What exactly is a 51% Attack?
Blockchain technology was erected to eliminate the need for a medium. The technology’s network relies on Peer-to-Peer connectivity which allows every participant to transparently overlook others’ activities in the network and democratic protocol that helps them make decisions and review the new transactions created. However, blockchain’s main probable threat appears in the form of what’s called; “51% Attack.”
In detail, a 51% Attack is officially established once an individual or groups of individuals make attempts to attack a blockchain system by controlling over 51% of a system’s computational power.
The reason behind this specific number of “51%” derives from the core democratic value of blockchain networks, wherein, if the majority of the nodes on a system agree to the validity of a set of information, it would be considered correct and verified, even if it is truly not. This is similar to holding shares in a company. Those who own 51% or more of total shares are considered to have decision-making power in the company.
In theory, all blockchain systems are prone to a potential 51% Attack, however, in a practical sense, it is nearly impossible to achieve, especially in Public blockchains, like that of Bitcoin and Ethereum, with millions of nodes operating. In a pragmatic sense, the possibility of one acquiring over the 51% computational power of a system with millions of nodes would require immensely immeasurable amounts of resources and time, which may even raise the question of whether or not the attack is even worth it.
Therefore, in understanding, Private blockchains and other newer variations are more prone to encounter the 51% Attack as compared to Public ones. This is due to the fact that the system may have yet to reach a considerable amount of operating nodes, which has ultimately become a point that investors have taken into account before choosing a certain blockchain project to invest in.
Effects of a 51% Attack
When a blockchain network is controlled by a 51% attack, attackers may reverse their transactions without requiring consensus from the network’s nodes. This will result in their double-spending and affect the blockchain’s economy.
On the users’ end, they may experience transaction confirmation refusal and other forms of errors. A 51% attack can severely affect the integrity of a network, which can result in the hindrance of the value of the related asset and trust in the network. However, the attackers cannot create new coins, steal coins, and alter the blockchain’s protocol.
How has Bitcoin prevented a 51% Attack?
The Bitcoin blockchain system employs the consensus algorithm indicated as the Proof-of-Work (PoW) method for verifying newly-created transactions before adding them to the main blockchain.
Through this algorithm, being true to its name, nodes must provide proof of transparent work through solving algorithmic mathematical equations as a part of proving the validity of transactions which would then be redirected into the list of information awaiting placement into the blockchain system, wherein other nodes would re-verify the correctness of the transaction.
The democracy factor comes into play at this point as it is required for over 50% percent of the nodes within the system to verify the validity of the transaction before it can be considered correct. However, if it does not obtain the validation of users in that amount, the transaction would become invalid, hence becoming a focal point of a 51% Attack. If attackers can obtain over 51% of the system’s computational power, they would be able to complete this procedure by processing invalid transactions into the blockchain with the overwhelming majority of nodes on their side.
Nonetheless, as mentioned beforehand, acquiring 51%, or the majority of, the system’s computational power is highly improbable, especially in the Bitcoin blockchain, the largest blockchain system in the world, at the moment, wherein the number of nodes itself is already a defense mechanism of its blockchain system.
A 51% Attack Case
As of August 3rd, 2021, the Bitcoin SV (BSV) blockchain network suffered from a 51% attack, causing many cryptocurrency exchanges to suspend BSV-related activities. The factors contributing to this incident include the fact that there are a few major BSV mining nodes in the world. Therefore, the nodes on the blockchain are not well decentralized.
Note: Bitcoin (BTC) and Bitcoin SV (BSV) are entirely different networks. Bitcoin SV is another hard fork version of the original Bitcoin with some adjustments. Therefore, the incident that happened to Bitcoin SV (BSV) is unrelated to Bitcoin (BTC).