51% attack: are crypto assets under threat?
When performing a cryptocurrency transaction, be it Bitcoin or another digital currency, new blocks must be confirmed by a consensus of nodes. After verification, the block can be added to the chain.
According to Coinmarketrate.com, the blockchain contains a record of all operations performed. This record is maintained in a decentralized manner, which means that no individual or legal entity has control over it.
Various nodes perform the function of mining the next block, which makes computing power (also known as hashrate) decentralized.
When most of the hashrate is controlled by one or more miners, the crypto network may experience some problems.
The consequences of this cyber threat can be problematic for investors and for those who use these digital currencies as a form of payment.
For example, the double spending problem would allow someone to pay for something using crypto assets and then cancel the transaction after the exchange has occurred.
Then they keep everything they bought, as well as the crypto assets used for the transaction, thus deceiving the seller.
Is it possible in Bitcoin
Although the answer to this question is somewhat complicated, in general, a cyberattack on Bitcoin is unlikely due to the attacker’s costs.
In fact, only a state with access to a large amount of equipment and energy sources could undertake such an opportunity, but even this is unlikely.
Some people calculate how much such a scam on various cryptocurrencies will cost, and in the case of Bitcoin, it is believed that this is about $30 billion.
For example, according to the estimates of the crypto51.app website, it will take almost $2.5 million to implement this type of hack within 1 hour. But you may need more time to make a profit.
Although this value is not the whole story, since the purchase of the necessary hashrate is not a big obstacle for a 51% attack on the BTC blockchain. What an attacker might be interested in is the amount of hashrate available for purchase.
Ultimately, for a successful attack on Bitcoin, miners will have to more than double the existing hashrate using their own equipment and power supplies.
Considering that Bitcoin is the most popular cryptocurrency with a high hashrate of all, this task seems impossible.
What could be the consequences?
This is not a common, everyday phenomenon, but it should not worry too much.
If the cryptocurrency is often subjected to such “raids”, it may alienate investors, as the market loses confidence in the project. The price may not only fall, but also completely collapse.
The good news is that we already know the cost and limitations that a miner or a group of miners has.
The way an investor can protect himself from such an event is quite simple: he should simply invest his money in cryptocurrencies with a large market capitalization, well-established in the sector and having large blockchain networks.
The larger the blockchain of the project, the more resources will be required to carry out an attack on it. The smallest blockchains are always the most vulnerable, and it is in them that you should be most careful.
You can also choose cryptocurrencies that do not use Proof of Work.
There have been many similar attacks in recent years.
One of the most recent is the one that happened in August 2021 and concerned Bitcoin SV (BSV), the third of many.
Bitcoin SV is a fork of the Bitcoin blockchain, supported by those who believe that this alternative is most true to the founder’s vision (hence the name, SV comes from Satoshi Vision).
Currently, this cryptocurrency ranks 47th by market capitalization with a total amount of just over $1,150 billion.
During this attack, about 100 blocks were affected and about 10 hours of transactions were deleted, making a total of 570,000 transactions.
However, this is not the only cryptocurrency that has suffered. Another fork of Bitcoin, Bitcoin Gold (BTG), also became a victim in 2019.
During this event, many exchanges lost approximately $18 million due to double expenses of intruders. As a result, Bittres removed BTG from the listing, as it did not compensate the exchange for its losses.
At that time, the coin occupied the 27th place, and now it is on the 79th, which is a significant loss in the ranking for the title of the most valuable cryptocurrency.
Ethereum Classic (ETC) was also affected. This coin, which is a hard fork of Ethereum after the famous DAO hack, has experienced this several times.
One attack reorganized 11 blocks and allowed hackers to spend $1.1 million worth of coins twice.
Based on this, it is logical to understand the significant loss of value of its cryptocurrency. Moreover, in 2020, he experienced another hack, in which this figure rose to $5.6 million.
However, unlike Bitcoin Gold, it later regained its place in the table and is now in 20th place with almost $4.6 billion.
The problem with all these cryptocurrencies is their low hashrate.
Are such attacks legal?
There is no law prohibiting such miners from combining or collecting the resources necessary to obtain more than 50% of computing power. However, what they do with this acquired power can lead to criminal activity punishable by law in a number of countries.
For example, in the US, the Computer Fraud and Abuse Act (CFAA) may be used for this case, although it is also not entirely clear.
Similar laws, to a greater or lesser extent, can be found in other countries. Although, ultimately, it will be necessary to see how they will be applied in each specific case and whether the law is ready for this. After all, this is very new ground for everyone.
There are many potential options to prevent a 51% attack.
One of them is to change the consensus algorithm that is currently used by currencies subject to this type of attack – Proof of Stake. An alternative may be to use a delegated proof of stake (Delegated Proof of Stake).
This alternative uses multiple delegates responsible for checking new blocks, delegates that change over time.
In order to carry out his plan with the capture of the blockchain on such an algorithm, an attacker would have to control not only most of the hashrate, but the delegates, which makes the chances extremely low.
Another alternative is to use the so-called modified exponential subjective score (MESS).
For example, Ethereum Classic (ETC) uses MESS for protection.
According to the developers of this blockchain, an attack that would have required only $3,800 in 2020 now amounts to $20 million.
Some cryptocurrencies protect themselves from such threats by using transaction approval delays as well as fines to scare away miners who seem to be planning such an opportunity.
Examples of cryptocurrencies using this solution are Horizon and Komodo.
As blockchain networks grow, it becomes increasingly difficult to acquire the necessary equipment and access sufficient capacity. This makes a threat of this kind less likely.
This is due to the fact that the cost of executing one of them increases with the hashrate of the network, and not linearly.
That is why a large network is more secure than a small one. The more nodes are involved and the higher the hashrate, the more effort the attacker will have to make to control more than 50%.
But even if the criminal manages to overcome this threshold, the size of the network can provide another measure of security. As a result, all this may cost the attacker more than originally thought.