Undoubtedly, blockchain technology is shaping up to be the future, set to replace the old banking system and make life easier for users. However, we must be aware of the risks that appear every day and shouldn’t be underestimated.
In this article, we’ll talk about a recent threat called the 51% attack. The latter is the most savage hacking method that shakes the cryptocurrency world and steals users. First, we’ll explain what causes it and the chances of it happening. Then we’ll give you some valuable tips to avoid it. So let’s get started!
Understanding a 51% Attack
Plenty of people are wondering: what is a 51% attack in crypto? We will simplify our explanation so you can understand this hacking mechanism better. Generally, this attack aims to ruin the blockchain balance and algorithms.
Suppose one or more users have unclear and evil intentions and control over 51% or even more of the total network hash rate. First, these hackers will bypass the network’s consensus, then start committing malicious actions such as double-spending.
One of the best 51% attack examples is when the attacker(s) has significant mining power to play with the order of the transactions and even prevent users from validating them. In most cases, the victim will see a transaction denial message inviting him or her to try later. Moreover, the hacker(s) could stop the rival miners from mining their crypto, thereby monopolizing the market.
Typically, this hacking method targets cryptos based on Proof of Work (PoW) models. The latter is more accessible to penetrate for hackers than the Proof of Stake ones. Alt text: What happens to the blockchain during an attack
The Outcome of an Attack
Now that we have explained how a 51% attack works and how hackers benefit from the power of hashing to disturb blockchain operations, we will dive into the main motivations behind this prohibited hacking method.
Double spending is a fraudulent activity that occurs during a 51 crypto attack and leads to significant losses in a short duration.
Based on blockchain technology, currencies such as Bitcoin or Ethereum form a chain of so-called blocks (data packets) that record all transactions made in a certain period. When one of these blocks is created, one can’t modify it. However, in a 51% attack, the attacker can interfere with the process of confirming newly made transactions.
This eventually allows him to monopolize mining and even buy anything he wants by tricking sellers with fake payments that disappear within a few minutes. For instance, the hacker sends two transactions, one real to himself and the other one that gets rejected.
2) Blocking Transactions
When most individuals gain control at a hashing rate of over 51%, they can exert significant control over the fate of transactions. Attackers have the power to block or validate transactions and the authority to determine which operations will be included in the blocks. As a result, they can construct a cryptocurrency network without transactions if they choose to do so.
Who Is at Risk?
Overall, small crypto projects are more likely to be targeted by a51% attack than large ones. According to experts, the cheaper the encryption, the easier it is to control. We recommend relying on popular cryptocurrencies like Bitcoin and Ethereum to keep your crypto wallet safe and secure.
Let’s take the example of Bitcoin, the number one cryptocurrency in the world. This crypto has a powerful blockchain network and protection against hackers. Due to the tight security, controlling its hashing power would be costly or even impossible.
Likelihood of the Attack
As mentioned, A 51 crypto attack on the Bitcoin blockchain is improbable due to the network’s size and decentralization. As the network grows, it becomes increasingly challenging for individuals or entities to accumulate enough computing power to control over half of the network’s hashing power.
However, knowing that smaller and less secure blockchains are more vulnerable to 51% attacks is essential. Such cases have mainly been seen on smaller digital coins like Bitcoin Gold, where millions were stolen in the blink of an eye five years ago. This lesson was tough for those who believe the blockchain network is impenetrable.
How to Prevent a 51% Attack
Overall, a 51 percent attack probability is almost nil for large projects. When a blockchain gets big, it becomes nearly impossible to get enough computing power to overwhelm all other users. Such a move would also require excessive capital to fund energy and hardware costs.
However, the GHash.IO mining pool, which is owned by the CEX.IO Bitcoin exchange, reached a level of about 55% of the Bitcoin hash rate in a single day in June 2014. Although this is not a deliberate attempt to take control of the network, this attack is still possible.
Preventing attacks on small networks means following the example of Bitcoin. The first and most obvious prevention is decentralizing mining power to ensure no one controls more than 50%.
The second involves making smaller networks more robust, which is the best way to prevent 51 attacks in the blockchain. By doing this, scammers will think twice before attempting an attack that could cost them more money than they would gain.
Besides 51% Attack, other negative phenomena exist in the blockchain space. If you want more about them, be sure to read our article about when to expect the end of the crypto winter.
So, whether you are a crypto trader or investor, you need to be careful about what is happening in the market and, of course, try not to put all your eggs in one basket. The only thing to keep in mind is that nothing is perfect. Make sure to diversify your earning methods to maximize your online security.
What is the difference between PoW and PoS?
The main difference between PoW and PoS lies in their consensus mechanisms and the use of resources. PoW needs lots of computational power from miners to solve puzzles, while PoS uses validators and their staked coins, making it more energy-friendly.
Can small cryptocurrencies defend against 51% attacks?
Yes, they can. Small cryptos can avoid malicious agents by implementing strong security measures, encouraging decentralization, forming alliances, and actively monitoring the network.