Decentralization, or the spreading out of control over a network, is the key component of cryptocurrencies. So what happens if a group is able to gain the majority control of a coin’s hashing power? They would have to have at least a 51% of total global hashpower for this to be the case.
This scenario has been well known and extensively discussed since the very beginning of crypto with the birth of Bitcoin, however, it has remained only a hypothetical possibility until fairly recently. What once was only theory is now becoming a reality, undermining the vital trust that is the cornerstone of the entire blockchain movement.
What is a 51% attack
Just as the name suggests, a 51% attack is a scenario where a malicious individual or group is able to gain more than half of the global mining capabilities, aka hash power, of any given cryptocurrency network. What may be a little less clear is what exactly this group or individual could do once they have this control. The most obvious problem is the imbalance in the mining operations. Normally, at least in the case of proof-of-work protocol based currencies, the mining is a sort of competition resembling a lottery in ways but reliant on the level of investments and computing power that a miner is able to execute. When a group controls more than half of the total hashing power of a particular chain, they are by default the fastest node on the network able to consistently tip odds solely in their favor, effectively out mining everyone else on the network!
This has been largely safeguarded against since it was seen as one of the most critical threats to the integrity of these blockchain networks. You see, Bitcoin for example, is set up in such a way and has reached such a high level of value that IF someone could gain 51% control of the network, it would ultimately be more in their benefit to mine normally, outpacing others and amassing a hefty amount of digital currency without ever doing anything to damage the inherent trust in the system. In fact, in the case of well-established coins such as Bitcoin, Ethereum, Litecoin, and Monero, it would be extremely expensive not only to amass the equipment to gain this level of control but to keep it running as well. In other words, it would be very unlikely to make much profit carrying out this sort of attack.
In this way, rather than being driven by money, the primary motivating force behind an attack of this kind was thought to be a desire to undermine cryptocurrency as a whole. It isn’t difficult to imagine a government or banking institution for example with exactly this motive given the current momentum of the digital currency revolution as well as the inevitable changes to the structure of society that are left in its wake. However, as mentioned, the endeavor is difficult, arduous, and would have little benefit to those carrying it out in most if not all cases. Recently that has changed after a few successful attacks on smaller scale currencies and we will discuss those shortly.
What are the real dangers of a 51% attack?
The reason that mining is so important to cryptocurrency is that when you are mining, you are keeping a copy of the ledger. When all the miners on a given network agree and their ledgers match, a new block is created on the blockchain. However, if an alternative chain was introduced that conflicts with the rest of the network, the algorithms will automatically use the longer chain since it is more likely than not that it is the chain with the majority of contributors, or nodes, on the network. It should be obvious that in any democratically based system, a majority control leads to unfair influence in the system itself. In the case of cryptocurrencies, that influence comes with a host of hypothetical ‘powers’ that 51% or more control of the network would entail. For instance, one of the very first issues to arise and be tackled by Bitcoin’s creator(s) was something called “double spending”, or the ability to use the same funds more than once.
Now if a group is able to control 51% of the network, they have a unique ability to use funds in this way. As mentioned above, this group would have majority control of the global hashing power enabling them to mine much faster and with far increased odds over everyone else. The danger of this lies in the ability of this group to create their own version of blockchain privately while spending coins on the public ledger. For example, let’s say an individual buys a new car on the public blockchain but does not include the transaction of their own private version of the chain. The attacker could then introduce their version of the blockchain and because they are mining much faster than everyone else, their chain would be longer and would be accepted by default, effectively erasing the transaction where the car was purchased and allowing those funds to be used again. This both destroys all confidence in the currency and devastates its value simultaneously.
No longer just a theory
Several coins have unfortunately fallen victim to 51% attacks recently. MonaCoin (MONA), Bitcoin Gold (BTG), Zencash (ZEN), Verge (XVG) and Litecoin Cash (LCC) have all been prey to some version of this exploitation. Whereas this kind of attack is virtually impossible on larger, more established networks, the common thread on recent successful attacks has been how small and new a network or fork is. When a new coin is introduced an attacker has the advantage of amassing a large amount of hashing power on the network before a solid community of miners is able to form around it. That is to say that if a hacker gets in early enough on a newer network, the chances of gaining majority control increase dramatically. Of course, even at this point, the attacker is still bound by the protocols of the given currency, so what they are able to accomplish varies from coin to coin. Generally, though, they are able to have a considerable impact with the ability to double spend, block or reverse transactions, or even in some cases have ALL transactions delivered to a specific group of wallets. In this way, it is vitally important as always that the development team behind any crypto project be well established, detail oriented, and altruistic. Always do your research before investing in ANY coin even if its value is less than pennies. Some very promising currencies have had to contend with this issue of the 51% attack.
The attack on Bitcoin Gold was a classic example of the double spending issue as attackers were able to make two large purchases on currency exchanges using the same funds before being shut down. Other attacks such as those carried out on Zencash and Litecoin Cash have given those behind them the ability to block funds and funnel coins into select wallets effectively making off with hundreds of thousands of dollars worth of various coins. The attack on Verge, in particular, relied heavily on exploiting errors in the code itself, highlighting the importance of a more meticulous development team.
Avoiding hash overload in pool
Some mining pools have either hit or come close to hitting 51% in the recent past. This happens when the community pooling their hashpower together has contributed so much computing power that the pool is effectively mining at close to half of total blockchain. While in this instance it isn’t necessarily a malicious group controlling the hashpower, it is nevertheless important to safeguard against. For one, it undermines the decentralized nature is one pool can control so much of the hash power. The pool itself becomes somewhat of a centralized platform and even if no harm is done, faith is lost when so much control can fall into one place. Some coins may never recover from such a loss of trust and mining from users. The easiest way to counter this as a miner is to pay close attention to the global hashrate of the pools you are using and change pools when the percentage is too high. This will lead to a more level playing field by balancing the networks when responsible miners take simple steps such as this to maintain faith, security, and minabilty of this incredible technology.
How to protect yourself
The best way to protect yourself is through information. Make sure that you dedicate a considerable amount of time in researching everything about a coin before you begin to mine or invest in it. You want to understand what the goal of the currency is, how it is mined and used, what it is used for, the team behind it and its current total hashing power in relation to nodes on the network. These are and have been the most standard points to check when making decisions in the crypto sector, however, in light of these successful attacks, one more piece should be considered more than ever. In all the cases mentioned above, there is one common element – the amount of money needed to spend in order to execute the attack was lower than the amount that was able to be stolen. This should be a given considering no one is likely to attempt an attack of this magnitude unless it would be profitable. In the same way, a new miner would calculate the cost to profit ratio of their own mining rig, it is possible to calculate the amount of capital it would require to pull off a 51% attack. Some experts have suggested that if it would cost less than $1 million dollars to gain a significant level of control over a network, you may want to reconsider investing in it. Be sure to consider the much cheaper costs of cloud mining, aka renting mining equipment from established mining ‘farms’ when making your calculations as this has been a huge contributing factor to the success of recent attackers.
Collectively, the best way to safeguard against this type of attack is to mine and mine often. The more individuals participating in a given network, the less likely a 51% attack is to succeed or to even gain the 51% control in the first place. When new coins are introduced, rather than being entirely profit-driven, miners should come together to support the new network until it becomes more established and enough legacy blocks have been created to increase the amount of work required for would-be attackers. Minergate.com is unique in that a user can mine multiple coins at once, meaning that you could mine one coin for profit and another simply to support its decentralization and protect it like a sort of digital guardian angel. It is up to us – those that understand and stand behind the fundamental principles of this crypto revolution – to ensure that these attacks are rare and less likely to happen in the future.
As always – stay safe – and happy mining!