Clarifying the Concept of a 51% Attack
A 51% attack, or majority attack, raises security concerns for a blockchain network because it refers to a situation where a single individual or group, with malintentions, seizes over half of the network's overall hashing power, potentially causing disturbances.
In cases where an antagonistic entity or group appropriates more than half of the total hashing rate of a blockchain network, it can interrupt the network's consensus mechanism and engage in damaging activities like double-spending.
During a 51% attack, a malignant actor having significant mining power can alter the transaction order, which hinders some or all transactions from getting confirmed. This might even escalate into a transaction denial of service. Simultaneously, the attacker may prevent others from mining, thereby creating a mining monopoly.
Illustrating a 51% Attack
Assume a destructive entity manages to control 51% of the Bitcoin network's hashing capacity. This control allows them to conduct an offline over-the-counter trade, exchanging bitcoins for USD routed to a cryptographic wallet. Since blockchain transactions are generally irreversible, the buyer shifts the USD to the attacker once the transaction gets confirmed by the network nodes. The attacker can then revisit the unconfirmed bitcoin transfer block, mine an alternative chain excluding the bitcoin transfer, and then leverage their majority power to enforce this alternative chain onto the rest of the network.
Constraining Factors of 51% Attacks
Even though a 51% attack can induce significant chaos, the attacker cannot stop transactions from being transmitted or reverse transactions made by other users. The possibilities of altering block rewards, generating coins ex nihilo, or confiscating coins that belong to someone else are scarcely credible. Subverting a transaction becomes increasingly tricky as it ages, due to the escalating number of blocks that need mining to align with the network's present block height. For such reasons, Bitcoin transactions typically demand six confirmations prior to clearance.
Likelihood of a 51% Attack on Bitcoin
Given the sheer magnitude of the Bitcoin network, a 51% attack is highly improbable as it is extremely unlikely for an individual or group to have enough computing horsepower to outweigh all other participants.
Thus, vast networks, specifically the Bitcoin blockchain, are largely impervious to 51% attacks. While many major blockchains have evaded such an attack, smaller chains such as Bitcoin Gold, a spin-off from the primary Bitcoin chain, were subjected to a 51% attack in May 2018 leading to the theft of Bitcoin Gold worth $18 million at that time.
Mitigating a 51% Attack on a Blockchain
To safeguard against a 51% attack, blockchains deploy several strategies. One such technique includes incentivizing more users to get involved and operate nodes, thereby fortifying the network. An increased user base contributing resources makes it challenging for a single entity to gain control over the network.
The network's consensus protocols, like Proof-of-Work (PoW) and Proof-of-Stake (PoS), play a crucial role in deterring 51% attacks as they require nodes to validate transaction authenticity before its blockchain inclusion. Such mechanisms render it economically and computationally exorbitant for an attacker to corrupt the network.
Encouraging decentralization acts as another safeguard, forestalling any single entity from amassing excessive control by spreading nodes across diverse locations and incorporating a variety of participants.
