What is the 51 attack? When an individual or group wants to take control of a company, it needs to gather the majority of its shares. This translates to 50.1% control of the company. In most cases, this happens without the consent of the current management of the target company.
Public companies usually have systems in place to prevent this kind of attack. Hostile takeovers can also happen for other types of organizations. When they happen to cryptocurrencies, they are called a 51% attack. This attack causes dire consequences for the digital coin, and its investors are in trouble.
Thankfully, not all cryptocurrencies are at risk. Below, we will explain a 51% attack in more depth and look at past and potential future cases. Let’s begin.
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What Is a 51 Attack?
It seems like the digital currency hype is back. Before investing in a new or existing coin, make sure you understand the security system in place to prevent a third-party attack on the coin. One popular example is a 51% attack.
In simple terms, a 51 attack on a crypto blockchain happens when a single or group of miners controls over 50% of the mining hash rate (cryptographic solving capacity) for the entire network. This gives the controlling party too much power over the blockchain. New transactions can be halted, and previous ones can be reversed. The latter is complex for large blockchains but remains theoretically possible.
When a transaction is reversed, the attackers can double-spend coins. When this happens, the digital coin is at risk of falling apart. The entire concept of decentralization falls apart as one of the main pillars of cryptocurrencies and blockchain technology. Once the blockchain falls apart, it is no longer reliable, secure, and trustworthy. This causes cash to flow out of the crypto and users to suffer huge losses ultimately.
Preventing a 51 Attack
How likely is a 51 attack to succeed? It all depends on which crypto we are talking about. If we take Bitcoin, which uses proof-of-work (PoW), FoundryUSA, AntPool and Binance Pool control over 53% of the network hashrate.
If an independent group would like to overpower these three mining pools, it will have to spend more than $10B on mining equipment. The rest of the equipment needed for a successful operation will also cost a huge amount of money.
What about Ethereum? This blockchain uses proof-of-stake (PoS), which makes the 51% attack even more expensive and unlikely. The attackers must own 51% of the staked ETH, which would cost more than $10B. Even if the attack is successful, the community can nullify it, making the attack useless. In short, for big blockchains, it is very costly and resource-demanding to perform a 51 attack.
Methods of Prevention
Unfortunately, not all blockchains have sufficient users and resources to prevent attacks. Preventive measures have to be installed to block such an attack. Let’s look at a few examples to block a 51 attack.
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By limiting the maximum mining hash rate per individual, smaller crypto blockchains are less exposed to the 51 attack risk. Unfortunately, many crypto scams have been reported, and it is hard to verify the entire network for every new coin. A more complex network guarantees more safety for the investors.
Proof of Stake (PoS)
Ethereum recently went from proof-of-work to proof-of-stake mining to prevent a 51 attack. Many argue the latter is a much safer blockchain. As the network gets larger and more investors believe in the crypto, it will become more difficult to attack it. Many popular coins use the PoS, such as:
- Ethereum (ETH)
- BNB (BNB)
- Cardano (ADA)
- Polkadot (DOT)
- Avalanche (AVAX)
- And over 200 more cryptocurrencies
Building a Strong Network Community
Last on the list is building a strong community, similar to a subreddit. When the community feels that one of its users is acting to its detriment, it can vote them out. If the blockchain project has a future use and is relevant, the community will grow and be more supportive of the project. The chances of an attack will grow smaller.
The examples above are only a fraction of the possible prevention methods for a 51 attack. As the blockchain communities grow, the technologies will evolve, and new ways of protecting the ecosystems will emerge.
Previous Examples of a 51 Attack
There have been 51% attacks in the past. Smaller networks that require little computing power and capital are the most at risk. Attackers can rent enough hash power to take over a blockchain and do as they please.
It can take some time before the network reacts to the attack, and by then, thousands or millions of dollars can be stolen. The Michigan Institute of Technology (MIT) created a Digital Currency Initiative department to track 51% attacks, among other things.
Since June 2019, its members have detected, observed, or have been notified of over 40 51% attacks. The recurrent victims were Bitcoin Gold, Litecoin, and other smaller cryptos. Let’s look at a few examples of a 51 attack more in-depth.
Bitcoin Gold (BTG) and Bitcoin SV (BSV)
Bitcoin has had many hard forks throughout its existence. A hard fork occurs when there is a change in protocol and the crypto follows a different path, a change in protocol.
In 2018, Bitcoin Gold suffered a 51% attack that wiped out over $18M of the digital currency. A second attack occurred in 2020 but was rapidly controlled.
Another Bitcoin hard fork called Bitcoin SV suffered many attacks in 2021. Many blocks of the crypto were deleted and altered. Many crypto investors lost faith and wanted some change in the network so a 51 attack doesn’t reoccur.
Ethereum Classic (ETC)
Ethereum Classic is another example of a hard fork resulting from the Ethereum blockchain. The first attack was held in 2016. Three more attacks took place in the same month in 2020. Millions of dollars were stolen during those attacks.
According to the crypto representatives, no significant damage or price drops were reported. However, a significant loss in trust was felt among its users. They don’t want to see a 51 attack again.
Grin is a much lesser-known crypto. Its market cap is currently about $3M, and it is barely worth anything. It was created as a privacy-preserving digital currency. It is very hard to trace all its transactions.
In 2020, a group of attackers accumulated nearly 58% of its hash rate. There was very little damage to the blockchain. Unlike Ethereum or Bitcoin, such an attack didn’t cost millions of dollars. According to reports, a 51 attack on the Grin network cost the attackers $75/hr. Hence, the necessity to protect as much as possible the network.
Another smaller crypto, Vertcoin, was hit with multiple 51% attacks due to a weak algorithm and security measures. Millions were stolen, and the attacker rewrote the code.
Since the community upgraded its security, powerful miners were blocked. And a 51 attack hasn’t happened again.
The Bank of China released the digital version of its currency, the Digital Yuan. Even if it is a government-owned digital coin, it is susceptible to a 51 attack.
There are security and encryption measures in place to prevent such an attack. They resemble those of Bitcoin but with added government controls and regulations.
A Digital Yuan would increase the speed and lower the cost of transactions, but this added layer of efficiency comes with some risk. Cryptocurrency regulations are much stricter in China than in other countries, and access to material and funds to attack the currency is much harder.
However, other countries are talking about launching their versions of their digital currency. They must take the proper steps to secure and encrypt them properly.
Now You Know What a 51% Attack Is
To conclude, a 51 attack occurs when an individual or group of people controls more than 51% of a cryptocurrency. The consequences can be disastrous for the digital coin’s investors.
Security measures are put in place by major cryptocurrencies. Some have even switched to PoS to increase the security of their network. As countries digitalize their currencies, they can’t skip any security and encryption hurdles.