A 51% attack is when a cryptocurrency miner or group of miners gains control of more than 50% of a network’s blockchain. The 51% attack scenario is rare — especially for more established cryptocurrencies — mainly because of the logistics, hardware, and costs required to carry one out. But a successful block attack may give the attacker complete control of the network and allows them to double-spend coins, prevent other transactions from confirming, and block other miners from mining.
Cryptocurrency investing can be potentially lucrative, but it involves a higher degree of risk, especially compared with stock or bond investing. And 51% attacks could be a threat for people who use, buy, and sell cryptocurrencies. If an investor is considering adding digital currencies to their portfolio, it’s important to understand the implications of a 51% attack.
Background on 51% Attacks
A 51% attack is an attack on a blockchain, which is a type of digital database in ledger form. With blockchain technology, information is collected in groups or blocks and linked together to create a data chain. In cryptocurrency trading, blockchains are used to record approved transfers of digital currencies and the mining of crypto coins or tokens.
With many cryptocurrencies, “miners” can attempt to add blocks to the chain by solving mathematical problems using mining machines — a process known as Proof of Work. These machines are essentially a network of computers. If miners succeed in adding a block to the chain, they receive cryptocurrency in return.
The speed at which all the mining machines within the network operate is the hashrate. A good hashrate can help gauge the health of the network.
A 51% attack occurs when one or more miners take control of more than 50% of a network’s mining power, computing power, or hashrate. If a 51 percent attack is successful, the miners responsible essentially control the network and certain transactions that occur within it. This could mean that the attackers could double-spend coins or manipulate transactions.
Additionally, a 51% attack on a blockchain could damage the reputation of a cryptocurrency, leading to a decline in value as investors sell their crypto.
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Examples of a 51% Attack
51% attacks are not just a theoretical concern. There have been a few notable examples of 51% attacks in the past, including:
• A 2018 attack on Bitcoin Gold (BTG) resulted in over $18 million worth of the currency being double spent.
• Multiple attacks on Vertcoin (VTC) in 2018 resulted in doubling spending of more than $100,000 worth of VTC.
• A 2019 attack on Ethereum Classic (ETC) resulted in over $1 million of the currency double spent. Additionally, the crypto faced three attacks in 2020.
• A 2020 attack on Grin (GRIN), though the blockchain was able to regain control.
• Three attacks on Bitcoin SV (BSV) occurred in 2021, damaging its reputation.
Most 51% attacks occur on smaller cryptocurrencies. Experts say it’s unlikely that major cryptocurrencies will face a successful 51% attack because it is prohibitively expensive to take control of more than half of mining power.
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How a 51% Attack Works
When a cryptocurrency transaction occurs, newly mined blocks must be validated by a consensus of nodes or computers attached to the network. Once this validation occurs, the block can be added to the chain.
The blockchain contains a record of all transactions that anyone can view at any time. This record keeping system is decentralized, meaning no single person or entity has control over it. Different nodes or computer systems work together to mine, so the hashrate for a particular network is also decentralized.
However, when one or more miners control a majority of the hashrate, the cryptocurrency network is disrupted. This disruption is a 51% attack. Those responsible for a 51% attack would then be able to:
• Exclude new transactions from being recorded
• Modify the ordering of transactions
• Prevent transactions from being validated or confirmed
• Block other miners from mining coins or tokens within the network
• Reverse transactions to double-spend coins
These side effects of a block attack can be problematic for cryptocurrency investors and those who accept digital currencies as payment.
For example, a double-spend scenario would allow someone to pay for something using cryptocurrency, then reverse the transaction after the fact. The malicious actor would effectively be able to keep whatever they purchased along with the cryptocurrency used in the transaction, bilking the seller.
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What a 51% Attack Means for Cryptocurrency Investors
A 51% attack isn’t a common occurrence, but it’s not something that can be brushed off. For cryptocurrency investors, the biggest risk associated with a 51% attack may be the devaluation of a particular digital currency.
If a cryptocurrency is subject to frequent block attacks, that could cause investors to lose confidence in the market. Such an event could cause the price of the cryptocurrency to collapse.
The good news is that there are limitations to what a miner who stages a 51% attack can do. For example, someone carrying out a block attack wouldn’t be able to:
• Reverse transactions made by other people
• Alter the number of coins or tokens generated by a block
• Create new coins or tokens from nothing
• Transact with coins or tokens that don’t belong to them
The larger a blockchain grows, the more difficult it becomes for rogue miners to attack it. On the other hand, smaller networks may be more vulnerable to a block attack. Investors may be able to insulate themselves against the possibility of a 51% percent attack by investing in larger, more established cryptocurrency networks versus smaller ones.
Ways to Prevent a 51% Attack
50% Limit on a Single Miner
A blockchain’s protocol could ensure that no miner or a group of miners controls more than 50% of the blockchain’s hashing power.
Using Proof of Stake
A blockchain could use a more robust blockchain consensus algorithm. Some consensus algorithms, like Proof of Stake, are more resistant to 51% attacks than others, like Proof of Work.
Strong Network Community
A blockchain’s strong community could help prevent a 51% attack, especially if the blockchain uses a Proof of Stake (PoS) consensus algorithm. With PoS, the community must vote to determine if a user can be a block validator, which is like a miner in a Proof of Work system. If the community senses that a user is amassing power to attack the blockchain, they can throw the user out of the network, preventing an attack.
Cryptocurrency investing may appeal to investors if they’re comfortable taking more risks to pursue higher returns. If an investor is new to cryptocurrency trading, the prospect of a 51% attack might seem intimidating. Understanding how they work and the likelihood of one occurring can help them feel more confident.
If an investor is ready to trade crypto, like Bitcoin, Ethereum, Cardano, Solana, and Dogecoin, SoFi Invest can help. Members can buy and sell cryptocurrencies 24/7, starting with as little as $10. The SoFi app allows users to manage their accounts from anywhere.
What’s the difference between a 51% attack and a 34% attack?
A 51% attack is a type of attack in which a group of miners takes control of more than 50% of the total computing power of a cryptocurrency network. This allows them to double-spend coins, prevent other transactions from being confirmed, and so on. A 34% attack is a type of attack in which a group of miners takes control of more than 34% of the total computing power of a cryptocurrency network. This may allow the attacker to approve or disapprove transactions, though it does not allow them to take full control of the blockchain.
Can a 51% attack reoccur?
Yes, a 51% attack can reoccur. A 51% attack could reoccur if the original attacker regains control of 51% of the network’s hash power or if another entity gains control of 51% of the network’s hash power. Multiple attacks on a blockchain may occur if steps are not taken to improve a blockchain’s security.
Who is at risk of a 51% attack?
Smaller cryptocurrencies are more at risk of a 51% attack. It is less expensive and energy-intensive to amass 51% control of hashing power for smaller cryptocurrencies than larger and more established cryptos.
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