Worst threat for blockchain - 51% attack
Many of crypto-enthusiasts must have heard about so-called "51% attack" and panic reactions of the crypto community to such threat. It is important to understand how such a hypothetical situation may happen, how it can influence cryptocurrencies and blockchain itself and finally - how to prevent such thing from happening.
How does the blockchain work?
To understand the 51% attack, we should know, how the blockchain itself works. For Bitcoin, Litecoin as well as many other cryptocurrencies, there is mined a block recording all the transactions within the blockchain. One of the characteristic things for blockchain is that once it is mined, its content cannot be modified.
How does the 51% attack work?
If there will be a single party (like a group of hackers controlling most of the mining pool or potentially even a company) which controls the majority of total mining power, they cannot influence previous, already minedblocks. Yet they can influence all the new blocks to be mined. This can take a few forms:
- blocking other miners from receiving cryptocurrency reward for mining (or getting just part of the reward) - what could make a miner stop mining this particular cryptocurrency)
- they can block new transactions (what can be very helpful in further pump and dump scheme)
- What is most fearful for owners of cryptocurrency - double-spending. In this case, there is an influence on the blockchain. To make a long story short: there was done a transfer of BTC between the attacker and some other party (like buying a house for 100 BTC). Thanks to the attack, their computing power will be able to switch corrupted blockchain with the original one and this transfer of BTC will not be recognized - all the blockchain transactions will be reversed. As such, attackers will keep both the house and BTC, which can be spent once again.
How can it be prevented?
First of all, the bigger the mining hashrate of a particular cryptocurrency (like BTC being the leading one), the more costly and time-consuming it is to perform such attack as a hacker. For mining companies, which operate as legitimate businesses, as well there are additional factors - operating costs (electricity, renting premises, hardware) and direct risk of persecution, which makes such attack unfeasible.
Secondly, gaining over 50% of the mining pool by a single company is damaging the blockchain of a particular cryptocurrency (as unsafe) and therefore can hurt profits and reputation of a single company. This is why in 2014, Ghash.io, which temporarily had a bit over 50% of overall mining power reduced its share in the mining pool. Please remember, that the bigger the blockchain size, the harder is to get to such high levels, so then, in 2019 BTC is free of such situation to happen again.
Thirdly, in some cases (cryptos with smaller hashrate) changing the mining method might be the case - XMR changed its protocol to exclude ASIC mining rigs (which are usually owned the most powerful companies in very big numbers, what can make them take over small cryptos mining pools without a lot of effort).
How can I avoid being a victim of a 51% attack?
As mentioned above, making a transaction with one of the most popular cryptocurrencies (like the ones you can buy on our exchange eg. ETH or XRP) can be of help. Alternatively - you can check depending on the cryptocurrency the percentage each "big player" controls within each blockchain mining pool. Last, but not least - you can check the mining method and general hashrate size.