The primary selling point for Blockchain tech was that it was unhackable. As the information is distributed over so many nodes, it would be virtually impossible for someone to attack each node and change data simultaneously.
Instead, those wanting to steal cryptocurrency have to take control of the mining rate.
What Is a 51% Attack?
A 51% attack starts when a group of miners can control at least 51% of the hash rate. They’ll add transactions to the chain and effectively mine them while blocking other miners from doing the same. With complete control over the mining, they can submit and reverse transactions for coins they own. This allows them to spend the coin more than once.
Can You Make Money This Way?
Most certainly, if you know what you’re doing. Would we call it easy money? Probably not. Still, since 2018, Bitcoin Gold has lost over $18 million to majority attacks and double-spending. So, potential rewards might make it worthwhile.
The Limitations of These Attacks
The sum of $18 million is pocket money compared to the $532 million Coincheck hacks in 2018. You shouldn’t expect a multi-billion dollar 51% attack any time soon.
With this type of attack, you play with the money you already have. Even with majority control, you can’t change a block or delete it without leaving a gaping hole in the chain. Someone would eventually notice, and then those using the chain could opt to institute a hard fork, much as they did after the DAO hack.
The effective rollback would delete all the fraudulent transactions and effectively lock out your account.
Moreover, this attack vector doesn’t allow you to create new coins or even steal coins from someone else. At best, you can send the coins that you have a few times over. It seems like an awful lot of work for a very small reward.
What About Proof of Stake Chains?
Bitcoin is proof of the work chain. You must be the first to solve the algorithmic equation correctly. If the majority of nodes agree with your solution, you get the reward. It’s a workable system but is highly inefficient. Every miner in the world is working to solve the same set of equations, leading to the much-duplicated effort.
Proof of stake is an alternative in which miners are awarded the right to mine based on their stake in the company. Think of it as the shareholder’s rights. The system allows for faster verification and less redundancy but has issues of its own.
When we first mentioned the 51% attack, you probably automatically thought of the proof of stake model. And, yes, it’s possible for someone to take over a cryptocurrency in this manner.
Again, however, the cost may be prohibitive. Even if the bad actor bought their way to the top, they’d want to protect their investment. Double spending and hacks make cryptocurrencies lose favor quickly. Criminals would have to remove their funds before anyone found out.
Is Bitcoin at Risk?
Technically speaking, yes, Bitcoin might be vulnerable to such an attack. The chances of it happening, however, are slim because of the economics at play.
The immense size of the blockchain is its primary protection here. To control the Bitcoin blockchain for an hour would cost hundreds of thousands of dollars. To even establish supremacy via sheer computing power is costly because of the number of miners you’d compete with.
For now, the sheer complexity of the chain that started it all is its best defense mechanism.