51% Attack Explained

A 51% attack is the worst nightmare of any decentralized network and its participants. While the blockchain industry aims to bring concepts of transparency and trust, there are still some risks of invasion and forcible seizure of power. What is a 51 percent attack? What should be done to prevent it? We are going to explain the concept of the topic and examine the actual cases of 51% attacks.

What is 51% Attack?

To understand a 51% attack in its full, here are brief crypto basics on consensus protocols. Back in 2009, a creator of the first cryptocurrency, Satoshi Nakamoto, introduced a proof-of-work (PoW) algorithm in his bitcoin white paper. According to the document, all participants of the network (nodes) have to solve algorithmic tasks using the hashing power of the hardware in order to add new blocks to the blockchain. 

Once a miner or a group of united miners (a cartel or a mining pool) possesses more than 51% of hashing power over the network, they can control the network. Controlling the network means the bad actors will be able to double-spend their coins as well as decide what transaction to process and add to the blockchain. 

However, a miner who obtains 51% or more of the network’s hashing power, cannot reverse transactions that are already taken place, seize the funds from the accounts, or create new coins. 

To initiate a 51% attack on the network that is built upon a proof-of-stake (PoS) consensus mechanism, a participant of the network must obtain over 51% of the cryptocurrency. 

51% Attack Cases in Crypto History

The 51% attack is an infrequent event. The blockchain industry has experienced several attacks over ten years of its existence. However, sometimes a 51% attack might be arranged intentionally in order to eliminate bad actors from the network.   

#1. Bitcoin Gold (BTG)

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The year 2020 has started with a 51 percent attack on the Bitcoin Gold blockchain. This was the second attack in the last two years, which made some miners concern about the vulnerabilities within the network. 

At the end of January 2020, the Bitcoin Gold blockchain experienced two 51% attacks. The first one took place on January 23 when 14 blocks were removed from the network. Just a little bit later, 13 new blocks were added to the blockchain while participants of the network could see that 1,900 BTG coins were double-spent. 

On January 24, another attack happened, and this time malicious miners removed another 15 blocks and added 16. During the last attack, 5,267 BTG were double-spent. The result of attacks as it was – approximately $72,000 was double-spent and stolen. 

Binance increased its BTG withdrawal requirement to 20 confirmations right after the attack occurred. The first 51 percent attack in a combination of double-spending on the Bitcoin Gold network happened in 2018 and resulted in $18M of stolen assets. The Bittrex crypto exchange had to delist BTG coin back then. 

#2. Ethereum Classic (ETC)

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The genuine Ethereum blockchain suffered a malicious 51% attack at the beginning of 2019. Hackers could steal ETC coins worth $1.1M. Analysts found a suspicious private mining pool that could increase its hashing power up to 3,263 GH/s. Shortly after, it got back to the 300 GH/s. The attack repeated ten hours later. According to the CoinNess report, the dark horse mining pool controlled approximately 63% of the ETC network hash rate.   

To prevent the withdrawal of the stolen funds, the biggest U.S. crypto exchange, Coinbase, put on hold all ETC transactions. 

#3. Bitcoin Cash (BCH)

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The situation of intentionally organized 51 percent attack took place in the Bitcoin Cash network a year ago.  

In May 2019, two giant mining pools BTC.top and BTC.com performed a 51% attack to stop an unknown miner from seizing coins that didn’t belong to him. According to Bitcoin enthusiast, Guy Swann’s series of tweets, an unknown miner tried to assign a number of coins that had been sending to ‘anyone can spend addresses.’

“Since the original split in 2017, there has been a significant number of coins accidentally sent to ‘anyone can spend’ addresses (due to [transaction] compatibility of sigs, but no #SegWit on #BCH), or possibly they’ve been replayed from #Bitcoin onto the #BCH network,” he explained. 

BTC.top and BTC.com initiated a 51% attack and resolved the issue in a fast manner. However, such a strategy arose concerns around BCH decentralization and revealed what can be done with too much hashing power in the hands of two entities. 

How to Prevent a 51% Attack

Giant blockchains like Bitcoin do not experience a 51% attack too often as it is nearly impossible to overtake a high amount of hashing power of the BTC network.

A 51% attack is quite an expensive event. To become in charge of over 50 percent of a network’s hash rate, a malicious miner have to obtain a lot of extremely powerful hardware that requires an enormous amount of electrical power.

A united group of malicious miners can arrange the attack in an effort to possess more than 50 percent of the network’s power. In this case, it is reasonable to prevent the creation of giant mining pools that concentrate a great computational power of many miners.   

A small bug in the recent update can provide hackers with loopholes that create a perfect environment for double-spending events. Therefore, the network developers should review the code carefully before the final release. 

Bottom Line

The risk of a 51% attack exists on every decentralized network. Yet to arrange such an invasion, one must spend lots of effort and funds in order to take control over a blockchain. The protocols are being upgraded, the mining difficulty for particular blockchains is continuously increasing too. We, at Changelly, hope that a 51% attack will never concern you and your funds. 

About Changelly

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