51% Attack Explained

51% Attack Explained

Prefix + Foundation Knowledge

According to Arvind and Jeremy, the authors of the Bitcoin Academic Pedigree, the first significant component of blockchain is the concept of a ledger. A ledger is a place to record all transactions in the system, and it is open to and trusted by all system participants. 

Bitcoin takes this system for recording payments into a currency, contrary to banks where an account would be a cash representative that can be demanded from the bank. With a secure ledger, someone may easily pay £50 to another person using CashApp, then have CashApp debit £50 from the sender's account and credit the receiver's account at the same time. Bitcoin takes this one step further by building a ledger for use in an environment where participants may not trust each other. This led to the ledger needing important desirable proprieties, including: 

  1. Immutability.
  2. The ability to add new transactions without removing, modifying, or re-arranging existing ones.
  3. Obtaining a cryptographic digest of a particular time.

Furthermore, in a series of papers written between 1990 and 1997 by the co-inventors of the early blockchain, Stuart Haber and Scott Stornetta, Nakamoto's Bitcoin ledger data structure is known as Linked Timestamping, which is also mentioned in the Bitcoin Whitepaper. In a simplified version of Haber and Stornetta’s proposal, documents are constantly being created and broadcast. Each document creator announces a time of creation and signs the document its timestamp, and the previously broadcasted document. The documents are from a long chain with pointers backwards in time because the previous document was signed by its previous leader. The message, therefore, can not be changed by an outside user as it is signed by the creator, and hence, any change to it will impact the entire chain of interactions that follow. As a result, if a trusted source, for example, another user or a specialised timestamping service, provides you with a single item in the chain, the entire chain up to that point is locked in, immutable, and temporally ordered. As a result, no one can spend a coin twice (also known as double-spending).

What is a 51% Attack?

A 51 per cent attack is an attack on a blockchain by a group of miners owning more than half of the network's mining hash rate or computer power. By having this authority, the attackers would be able to prohibit new transactions from receiving confirmations and disrupt payments between some or all users. They would also be able to reverse transactions made while in control of the network, and therefore most commonly allowing them to double-spend bitcoin.

How Would a 51% Attack Happen?

A hypothetical scenario for carrying out a 51 per cent attack is first getting sufficient hash power to control the blockchain. This is often accomplished through the use of mining pools. NiceHash is a hash-power exchange. Consider it a blockchain ISP. NiceHash may send data packets to mining pools in the same way that an internet service provider sends data packets to you over the internet infrastructure. These data packets are known as hash-power. The attacker can begin creating his version of a blockchain offline and then submit it later without the transactions he wishes to conceal, triggering blockchain reorganisation. Because an attack usually occurs before mining, no miner, blockchain node, or other blockchain participants can distinguish between legitimate and aggressor pools during mining. Once the attacker has performed deep reorganisations on the blockchain transactions, they can easily launch a further double-spend attack. The double-spend attack is an attempt to spend the same coins twice. For example, the attacker may send a deposit to an exchange wallet and then simultaneously send those same coins to another wallet of their own.

How Could you Prevent a 51% Attack?

In the Bitcoin whitepaper, Satoshi Nakamoto assumed that collecting 51 per cent of Bitcoin's hash rate would be unfeasible, and hence did not address the economic motives behind a 51 per cent attack. Because of the way many things evolve, they frequently use the established cryptocurrency (Bitcoin in this example) as a basis to build up their cryptocurrency, making them vulnerable to 51 per cent attacks. All of the currencies mentioned in the timeline use the same cryptocurrency consensus mechanism for processing transactions and creating new blocks in a blockchain known as proof-of-work.

This leads to a potential solution to make a certain cryptocurrency less profitable to a 51 per cent attack by switching to a proof-of-stake system. The proof-of-stake protocol is intended to alleviate the scalability and environmental sustainability difficulties associated with the proof-of-work protocol. Proof-of-work, on the other hand, is a competitive approach to transaction verification, which naturally motivates people to look for ways to gain an advantage. This is advantageous because it is not only prohibitively expensive to own 51 per cent of the staked cryptocurrency, the staked currency serves as collateral for the right to mine.  Miners and potential attackers who undertake a 51 per cent attack to overturn a block will therefore lose all of their staked currency.  This incentivises miners to act in good faith for the sake of the cryptocurrency and the network.

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