The 51% attack is considered one of the most dangerous cyber attacks against cryptocurrencies. This attack happens when 51% of the network’s hashrate concentrates under one entity, which can either be a mining pool or an authoritative figure in the crypto space.
In this article, we will discuss where a 51% attack is possible, the consequences of the attack, and some cases where the attackers succeeded in occupying a whole blockchain.
51% Attack Methods
There are three scenarios where the 51% attack becomes possible:
The first one – the most common case – happens when a mining pool becomes too large. As the hashrate of the pool surges due to an increasing number of miners joining, there’s a chance that the mining pool will exceed 51% of the total network’s hash power. In 2014, this happened with Bitcoin. In July of that year, the mining pool GHash.io passed the 51% hashrate of the network. However, the pool owners decided not to take advantage of this and cut themselves down, promising that they would never pass again the 39.99% hashrate.
Others were not as lucky as Bitcoin because two ERC-20 Ethereum-based blockchains, Krypton and Shift, have suffered 51% attacks by malicious miners. The attackers used mining pools to conduct their “operations” on the two networks.
The second method has only been achieved in theory. This involves a very powerful and rich entity with plenty of capital – which could be a government or a Bitcoin whale – purchasing tons of mining rigs to take over 51% of a blockchain. A variation on this is the “gold finger” attack, in which the entity takes over the majority of a coin’s network and proceeds to destroy the value of the cryptocurrency by double spending or by spamming the chain with transactions.
The third method is a diabolical scenario, which involves smart contracts. The contract would require miners to deposit a large amount of funds. According to this hypothetical scenario, you can only leave the contract when 60% of the miners have joined. If you want to leave after this, you can only do so when 20 blocks have been added to the hardfork chain you are mining the blocks for. The new chain will grow bigger and longer, and the old one will become irrelevant as 60% or more of the miners are bound to the hardfork blockchain via the smart contract.
As there are no risks and there is the possibility for miners to earn rewards at the end, they are most likely join the contract. However, once they join they will be incentivized to stay due to the reward (again) and the large amount of funds they deposited when they joined.
The 51% attack has four types of repercussions, which sometimes can be highly dangerous for the victim chain’s network:
One is selfish mining, where the attackers take advantage of their majority in regards to collecting the rewards. If a block is mined at the same time, miners have to vote whose block they will choose. The winner has a higher chance of coming up with the next block. As the majority of the network needs to decide on this, the attacker can take advantage of his power to mine his own blocks and keep mining on top of them without waiting for the network’s approval.
Secondly, the attacker who has a 51% majority in the network can decide to cancel transactions. It is possible to destroy a complete network by not accepting any transactions to any of the blocks the attacker selfishly mines.
The third consequence is an issue every blockchain is most worried about and seeks to avoid at all costs. This is called double spending, which involves spending the exact same coin on multiple transactions at the same time. As the decentralized nature of the blockchain prevents double spending, the attacker with 51% has the central authority to do so as the other miners are compromised. Continuous double spending would render a cryptocurrency’s value next to zero.
The last consequence occurs when the attacker creates hardforks on the blockchain. The reason for that could be to take advantage of the double spending that occurs during chain splits. Alternatively, another reason could be to fight against the other miners who may have managed to create a block. In that case, the attacker could fork the chain prior to that new block.
Coins That Have Suffered From 51% Attack: Vertcoin
On December 2, 2018, there was a successful 51% attack on Vertcoin’s network. The repeated 51% attacks on the cryptocurrencies network resulted in the reorganization with the length of 310 blocks and the depth of 307 blocks. According to Nesbitt, the attacks could have caused double spending of up to $100,000.
The attacks started in October 2018 and could have taken place up to before the attack publishing date. The attack has been made easier by Vertcoin’s mining algorithm, which is ASIC-resistant – meaning that ASIC miners can’t be connected to the network, only graphics cards. Nesbitt stated that while this could be a great hedge against centralized mining, it could put the network at risk as anyone using graphics cards in the world can attack Vertcoin, not just ASIC users – as was the case with Bitcoin.
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