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The beauty of Bitcoin is the stability and security of its blockchain, or its public ledger of transactions. Considered virtually unhackable, the Bitcoin blockchain is bolstered by a series of checks and balances within its community: miners are decentralized and located around the world, nodes that store the blockchain run software that ensures transactions align to Bitcoin protocol (and if they don’t, they’re rejected), the proof of work consensus says that only new blocks can be created after agreement from the network, and the blockchain is constructed in such a way that transactions are permanent and can’t be altered.
But there is one way in which system could be disrupted, and it’s with a 51% Attack.
We recently conducted a survey about the State of Crypto Mining to get a sense of how much Bitcoin owners knew about Bitcoin mining, how they felt about the future of Bitcoin pricing, and how much they knew about the threat of a 51% Attack. Read on to learn more about what a 51% Attack is, and how it could affect the stability of Bitcoin.
What is a 51% Attack?
It all comes down to hashing power. Hashing power, or hash rate, is the energy used to drive the mathematical calculations miners employ to create blocks in the blockchain, which then results in a reward of Bitcoin for the trouble of validating the transactions in that block. Typically, hashing rate is distributed across the network.
A 51% Attack, or a majority attack, is when one entity controls more than 50% of the hashing power used to mine Bitcoin and could use that majority control to cause a disruption to the network. This entity, or attacker, would have the ability to censor transactions. They could create their own secret blockchain, and use that secret blockchain to disrupt network consensus around transactions by tricking the network into believing transactions never happened. They could also prevent miners from mining by causing long pauses between block creation.
What is double spending?
Once an attacker is in control of 51% of the hashing power, they can double spend their coins, or buy whatever they want, and then cancel the transfer. For example, if the attacker decides to buy a car, they would transfer their Bitcoins as payment, and drive off with their new purchase. But because they have a monopoly on the hashing power, they could either cancel the transaction, or create a false blockchain void of the transaction, and the network would cancel the first transaction on the true blockchain based on the false blockchain. Either way, the attacker drives off with their car and their coins.
Are there any limitations to the attacker’s power?
Even if an entity was in control of 51% of the hashing power, because of the permanent nature of the blockchain, there are limitations to the damage they can do. For instance, they wouldn’t be able go back and reverse or change transactions that have already been confirmed. They also couldn’t change the Bitcoin reward on block creation, steal coins from other parties, or even create new coins.
How can a 51% Attack be prevented?
The easiest way to prevent a 51% attack is by keeping the hashing power decentralized across miners (and anyone with the right hardware can be a miner). Even though bigger mining companies with thousands or even tens of thousands of rigs are using their scale to mine, and even though individuals miners are pooling their resources, the Bitcoin blockchain is still massively decentralized. One of the foundations of Bitcoin is its democratic nature, and block creation is based on consensus. As long as the community keeps aware of where its hashing power is going, attacks can be prevented.
Ultimately, though, it comes down to money and scale. Because hashing takes a massive amount of energy, a 51% Attack would cost a lot of money to pull off (think millions of dollars). Gains would be larger by simply using that hashing power to legitimately mine Bitcoin, rather than trying to undercut the system.
How likely is a 51% Attack?
It’s low, simply because of the inherent decentralization of mining, and the sheer magnitude of money and energy it would take to pull it off. Even if an attacker suddenly claimed 51% of the hash rate, the network has a series of fail-safes in place, including recoding the protocol to stop the attack. Additionally, there are so many eyes on the public blockchain that any malicious activity would be noticed immediately.
Keep in mind that while Bitcoin is very secure (as well as other stable, older blockchains like Ethereum), newer altcoins could be in danger of a 51% Attack.
Bitcoin is so well-established at this point that a 51% Attack would be nearly impossible to achieve, and because of the fail-safes in place, would be hard to sustain for very long. As long as Bitcoin adheres to its philosophy of decentralization and community consensus, power can and will remain in the hands of many.
Download our full report here!
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