Many people think that blockchains cannot be hacked as they are supposed to be extremely secure and unalterable. However, human ingenuity often overcomes such limitations. We have seen enough incidents in the past to show that seemingly unhackable blockchains can, in fact, be hacked.
One such attack on blockchains is the 51 percent attack, in which a pool of miners gains control of more than 50 percent of the mining hash rate of a proof-of-concept blockchain network. work (PoW). They take control by buying/renting enough hash power that allows them to take control of more than 50 percent of the network.
PoW is the original consensus algorithm on a blockchain. Confirm transactions and create a new block on the chain. The mining hash rate is the total computational power that a PoW blockchain uses to process such transactions. Simply put, it means how quickly a miner’s machine can complete this process.
Over the years, the 51 percent attack has gained notoriety. In 2018, Bitcoin Gold suffered a 51 percent attack. The unknown perpetrators stole 388,000 BTG (worth $18 million) from various cryptocurrency exchanges. The cryptocurrency suffered another similar attack in January 2020. Ethereum Classic has also been the target of several 51 percent attacks.
How does a 51 percent attack work?
Under normal circumstances, mining nodes create new coins on the network. The mining nodes are the computers that compete with each other to discover the valid hashes by trial and error. Once someone finds the right combination, the network approves it and a freshly mined block is added. This approval or agreement by the network is called consensus.
However, if malicious actors gain control of more than 50 percent of the network, they could:
- Prevent registration, validation and confirmation of transactions
- Change transaction processing order
- Spend twice the coins
- Double spending is an issue where hackers rewrite parts of the blockchain and reverse their own transactions.
Additionally, 51 percent of attackers can affect other miners. They can control the computing power of the network and block mining by anyone outside of their group. This can eventually affect the companies that use said blockchain to manage their transactions.
That said, there are limitations to the disruptions a 51 percent attack can cause. For starters, attackers cannot create new coins. Also, while they can double spend, they cannot reverse the transactions of others on the network or prevent users from broadcasting their transactions to the network. Also, attackers cannot destroy the entire blockchain or its native currency.
How can blockchains prevent 51 percent attacks?
There are several ways a blockchain can prevent a 51 percent attack. You can put a limit of 50 percent so that no single miner or pool of miners controls more than 50 percent of the hash power. They can also switch to a proof-of-stake (PoS) mechanism, which is considered more secure than PoW. PoS incentives are mainly controlled by wealthy users who are unlikely to carry out such attacks.