In a 51% attack scenario, a person or an organization with the majority of the mining power could enforce their version of the blockchain and reverse completed transactions in order to spend the same coins twice. This is known as double-spending, and it’s an issue all digital currencies face.
Decentralized cryptocurrencies like BTC or LTC utilize proof of work and a validation system to deter 51% attacks. The networks of these cryptocurrencies consume significant amounts of computing power and are consequently too expensive and difficult to attack. The profits made in a successful attack on any of these crypto giants would be far outweighed by the costs of launching the attack in the first place.
51% Attack essentials
- A potential attack on a blockchain by miners.
- An attacker with the majority of hashing power continues winning the proof of work to get their corrupt chain validated by nodes.
- Major networks consume too much computing power to be worth attacking.
Proof of work as a shield
Network security relies on the proof of work (PoW) protocol and mining difficulty adjustments. Miners seal a block of transaction records by hashing data into a unique value of fixed length. If even the slightest change is made to any transaction record, the hash of the block that contains the record changes significantly.
Miners can add new blocks to the blockchain by solving the proof-of-work computational problem. Those with more hashing power are more likely to succeed and add their candidate block to the main chain. PoW translates into a certain amount of computing power and, consequently, electricity and money.
Every hash is based on the hash of the previous block. Changing the records in any block would require changing all the blocks that came after it, as well. The further back an attacker would want to make a change, the more power they would require to do so. The power requirement grows too quickly for it to be economically viable to change records that are too far in the past. However, an attacker could prepare their attack by stealth mining (replicating the blockchain in secret) for a while, thus avoiding the exponential growth of difficulty that comes with deeper blocks.
An attack on the Bitcoin network is still considered hypothetical. But with the current rate between rewards and computing power, it would be too costly to keep winning PoW long enough to gain profit.
Validation and block confirmation
Only valid transactions can be included in a block. Nodes validate transactions by checking them against consensus rules. Once a block is mined and propagated to the network, nodes need to determine the right version of the blockchain. Miners compete in solving the proof-of-work puzzle and, in case more than one of them finds a hash at approximately the same time, nodes usually confirm the block that was propagated first.
Most stores, wallets or exchanges will not accept a crypto transaction until it is several blocks deep in the blockchain. When transferring bitcoins to Bitstamp, 3 block confirmations are required before the sent amount is available on your account. In other words, 2 new blocks must be added to the blockchain and validated by nodes after the one including the transaction in question. This way, receivers have the power to decide when to trust the records and protect their funds, in case nodes temporarily validate a false block.
A 51% attack on major cryptocurrencies is unlikely as their networks consume too much computing power to be worth the effort of generating false blocks. We firmly believe that you should only trade what you understand and are very careful in selecting the cryptocurrencies we offer at Bitstamp. This is one of the key reasons that make Bitstamp a safe and reliable exchange.