The cryptosphere is host to a wide array of security concerns. Among them is what’s known as a ‘51%’ attack. This type of cyber-attack is quite concerning for members of the crypto community, because they undermine the founding principles behind crypto.
Two of the founding philosophies behind crypto are transparency and decentralisation. Firstly, having transparency on a blockchain is pivotal because it allows self-governance over our finances. The essence of decentralisation also plays into self-governance, since it seeks to take back power from single, authoritative entities such as the banks and government. However, when a group consolidates enough computational power to command 51% of the network, that group suddenly becomes in control.
What is a 51% attack?
A 51% attack is a cyber-attack that occurs on the blockchain whereby a group of miners consolidate more than 50% of the network’s mining hash rate or computing power.
When mining cryptocurrency, there is what’s known as ‘mining difficulty,’ and the further forward we progress with crypto, the more the mining difficulty increases. To counter this rise in difficulty, miners have begun to pool together to increase their chances of successfully mining crypto.
If one group had a significant amount of computational power and carried out, for example, 31% of the total mining of one crypto, and another group then carried out a further 20%, the first group would offer to collate their computational power with the second group, granting them 51% power in the network.
51% attacks and double spending
However, whilst this seems like a practical solution on a small scale, on a larger scale it has concerning implications. If a mining pool were to obtain more than 50% of the mining power, they would suddenly become in control of that network. This poses substantial risk, because that group would then be able to manipulate transactions by either mining blocks that aren’t legitimate or cause an issue of double spending.
Double spending is the risk that a digital currency could be spent twice. This is a problem for crypto because digital information can be replicated with ease if the hacker knows what they are doing.
In effect, a hacker who is double spending creates a duplicate of the token and sends it to another party. In doing so, they retain the original copy. Consequently, they are awarding themselves free cryptocurrency.
However, whilst they have the ability to control parts of the network, they wouldn’t be able to mint fresh tokens, and it would be unlikely that they could destroy the targeted cryptocurrency. But, they can cause a lot of damage to the network nonetheless.
How do 51% attacks work?
When a transaction is broadcast to the network, data miners look to solve cryptographic puzzles to add that block of data to the blockchain. In a way, they play the role of a digital accountant. Once a miner has found the solution, it is supposed to be broadcast for other miners to verify the transaction.
But, a corrupt miner can actually create an offspring of the blockchain by not broadcasting the solution. This creates two versions of the blockchain. In doing so, the original and legitimate version is being tracked by the normal miners, whilst the corrupted miner/s work on the new, illegitimate version. They can then spend their crypto on the original blockchain, whilst retaining them on the false blockchain. In this case, they have ‘double spent.’
Hopefully, this brief introduction to 51% attacks and their implications has helped you understand what they are and the threat they pose to the cryptosphere.
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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.