In light of news that Ethereum Classic (ETC) suffered its second 51% attack and it got me thinking, what is a 51% attack?
What is a 51% attack?
A 51% attack represents the possibility for an entity that has the majority of a cryptocurrency's total mining power (also called hashrate), to be able to cancel transactions that took place in the previous hours and to create new transactions from addresses controlled by that entity.
To understand how this works, the mining principle must be followed: computers compete with each other to find a valid block hash before everyone else. The first to find this solution validates all pending network transactions and collects bitcoins reward. The probability of the problem being solved is directly proportional to each machine's computing power.
What are the steps involved in a 51% attack?
Suppose an intruder has very high computing power, more than 50% of the sum, higher than that of all the other responders combined. He then was able to perform the following attack:
The attacker sends a substantial quantity of bitcoins to a person to get a service or a product in return.
One of the miners inserts the transaction in question into the Blockchain.
At the same time, the attacker operates his own mining equipment to make, but without publishing, new blocks. They are identical to the published blocks in all respects but do not contain the transaction at issue.
The correspondent sends the product or performs the service since the transaction has been validated.
The attacker shall publish the blocks he has secretly mined upon receipt of the product or service. Given that it has more computing power than the rest of the network, its Blockchain version is considered the correct one.
The transaction referring to the purchase made does not occur in this current version of the Blockchain. Therefore the attacker recovers his Bitcoins, but the victim is no longer able to recover the product he sent.
51% attack bad for reputation
Thus, carrying some form of attack on the chain would be to the detriment of the cryptocurrency network's value, and also bad for its reputation. Bitcoin Cash, Vertcoin, Bitcoin Gold and Feathercoin have all suffered attacks in the past.
Conclusion
The effect of a 51% attack can be detrimental to the value of the cryptocurrency's Blockchain. Proof of Stake (PoS) has been touted as a potential solution to overcoming the 51% attack, but this would require changing the rules and protocols of many cryptocurrencies.
Thank you for reading and hope you have a good rest of the day!
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