Over the past decade, Bitcoin (BTC) has been widely touted as one of the safest technologies in the world due to its cryptographically secured network. Bitcoin’s security stems from its decentralized and distributed nature, given that participants in the network mine blocks, confirm, and verify data. The verification process of data is conducted using decentralized nodes that ensure the protocol rules are followed, and all participants agree on the current data available on the blockchain.
For a block to be successfully added to a chain (to form a blockchain), the majority of the distributed nodes have to reach a consensus in several areas, including the mining mechanism, validity of transactions, and the software to be used, etc.
Bitcoin node operators use the proof-of-work (PoW) consensus algorithm to validate and verify a new block of transactions if the rules are followed to the letter. In PoW mining, node miners need to compute high-level calculations – to find a block – using powerful machines and high amounts of electricity. This computational power, or hash rate, is distributed across many node operators to ensure the network remains completely decentralized.
However, in the past, several PoW blockchains have witnessed this computational power being controlled by a small number of nodes, whereby a node could hold over 50% of the hash rate. One of the most common consequences of a single entity holding over half the hash rate is giving rise to 51% attacks, also known as majority attacks.
What is a 51% attack, and why is it so feared?
Investopedia refers to a 51% attack as “an attack on a blockchain, common to PoW blockchains, by a group of miners controlling more than 50% of the network’s mining hash rate or computing power”. While this type of attack has never happened on Bitcoin before, blockchains with a low number of nodes are susceptible to these attacks time and again.
Having the majority of control over a blockchain allows the attacker to have enough mining power to prevent new transactions from being verified and added to a block – effectively halting payments between wallets.
Additionally, the attacker could also reverse a recently completed and confirmed transaction allowing them to spend the already used tokens – known as double-spending.
The Ethereum Classic debacle
Till 2020, no major blockchain had witnessed this type of attack. As alluded to, Bitcoin has never had a 51% attack as it is expensive and non-profitable to amass 50% of the hash rate. The earliest recorded case of a 51% attack happened in 2016 to two Ethereum-based projects – Krypton and Shift – and another in 2018, on Bitcoin’s fork, Bitcoin Gold. Vertcoin (VTC) and Verge (XVG) were also other notable blockchains to face a 51% attack.
However, the most recognized case of these attacks happened in August 2020 when Ethereum Classic, an Ethereum fork, witnessed not one but three cases of 51% attacks within the month. The attacks led to a total loss of $5.6 million across the three attacks in a double spend.
How to stop a 51% attack
Over the years, developers have worked on solutions to prevent these kinds of attacks. One of the most popular ways is simply increasing the cost of carrying out such an attack. A 51% attack on Bitcoin, for example, is highly unlikely due to the high hash rate and size of the network.
According to estimates, an attacker would need to spend upwards of $15 billion in hardware and electricity costs to control the network successfully.
Another solution lies in increasing the number of node operators to ensure decentralization is not compromised at all. One project, Minima, a mobile node operator, offers smartphone users a chance to become node operators in return for incentives to boost the hash rate and prevent 51% attacks. Via the Minima IncentiveCash Program, users are rewarded one Minima token for downloading the Minima app, running and maintaining a complete node.
The app is highly scalable and inclusive without compromising the security and resilience of blockchains. This boosts decentralization and guarantees anti-censorship, ensuring no single miner controls a significant part of the network. In essence, Minima minimizes the vulnerabilities of blockchains while maximizing the incentives to node operators.
Some blockchain protocols have also introduced a new algorithm that features penalties for delayed blocks on the blockchain – making it expensive for attackers to modify the chain. For instance, if a block is proposed to be added to the chain but is five or more blocks behind the most recent one, a penalty is introduced, increasing the number of blocks a miner needs to produce.
This effectively quadruples the efforts needed to attack the network and have transactions accepted on the blockchain.
The benefits of owning your node
As seen in the solutions above, having many node validators is the surest way for blockchains to avoid 51% attacks – as not many blockchains have the high hash rate of Bitcoin. Apart from earning token rewards and the subsequent value when its value goes up, owning a node also offers other non-monetary benefits.
At the core, node validators increase the security of transactions users make on the blockchain and contribute to the network’s overall security by allowing the participants to view all the latest and historical information relating to transactions on the blockchain.
The blockchain space is growing fast, and keeping blockchains secure will be critical to the continued growth of the space. Other blockchains such as Ethereum 2.0 are trying to circumvent the 51% attacks by switching from the PoW consensus mechanism to a proof of stake (PoS) mechanism. As we advance, more blockchain environments will likely build solutions to eliminate the possibility of a 51% attack.
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