Very briefly let’s talk about the concept of 51% attack, or majority attack, in blockchain. It is a possible scenario where a single individual or organization can control the majority of the network power, causing considerable disruption. In such an instance, the attacker will gain enough mining power to modify the activities on the network. They can reverse already completed transactions, leading to a double-spending problem.
Before delving into these concepts, we need to understand mining and blockchain-based systems.
Understanding blockchain-based systems
To make the explanation less complex, let’s take the Bitcoin network as an example. One of the strengths and underlying infrastructure of Bitcoin is the distributed nature of building and verifying data. All participants need to follow the protocol rules and agree on the current state of the blockchain. Therefore, the network nodes need to reach a consensus regarding the mining and validity of the transactions.
New blocks of transactions are only accepted in the network if other miners validate that the block hash provided by the miner is accurate. With the need for cross-participants on the network, any centralized entity can not control the activities on the blockchain because the system depends on the approval of all participants.
The process of mining also uses huge amounts of computational power and many mining nodes in various locations around the world race to compete for the next valid block hash. Despite all these security, let’s imagine what will happen if a single entity can gain more than 50% control of the hashing power. That will lead to a 51% attack, resulting in a double-spend problem.
What is double-spend?
Digital items like files or texts are easy to duplicate. You can receive a copy of an image and send the same image to five different contacts. Because Bitcoin is also a digital currency, the inherent nature of duplicating digital items can also apply to it. But is this a desirable trait of a currency? A double-spend problem is not possible in a fiat monetary system because the disbursement of the physical cash is controlled by a central body, usually central banks.
However, for a digital currency like decentralized Bitcoin, we need to have a strong consensus mechanism to prevent people from duplicating Bitcoins at will. This is why the hashing process and distributed ledger system make a double-spend impossible. But in a situation where a single entity can take control of over 50% of the hashing power, they can manipulate the reward system, create Bitcoins out of thin air, steal coins that did not belong to them, and re-spend Bitcoins they have already spent.
How Likely Is a 51% Attack?
Blockchain systems are highly secure because they are maintained by a distributed network of nodes, all cooperating to reach a consensus. The bigger the network, the stronger it is to shield itself from attacks by malicious players. With the rising value of Bitcoin, more people are joining the network to compete for block rewards, making it possible for all players to act with honesty and the communal purpose of protecting the system. Due to this magnitude of the network, a 51% attack on Bitcoin is very unlikely.
Bitcoin is not the only digital currency built on the blockchain network though. The strength of a blockchain project is the determinant of the possibility of a 51% attack happening on it. As a blockchain grows large enough, the likelihood of a single entity gaining enough computing power to hijack the systems gets lower. On the other hand, for blockchain projects that do not have enough participants in their systems, the likelihood of a 51% attack grows. This is a challenge for smaller cryptocurrencies with relatively low amounts of hashing power. Bitcoin Gold, ZenCash, and Monacoin are examples of cryptocurrencies that have been victims of 51% attacks in the past.