51% Attacks Explained
There has been a lot of talk of 51% Attacks posing a legitimate threat to the security of the decentralized ecosystems typical to digital currencies. In this post we will define the very concept of a 51% Attack, as well as explore the possibility of a malicious actor enacting said attack and how markets would react to such news.
What Is A 51% Attack?
A 51% attack is malicious act on a blockchain network that a participant wishing take control can effect by contributing more than 50% of the computing power supporting the network. This would, in effect, give the actor the power to alter certain aspects of the bloclchain network’s functionality.
If an individual or group of miners were to responsible for more than 50% of the hashing power required to confirm transactions an create new blocks on a given blpckchain, that party would have enacted a 51% attack and would, for the period of time they control the majority of hashing power supporting the network, be able to control transactions made on the network.
The malicious party, having successfully effected a 51% attack on the network, would have control over which transactions are confirmed and in whatever order they pleased. In addition to that, they could completely keep other users from forming blocks or block transactions by simply opting not to confirm them or reverse transactions they’ve sent out, opening up the possiblity of double-spending the network’s native coin.
Though a 51% Attack is theoretically and practically possible, as there are recorded cases of the act occuring, there are limits to the alterations one could effect on a network after having effectively ‘taken over’.
Attackers could act maliciously during the period that they contibute a majority share of computing power to the given blockchain, however their powers would fall short of allowing them to create new coins or alter the number of coins distributed to miners for successfully adding a block to the ledger in form of a block reward.
The group performing a 51% Attack would also have a difficult time changing blocks added to the ledger before the attack event occurred. They would have an even harder time undoing blocks that are older, so a 51% Attack might not destroy a blockchain currency but the party responsible for the attack could potentially cause a good amount of damage.
Most Famous 51% Attacks
51% Attacks have occurred at various points in the history of blockchain and the results of the event have been far less disastrous as experts have theorized. In July of 2014 a mining pool supporting the bitcoin network inadvertently set off a 51% Attack when they found themselves contributing more than 50% of the network’s computing power.
Ghash.io, the company responsible for accidentally taking over bitcoin, took an ethical stance and issued a statement committing to never to contribute anything beyond 40% of the network’s hashing power.
In May of 2018, Bitcoin Gold (at the time the 26th largest digital asset by market cap) experienced a 51% Attack. A group of malicious miners gained control such a considerable amount of Bitcoin Gold’s hashing power that they were able to flout counter measures, once detected, and continued double spend for several days before making-off with Bitoin Gold coins to the tune of $18 million.
Most recently, in January of 2019, Blockchain Security firm, SlowMist published a report, in which the company stated that they had detected a 51% Attack on the Ethereum Classic network and warned both digital asset exchange, Coinbase and the Ethereum Classic on the 7th of January.
The Attackers went on a double spending spree on several exchanges, including Bitrue, and Gate.io, with Coinbase being used to funnel most of the stolen funds. 219,500 ETC coins, valued at $1,1million at the time, made their way through Coinbase.
Aftermath of 51% Attacks
Contrary to popular belief, a ‘deep chain reorganization‘ appears to have a more negative effect on digital currency exchanges than it does the actual blockchain networks being attacked. Seeing as the point of a 51% Attack is to move coins from the network and effect a double-spending attack, exchanges stand to lose a great deal of money when funds are moved to and from them.
Ethereum Classic’s price saw a twenty four hour dip before returning to regular levels, indicating that the network was opperating as usual, with traders unaffected by news of a security breach of this nature.
However, Meltem Demirors, Chief Strategy Officer at Coinshares postulated that ETC’ price had gone about it’s usual business mostly because the network’s limited user base was less sensitive to news events than the larger digital currencies like Bitcoin, Ethereum, and Ripple. Suggesting that a larger market cap currency, with more users might still be negatively affected by a 51% Attack.
Are They Worth It?
A study by Professor Saravanan Vijayakumaran, Associate Professor of Engineering at the Indian Institute of Technology, in association with Zebpay, examines the security framework of the Bitcoin network and evaluate the network’s vulnerablity to 51% Attacks.
Professor Vijayakumaran’s study concluded that the computing power required for a 51% intrusion on Bitcoin blockchain would cost a lot of money and would allow minimal control over the network. Bitstamp, calculates that effecting a 51% Attack would cost $5,5 million a day if electricity costs $0.05 a kWh.
This probably means that larger coins are less likely to suffer a 51% attack, owing to the sheer size of their networks while smaller digital assets are still vulnerable to intrusions. Although, it is theorized that a country would have a large enough purse to bankroll such an attack.
Crypto51.com keeps a theoretical tally of what it would cost bad actors to enact a 51% Attack on a list of coins, and the list indicates that it would cost very little to perform a 51% Attack some coin’s blockchains.
According to Crypto51’s list , projects like GoByte and Sumokoin would cost attackers less than $50 to take over, but wether or not the individual or group enacting the 51% Attack would make-off with a good amount of value is doubtful.
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