Bitcoin 51 Percent Attack: Dangers, Risks & Protective Measures

It is often regarded as the greatest danger for Bitcoin: the 51 percent attack. This article sheds light on what a 51 percent attack means and what effects are associated with it. You will also learn which cryptocurrencies are particularly at risk and how you can stay informed about the latest developments in cryptocurrencies and their network security.

What is the Bitcoin 51 Percent Attack?

Although Bitcoin (BTC) is considered extremely secure, even the oldest and largest cryptocurrency has its risks. The Bitcoin 51 Percent Attack is an attack strategy on the Bitcoin Blockchain. The attacker tries to gain power over the network by providing the majority of the computing power that keeps the network running.

More specifically, the attackers try to raise more than 50 percent of the hash rate used. To understand how this works, we need to take a closer look at Bitcoin’s so-called consensus algorithm. That is, the way the Bitcoin blockchain validates and processes transactions.

Bitcoin uses the so-called Proof-of-Work (PoW) consensus algorithm. The network security of PoW blockchains is mainly ensured with computing power. The miners are forced by the PoW to solve complex mathematical tasks. Specifically, the miners apply hash functions to transaction data.

The miner who finds the correct hash first can add a new block to the network and receives the cryptocurrency Bitcoin (BTC) as a reward. All other miners check and accept the block only if it complies with the required rules.

For a 51 percent attack, the attacker must control more than 50% of the computing power in the network. So more than 50 percent of the hash rate must be controlled so that an attacker has the power to decide whether a new block is accepted or not. The modification of Bitcoin blocks is therefore extremely computationally intensive and costly.

The Effects of the Bitcoin 51 Percent Attack

If an attacker actually succeeds in a Bitcoin 51 percent attack, he gets the sole decision-making power over the Bitcoin network. This would have dramatic consequences.

The attacker could perform a so-called double-spending. This means that the attacker can reverse already validated transactions and thus spend the same Bitcoin several times. The users’ trust in the Bitcoin network would be significantly damaged, as the blockchain would consequently no longer be considered secure.

As a result, the Bitcoin (BTC) price could experience a massive price slump. The miners would also suffer high financial losses, as their mining hardware would lose value from one day to the next.

Once the news has spread, many users and miners of the Bitcoin blockchain would leave the network and switch to alternative blockchains. In addition to the already successful 51 percent attack, this would lead to a further centralization of power over the Bitcoin network.

In order to reverse the attack, the Bitcoin community could opt for a so-called fork (a split) of the blockchain. In doing so, all transactions from the attack onwards are declared invalid. The network would then continue to operate on the forked blockchain. However, this is not an easy undertaking and also carries the risk of confusion and uncertainty.

Successful 51 Percent Attacks

In fact, there have already been attempts to seize decision-making power over a blockchain network via a 51 percent attack. One of the best-known and successfully carried out attacks is the 51 percent attack on Ethereum Classic.

In July 2016, the DAO (Decentralized Autonomous Organization) of the Ethereum blockchain was hacked. A lot of ETH was stolen in the process. As a result, the Ethereum Community approved a hard fork to recover the stolen funds and ensure the security of the network. At the same time, Ethereum Classic was split off from Ethereum in order to keep the original blockchain intact and preserve the principle of immutability.

Ethereum Classic (ETC), which, in contrast to Ethereum, continues to use the Proof-of-Work consensus algorithm, was confronted with a 51 percent attack in January 2020. The attackers gained control of more than 50% of the computing power and thus control over the network. The consequences were numerous double-spendings and a huge loss of confidence for Ethereum Classic. ETC has since taken measures to increase security, but the incident shows the risks that POW blockchains entail.

Protective Measures against 51 Percent Attacks

In order to protect a PoW blockchain preventively against 51% attacks, different measures can be taken. A high hash rate, for example, increases the required computing power, which is needed to carry out an attack successfully.

So it is important to have a high number of miners with corresponding computing power. Even small investors can participate in the mining process in so-called mining pools and thus contribute to the security of the network at the same time. Because with mining pools, everyone makes their computing power available to the mining pool in order to mine together.

The decentralization of the mining hardware is also a decisive factor. Because if mining hardware is distributed across many different locations and miners, the hash power is also distributed across several players. Accordingly, it becomes more difficult for a single attacker or group to control more than 50 percent of the network computing power.

A continuous monitoring of the network for suspicious activities as well as a quick response to anomalies can help to detect and stop attacks early on.

Also regular technical upgrades, which fix known vulnerabilities, protect the network from corresponding attacks. Prepared emergency plans and the possibility to protect the blockchain with the help of a hard fork are also among the protective measures.

Another possibility is the use of different mining algorithms. It also makes it more difficult for the attacker to be successful, as he needs different hardware and resources for each algorithm. This increases the costs and effort to carry out this attack.

Bitcoin, by the way, only uses a single mining algorithm called SHA-256 (Secure Hash Algorithm 256-Bit). The introduction of another algorithm would be an undertaking not to be underestimated. For this, a hard fork would have to be carried out, for which in turn the approval of the entire community and the miners would be required. However, such changes are complex and also carry the risk of creating new security vulnerabilities.

51 Percent Attack: Prevention and Security for Crypto Investors

An investment, especially in a young technology like the blockchain, is always associated with a certain risk. But with a careful approach and good research, you can rule out or at least minimize many risks.

First and foremost, you should be careful when investing in small blockchains with PoW. Because the smaller the network, the greater the risk of a 51 percent attack. With a large blockchain like Bitcoin, on the other hand, a 51 percent attack is very unlikely. The costs for the hardware and the electricity would amount to a high billion-dollar sum. In addition, the community could protect itself relatively quickly from such an attack by means of a fork.

Therefore, never invest all your money in individual cryptocurrencies, but diversify your portfolio.

Conclusion and Outlook

The Bitcoin 51 percent attack is a theoretical threat in which an attacker would control the majority of the network computing power. Among other things, the attacker could carry out double-spendings on Bitcoin and shake users’ trust in the blockchain. Similar attacks have already taken place on Ethereum Classic, leading to significant losses and a hard fork.

To prevent 51 percent attacks, measures such as a higher hash rate, decentralization of mining hardware and continuous monitoring of the network are helpful. Crypto investors should diversify, use hardware wallets and choose trustworthy exchanges to protect their crypto assets.

The knowledge of the risks and the active participation in the crypto community are also important. Prevention and security require thorough research, awareness of risks, implementation of security updates and the consideration of emergency plans.

The security of cryptocurrencies will continue to be an important topic in the coming years as the technology grows and develops. Newer consensus algorithms such as Proof-of-Stake (PoS) may offer better protection against 51% attacks, but they also have their drawbacks. The crypto community must continue to work together to close security gaps and ensure the integrity of blockchain networks. This also requires improved education and awareness of users so that they understand and apply the best practices for protecting their crypto assets.