What is a 51% attack?

A 51% attack is a type of attack on a blockchain where a single entity or group of entities gains control of more than 50% of the network’s computational power (in a Proof of Work system) or stake (in a Proof of Stake system). With this majority control, the attacker can manipulate the blockchain in several ways that undermine its security and integrity.

How a 51% Attack Works:

In most blockchain networks, transactions are confirmed and added to the ledger by a decentralized group of participants (miners in Proof of Work or validators in Proof of Stake). These participants must come to a consensus on the state of the blockchain. However, if a single entity controls the majority of the network’s resources (computational power or stake), they can use that control to:

1. Double-Spend Attack:
   • The attacker can reverse their own transactions, effectively spending the same cryptocurrency twice. This is the most significant threat of a 51% attack and can be used to defraud users or exchanges by reversing large transactions.
   • For example, they could send a transaction to a vendor, receive goods or services, and then use their majority control to reorganize the blockchain and make it appear that the transaction never happened, effectively getting their funds back.
2. Block Reorganization (Forking):
   • The attacker can modify the order of transactions or prevent certain transactions from being confirmed, which creates a fork in the blockchain. This can cause instability or confusion, especially for exchanges and businesses relying on the blockchain for payments.
   • They may also exclude or delay transactions from others, censoring transactions and disrupting the network’s normal function.
3. Preventing Block Validation:
   • With 51% control, the attacker can prevent other miners or validators from adding new blocks to the blockchain, effectively halting transaction confirmations and freezing the network.

What a 51% Attack Cannot Do:

Even with majority control, a 51% attack cannot:

• Steal funds from other users’ wallets. The private keys controlling the funds remain secure.
• Alter past transactions that are deeply confirmed in the blockchain (beyond a few recent blocks).
• Create new coins or tokens beyond the protocol’s rules (e.g., generating more Bitcoin or ADA than allowed).

Vulnerability Factors:

The likelihood of a 51% attack depends on several factors, including:

1. Network Hash Rate (in Proof of Work): A network with low computational power is more vulnerable to a 51% attack because it requires less mining power to gain majority control. Smaller or less decentralized blockchains may be more susceptible.
2. Stake Distribution (in Proof of Stake): In Proof of Stake blockchains, if a single entity or a small group holds the majority of the stake, they can theoretically execute a 51% attack. However, in practice, this is discouraged by economic incentives, as the value of their stake would decrease if the network’s trust is undermined.
3. Network Size: Larger, more decentralized networks like Bitcoin or Ethereum are much harder and costlier to attack because the required resources are enormous. For instance, Bitcoin’s hashrate is so high that acquiring 51% of the computational power would be prohibitively expensive and logistically difficult.

Mitigating 51% Attacks:

1. Increased Decentralization: The more decentralized the network is, the harder it becomes for any one entity to control 51% of the power or stake.
2. Higher Hash Rates (Proof of Work): For Proof of Work networks, the higher the total hash rate (computational power), the more secure the blockchain is from 51% attacks. It becomes increasingly costly to gather enough hardware to overpower the network.
3. Slashing Penalties (Proof of Stake): In Proof of Stake systems like Cardano, attackers face heavy penalties for attempting malicious activities. For example, if a validator tries to misbehave, a portion of their staked assets can be slashed (confiscated), providing a strong disincentive for such attacks.
4. Network Upgrades and Hard Forks: In some cases, networks implement upgrades or hard forks to make it more difficult to attack the system or to recover from a 51% attack after it occurs.

Famous Examples of 51% Attacks:

• Ethereum Classic (ETC): Ethereum Classic has experienced multiple 51% attacks due to its relatively low hash rate, allowing attackers to reorganize blocks and double-spend large amounts of ETC.
• Bitcoin Gold: Another example of a smaller network suffering from a 51% attack, resulting in significant double-spending losses.

Conclusion:

A 51% attack is a significant threat to smaller or less decentralized blockchain networks. It occurs when an entity gains control of more than half of the network’s power (hashrate or stake) and uses it to manipulate the blockchain. While large, well-established blockchains like Bitcoin and Ethereum are generally safe from such attacks due to their size and decentralization, smaller networks can be more vulnerable. Security measures like decentralization, slashing penalties, and high hash rates are critical in preventing these attacks.