51% Attack - Definition

A 51% attack is a significant vulnerability in blockchain networks. It primarily affects systems that use the Proof-of-Work (PoW) consensus mechanism, such as Bitcoin and Ethereum before its shift to Proof-of-Stake (PoS).

This attack happens when a single entity or group controls over half of the network's mining or computational power. With this majority, they can compromise the blockchain’s integrity and security.

How does a 51% attack work?

In Proof-of-Work blockchains, miners validate and add transactions by solving complex mathematical problems. This process maintains the network's decentralized and trustless nature. However, if an attacker controls most of the mining power, they gain several advantages.

• Double spending: An attacker can reverse their transactions. This allows them to spend the same cryptocurrency multiple times.
• Preventing confirmations: They can block or delay transaction confirmations. This effectively freezes certain network activities.
• Blockchain reorganization: Attackers can create an alternative blockchain version (fork). They can make it the longest chain by rewriting transaction history.

What a 51% attack cannot do

Despite their potential for disruption, 51% of attacks have limitations. Attackers cannot perform certain actions.

• Steal coins from others' wallets: They cannot transfer funds from wallets that do not belong to them.
• Create new coins: Attackers cannot generate new cryptocurrency units from anything.
• Modify protocol rules: They cannot alter the blockchain's underlying protocol or rules.

Examples of 51% attacks

Several smaller blockchain networks have experienced 51% attacks. These networks typically have limited mining power, making them vulnerable. Notable examples include:

• Ethereum Classic (2019 & 2020): Users faced double-spending losses.
• Bitcoin Gold (2018): Over $18 million worth of BTG was affected.
• Bitcoin SV (2021): Multiple attacks altered recent blocks.

Prevention and mitigation

To prevent 51% of attacks, blockchain networks can implement various strategies.

• Increasing decentralization: Distribute mining power among many participants to avoid concentration.
• Switching consensus mechanisms: Move from Proof-of-Work to alternatives like Proof-of-Stake, which are less susceptible to such attacks.
• Economic deterrents: Make attacks prohibitively expensive by increasing the cost of acquiring sufficient computational power.

Large networks like Bitcoin are more resistant due to their extensive decentralization. The significant computational resources required for an attack also deter such attempts.

Things to remember

• Majority control is critical: A 51% attack requires controlling over half of the network's mining or computational power. This enables manipulation of transaction history and disruption of network operations.
• Limited capabilities: Attackers can double-spend and reorganize the blockchain. However, they cannot steal funds from others' wallets, create new coins, or change the blockchain's protocol rules.
• Impact on smaller networks: Smaller and less decentralized blockchain networks are more vulnerable to 51% attacks. This is due to the lower computational power required to gain majority control.
• Preventive measures are essential: Enhancing decentralization, adopting alternative consensus mechanisms like Proof-of-Stake, and implementing economic deterrents are effective strategies to mitigate 51% of attack risks.