One of the most remarkable traits of Blockchain technology lies in its safe and secure network system.
It facilitates and protects transactions (blocks) within a controlled database (chain) of peer-to-peer nodes using personalized impressions.
This makes them highly insured against any external interference. As previously mentioned, blocks are verified and added to a decentralized ledger system by miners (nodes) through a “proof of work” algorithmic procedure to ensure that the protocols are observed and the system remains protected.
This computational ability to locate and verify ‘blocks’ is known as the hash rate. As more and more miners join the fray to process transactions, the hash-rate increases and become more complex to bar attacks from malicious operators.
However, there are smaller crypto networks that can easily be overrun by a single individual or group of miners. This ability to control more than the normal harsh rate in the system is otherwise known as the 51% attack.
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WHAT IS A 51% ATTACK?
This is when a particular entity controls more than half of the computing or hashing power of a crypto network.
Suppose for some reason or another, a miner or group of operators can infiltrate the blockchain’s protocols and gain control of a major computational power. In that case, they can alter and reject transactions or even approve invalid transactions.
They can use this leverage to redirect or steal cryptocurrencies from the network as well. By having major control, these malicious agents can cause irredeemable damage and financial loss to the crypto-network through the 51% attack.
One of these defects is the double-spending problem which allows the attackers to reverse an already completed transaction to spend the used tokens in another trade.
For example, an attacker can pay for something with cryptocurrency and reverse the transaction afterwards.
This gives them the ability to make purchases and also keep the cryptocurrency used in making it to defraud the dealers.
Additionally, these attackers can also stave off mining by other people in the network and restrict their ability to validate transactions which can negatively affect businesses that rely on the Blockchain to manage their financial records.
In any case, a 51% attack in itself is expensive to operate. This is due to the large computational resources and electricity needed to carry out such an attack. Another reason why attackers try to bypass crypto-networks is through bugs or even prey on smaller blockchains.
TRACES OF A 51% ATTACK ON BLOCKCHAINS:
Larger blockchains such as Bitcoin and Ethereum have very high hash power to protect them against any 51% attack.
This makes it improbable and quite risky for attackers to engage them and instead settle for smaller blockchains with a lower hash rate.
In 2018, the Bitcoin Gold (BTG) blockchain, a variant of the Bitcoin protocol suffered a massive 51% attack when an unidentified miner controlled a significant hash rate in its network.
This led to an estimated loss of $18 million across cryptocurrency platforms hosting the coin due to several double-spending by the agents.
As of then, Bitcoin Gold had one of the highest market capitalizations, so you could imagine the depth of such an attack. It also had a repeat of the attack in 2020.
Also, the Ethereum Classic (ETC) blockchain was not left out in this debacle. During the Covid-19 period, it sustained three different 51% attacks in August which led to a total loss of about $5.6 million in double-spending activities.
In a similar fate, the Bitcoin SV (BSV) had an encounter with 51% attacks which affected scores of transactions in the network and was even delisted by an exchange platform, Bittrex. Vertcoin, Grin, Zencash, and Litecoin are also among the blockchain networks to have experienced damaging 51% of attacks in recent years.
EFFECT OF THESE ATTACKS…
A direct impact of a 51% attack would be the monetary loss. As evidenced above, blockchain networks with lesser hashing power have often been thrown into a massive financial loss in the wake of a 51% attack. Half a million dollars worth of Zencash tokens was carted away during a 51% attack on its network.
And when a crypto-network is persistently faced with attacks, more people would no longer believe in its project, hence they fall.
Moreover, blockchains that have witnessed a 51% attack are prone to a recurrence of such an attack. An attacker might easily set a bug in the network to make a second attack plausible.
HOW TO PREVENT AN ATTACK?
• Hard forked:
Routinely rewriting the algorithm code of blockchain networks is a good shot at preventing a 51% attack. With this, miners are able to detect anyone using an old code in its network and signal them away. Ravencoin is a good example of a blockchain network involved in the process of using modified codes regularly.
• Using a delegated proof of stake (DPoS):
The Delegated Proof of Stake (DPoS) is seen as a much more efficient mechanism compared to the Proof of Stake (PoS).
Developed in 2014 by Daniel Larimer, the DPoS uses a secured consensus program controlled by stakeholders with very high stakes. In simple terms, this means an attacker will have to own both a 51% stake (in the cryptocurrency itself) and delegates to complete a 51% attack.
This mechanism of computing power is difficult to attain and as such will hinder the possibility of a 51% attack.
• Delayed blocks penalty:
In this case, blockchain networks can introduce an algorithm that gives penalties to miners who fall behind in their schedule.
As such, where a miner delays the number of blocks to add to a chain, a penalty can be doled out to such an individual. This can be in the form of an additional number of blocks produced by the miner making it highly unlikely to carry out an attack.