As advanced and highly decentralized as blockchain technology is, it is still susceptible to attack. Intriguingly, the blockchain that boasts high security, immutability, and transparency can be attacked or compromised. One such attack is the "51% Attack."
The Michigan Institute for Technology's Digital Currency Initiative detected and observed over forty 51% Attacks. The attacks were conducted in networks such as Bitcoin Gold, Litecoin, and other smaller cryptocurrencies.
Recently, this type of attack has become prevalent in the blockchain ecosystem. For instance, last spring, Verge protocol was attacked. The attack led to the creation of 35 million XVG ahead of schedule, and they siphoned it all.
Similarly, blockchain protocols such as Horizen (formerly known as ZenCash), Vertcoin, and Bitcoin Gold were attacked.
The 51% Attack is also called the majority attack. The attack occurs on a blockchain platform or protocol when a group of miners controls more than 50% of the network's mining hash.
More than half of these miners have different motives instead of all miners working in unison and creating new blocks on the same network.
These attackers ensure they gain at least 51% of the network's mining hash. After that, they have the power and control to alter the blockchain network.
These attackers proceed to prevent new transactions from gaining confirmations— all nodes seeking validation and verification are compromised.
Charlie Lee tweeted three ways in which a decentralized cryptocurrency can be susceptible to attack: hash rate, stake, or permissionless-acquirable resources.
Furthermore, when these attackers control 51% of the hashing power, they perpetuate, halting payments between users on the chain. They can also reverse transactions that were completed while they were in control.
In a 51% Attack, reversing transactions will allow the attackers to double-spend coins and create confusion on the protocol. This double-spend is likened to spending a real and fake currency simultaneously.
Interestingly, consensus mechanisms like proof-of-work were created to prevent double-spend in cryptocurrency.
In conducting a 51% Attack, the attacking group needs to control half of the blockchain nodes before they can introduce an altered chain to the network.
If the attackers do not constitute the majority, the blockchain protocol (that they are trying to alter) will reject the alteration. However, since the attackers constitute the majority, the network will theoretically accept the changes.
51% Attack is prevalent and successful in a cryptocurrency or blockchain protocol with a low participation rate. The more the participation rate of a cryptocurrency, the more difficult and risky it is for the attackers.
That is why blockchain networks, such as Bitcoin and Ethereum, are unlikely to suffer from 51% attacks. This is due to the prohibitive cost of acquiring and controlling that much hashing power.
For instance, a blockchain protocol like Ethereum, (then) its switch to the proof-of-stake mechanism makes a 51% attack more expensive and challenging. Significantly, if group attackers try to alter the chain, they must own 51% of the staked ETH on the network.
Even though the network has no restriction on the amount of stake ETH you can own, it is unlikely to acquire that much ETH.
According to Beaconchain, as of the end of September 2022, more than 13.8 million ETH were staked. Now imagine that an entity or group of people own more than 6.9 million ETH (more than $9 billion worth) — and they all reached a consensus to compromise the network. The chances of such happening is very slim.
Furthermore, you would recall that earlier; we identified that it is highly risky to conduct a 51% attack. For instance, in the Ethereum chain, when the blockchain protocol detects such a malicious attack, it slashes the staked ETH. This slash will cost all the attackers their funds.
Similarly, if the network detects that it is an attack, the Ethereum community can vote to restore the "honest" chain. This implies that the attackers would forfeit all the 51% staked ETH.
This hefty financial blow makes it hard to dabble into such an attack as the probability of its success is the same as its failure.
The easiest way to detect a planned 51% attack is when a mining pool owns and controls more than 50% of a network's mining hash rate. In detecting this, the blockchain protocol must keep a routine check on mining pools acquiring the tokens in excess.
Furthermore, another prevention and detection mechanism is the delayed proof-of-work (dPOW). This detection mechanism recycles the network hash rate and confers high-level security on all integrated blockchains.
This mechanism stores backups of individual blocks on the decentralized ledger of other blockchains.
Significantly, this delayed proof-of-work mechanism is highly intuitive. It allows miners to check and verify which of the chains is correct within ten minutes.
So when a miner detects a suspicious chain, he flags it and disrupts the attack, as it is difficult to conduct a 51% Attack within 10 minutes.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.