51 Percent Attack
What is a 51% attack?
A 51% attack is when a group of miners take control of more than half of a blockchain network's computing power (also known as hashrate) and use it to manipulate the network. This is possible because blockchain networks such as Bitcoin are decentralized and rely on a network of computers, called nodes, to confirm new transactions and keep the network running smoothly. 51% attacks are also referred to as a majority attack or a double-spend attack.
A double-spend attack is when the attackers use their extra mining power to create fake transactions and spend their digital currency more than once without anyone noticing. Another type of attack is called "block withholding," where the attackers interfere with the confirmation of new transactions and prevent them from being added to the blockchain, halting the entire network. On the Bitcoin network, this attack would make the mining pool lose all block rewards contained within the block.
The proof-of-work consensus mechanism, used by the Bitcoin blockchain (BTC), makes it very hard for hackers to take over the network: more computational power leads to more security. They would need to do a lot of computational work, called "hashing," to validate new transactions. Since the amount of work required is related to the total computing power on the network (network hashrate), no group of miners with less than 51 percent of the power can take over.
In the Bitcoin whitepaper, Satoshi Nakamoto assumed that acquiring 51% of Bitcoin's hashrate would be impossible, and therefore didn't consider the economic incentives behind a 51% attack. The Bitcoin blockchain, number one network and cryptocurrency by market cap, has never been subject to a 51% attack before.
Examples of 51% attacks on crypto networks
There were unfortunately some successful attacks in the history of blockchain. Although the Proof-of-work mechanism is secure, smaller blockchains that operate on this algorithm such as altcoins (BTG or Litecoin, for example), are more vulnerable to such attacks, since there is way less computational power for the attackers to compete with.
In May 2018, the Bitcoin Gold (BTG) blockchain suffered a 51% attack, and it was estimated that $18 million worth of BTG was double-spent. One of the most high-profile examples of a 51% attack occurred in May 2021, when the Bitcoin Gold network was targeted again. The attackers were able to use their overwhelming hashing power to reverse transactions and double-spend their crypto, effectively resulting in the theft of nearly $70 million worth of BTG.
Ethereum Classic (ETC) has also been the victim of a 51% attack, as has Bitcoin SV (BSV). The chain reorganization led by the attackers allowed them to reverse transactions and potentially steal digital assets such as NFTs.
The risks and consequences of 51% attacks
The decentralization of cryptocurrency networks is one of their key selling points, as it allows for increased security and fairness. However, the reliance on proof-of-work (PoW) consensus algorithms, which require miners to compete with each other to solve complex mathematical problems in order to validate new blocks, can make them vulnerable to 51% attacks. This is because the cost of acquiring the necessary mining equipment and electricity to achieve 51% of the network's hashrate can be prohibitively expensive for most individual miners, but may be within reach for well-funded organizations or even governments.
Some measures can be taken to mitigate the risk of 51% attacks. The XMR blockchain implemented a protocol update that blocked ASIC mining from being used to mine on its network. ASIC mining is a technology developed by various early Bitcoin mining companies to enhance mining hardware, making it a lot more powerful, but increasing the risk that certain individuals or groups of miners could gain too much power.
The Proof-of-stake (PoS) consensus algorithm, which ETH moved to in 2022 with the Ethereum Merge, is an example. PoS requires block validators to have a certain amount of digital currency staked, in order to have the ability to validate new blocks. This helps to discourage malicious actors, as they stand to lose their stake if they attempt to interfere with the network.
Since NFTs reflect ownership and have many use cases in the real-world and the metaverse, it is especially valuable to secure them through Bitcoin. Bitcoin has proven to be the most secure blockchain with the least attacks. This is what the Stacks blockchain allows: powering Bitcoin secured NFTs.