Many people think blockchains are unhackable since they are supposed to be extremely secure and unalterable. However, human ingenuity often overcomes such limitations. We have seen enough incidents in the past that prove that the seemingly unhackable blockchains can, in fact, be hacked.
One such hack on blockchains is the 51 percent attack, where a group of miners gain control over 50 percent of a proof-of-work (PoW) blockchain network’s mining hash rate. They take control by purchasing/renting enough hash power that allows them to take control of over 50 percent of the network.
PoW is the original consensus algorithm in a blockchain. It confirms transactions and creates a new block in the chain. The mining hash rate is the total computational power a PoW blockchain uses to process the said transactions. Simply put, it means how fast a miner’s machine can complete this process.
Over the years, the 51 percent attack has gained notoriety. In 2018, Bitcoin Gold was hit by a 51 percent attack. The unknown perpetrators stole 388,000 BTG (worth $18 million) from several cryptocurrency exchanges. The cryptocurrency suffered another similar attack in January 2020. Ethereum Classic has also been subjected to several 51 percent attacks.
How does a 51 percent attack work?
In normal circumstances, mining nodes create new coins on the network. Mining nodes are the computers that compete against each other to figure out the valid hashes by trial and error method. Once someone finds the correct combination, it is approved by the network, and a newly mined block is added. This approval or agreement by the network is called consensus.
However, if malicious agents gain control of over 50 percent of the network, they could:
Double-spend is an issue where hackers rewrite parts of the blockchain and reverse their own transactions.
Also, the 51 percent attackers can impact other miners. They can control the network’s computing power and block mining by anyone who doesn’t belong to their group. This can eventually impact the businesses using the said blockchain to manage their transactions.
That said, there are limitations to the disruptions a 51 percent attack can cause. For starters, the attackers cannot create new coins. Also, while they can double-spend, they cannot reverse others’ transactions on the network or prevent users from broadcasting their transactions to the network. Also, attackers cannot destroy the entire blockchain or its native coin.
How can blockchains prevent 51 percent attacks?
There are several ways a blockchain can prevent a 51 percent attack. It can put a 50 percent cap so that no single miner or group of miners controls more than 50 percent of the hashing power. They can also switch to a Proof of Stake (PoS) mechanism, which is considered more secure than PoW. PoS incentives are mostly controlled by affluent users that are unlikely to carry out such attacks.
(Edited by : Priyanka Deshpande)
First Published: IST