A 51% attack is an attempt by a miner or group of miners on a blockchain to execute their crypto’s twice on that blockchain.
A 51% attack occurs when a group or individual controls over 50% network’s hash rate. Controlling the hash rate or computing power, in itself is not an attack. The attack occurs when the group or individual uses this newfound power to double-spend (unroll the blockchain) or block transactions from being executed.
The goal of a successful 51% is to make a financial gain at the expense of everyone else using the proof-of-work (PoW) network. These attacks can be expensive to execute but some protocols have had their integrity irreversible destroyed when agents successfully exploited this weakness for their gain.
During a 51% attack, the malicious actors can rewrite part of the blockchain network and reverse their own transaction, thus causing something called double-spending.
The double-spending problem was an issue that was a significant hindrance to the development of distributed digital payments networks. This is because it was impossible to prove that two or more people did not spend the same digital asset since anyone could just copy and paste transactions. Networks like Bitcoin and Litecoin use the proof-of-work consensus algorithm to overcome the double-spend problem. However, although trustless and peer-to-peer (P2P), this consensus style is susceptible to 51% attacks.
The Likelihood of a 51% Attack
The risk of a successful 51% attack on an established blockchain network like Bitcoin and Ethereum is minimal.
For one, its impact on the network would be minimal. While the attack could cause some double-spending, there is nothing to stop others from broadcasting their transaction and alerting the community of attacks.
Additionally, execution is economically unfeasible and would require collaboration with more than one actor. If planned and executed by a single entity, the hash rate needed for a successful hack would be too high.
Besides that, the attack would be pointless due to the amount of monitoring typical on high-value PoW networks like Bitcoin and Ether. Benevolent miners and network supporters would quickly raise the alarm should it happen, and other miners, including the community, would take action to shield the network and themselves from the attack.
There is also the fact that even if it is successfully executed, the primary chain will fork, and the resulting coin will be worthless – a counterproductive development for the attacker(s).
The Implications for Individual Investors
The risk of a 51 percent attack is relatively low for individual investors who have invested in large projects, but it is still a possibility in these situations. This is due to the fact that the required amount of money, expertise, and time would simply be too high for it to make any kind of practical sense. A successful attack on such a large scale could only be carried out by an organization with state sponsorship.
It is best to limit your investment in smaller cryptocurrencies that are susceptible to whale market manipulation if you want to reduce your risk of being targeted by a 51 percent attack.
