, for example), an unauthorised fork through a 51% attack corrupts the trust and foundations of the system.
A 51% Attack and Blockchain Security
Undermining Trust
The most profound impact of this is that a 51% attack on the blockchain system erodes the trust of said system.
Blockchains like Bitcoin, which were designed to be decentralised and immutable, suffer from an ability for attackers to reverse transactions and perform double spends—which shows the weakness of the entire system.
A blockchain that has or is perceived to be vulnerable to such attacks could naturally trigger a loss of confidence and fewer adoptions and values.
An attack of this kind could wreak havoc in markets where cryptocurrencies are traded, with users left fearing compromised security. If the stability of cryptocurrencies becomes cursed, they could be untrusted in the future.
Financial Losses
A successful 51% attack financially could result in great losses to investors and businesses. For example, double spending could allow attackers to steal cryptocurrencies or make transactions invalid, which could result in a loss of funds for victims.
So for exchanges and merchants accepting blockchain-based payments, there’s the risk of a 51% attack where the transactions could get invalidated and exchanges could have to absorb their financial loss or refund customers.
In addition, the value of the cryptocurrency under attack may plummet, causing market-wide effects. If this happens, it would lead not only to immediate financial damage but also long-term reputational harm to say something not possible to the blockchain project, and any recovery may prove difficult.
Network Disruption
As a rule, blockchains are created never to stop and nodes never to be down, but a 51% attack could disrupt that.
Not only does this cause delays in transactions, but it could also lead to forks, in other words, different versions of the blockchain happening at the same time.
Such a disruption could confuse miners, users, and developers, which could lead to operational inefficiency, confusion, and sometimes network-wide failure.
Regulatory Scrutiny
A 51% attack could also become a point of regulatory interest in a blockchain network. While governments and regulatory bodies are still figuring out what to do legally with decentralised systems, such attacks may generate a significant amount of concern in terms of security.
This would lead to lawmakers turning to regulate cryptocurrencies in a more concrete and possibly stifling manner, as the occurrence of such an attack would be invoked as cause.
Examples of 51% Attacks
Bitcoin Cash (2018)
Back in May, Bitcoin Cash, one of the more popular forks of Bitcoin, suffered a 51% attack. The attackers have been able to perform double spending and steal these coins from exchanges.
Altcoins, in the process of raising concerns about their security when it comes to the same PoW consensus mechanism as Bitcoin, are how the event should be described.
The Bitcoin Cash incident shows how even well-established blockchains can be attacked with such attacks.
Ethereum Classic (2019)
In January 2019, Ethereum Classic (ETC) was the victim of a 51% attack that led to double spending. They have successfully reversed a lot of those transactions that are confirmed, including many exchanges.
The losses were significant, and the attack underlined how other smaller blockchains could be made easier targets for attackers, given lower computational power or lack of staking activity.
Reducing the amount of risk from 51% attacks
Network Participation: increase
An entity controlled by 51% of the computational power or tokens has the lowest chance of being successful at a 51% attack.
And therefore, if we want to increase the number of miners, or validators, on a blockchain, we can increase the number of miners, or validators, and it will make it harder for any one entity to control the network.
That said, blockchain projects can improve security by increasing the hurdle for an attacker to be able to control more than 50% of the resources, which is a key prerequisite for an attack.
Proof of Stake Transition
As a means to manage risk from 51% attacks, some blockchain networks like Ethereum are moving from Proof of Work (PoW) to Proof of Stake (PoS). In POS, blocks are created by chosen validators based on the quantity of cryptocurrency they hold and are willing to store in collateral.
POS also reduces the likelihood of an attack since acquiring a little over 51 percent of the total staked tokens can be prohibitively expensive.
Finality Mechanisms
Financial mechanisms are some of the blockchain systems that provide guarantees a block is final when it has made it to the chain, making it immutable and irreversible.
This is to cut down on the likelihood of a 51% attacker reversing transactions. Examples of such types of mechanisms can be proof of authority or Nakamoto consensus preventing forks by accepting a single chain.
Tyre Stake Requirements or Increasing Hash Rate
The other way to secure blockchains is to make it harder to gain the majority of a network’s hashing power or staked tokens. Blockchains make it more difficult and expensive for an attacker to take control by making the network resource-intensive.
Conclusion
Proof of Work or Proof of Stake consensus mechanisms are considered to be lacking security against a 51% attack, which represents a serious threat to blockchain security.
Although the risk of a 51% attack cannot be fully discharged, blockchain developers and the community can adopt some countermeasures to reduce the damage from such attacks, for example, strengthening decentralisation of the premise of remaining in PoW or implementing a finality mechanism.
Blockchain technology is continuously growing, and as security and resilience against an attack such as the 51% attack become increasingly important, the adoption of the technology and its long-term viability will rely heavily on these improvements.
Blocking big markets was not the objectionable part. However, failure to learn from past incidents and continuously improve security protocols means that these decentralized systems will increasingly come under attack and attract negative attention worldwide.
