With Bitcoin, Ethereum, USTC and other cryptocurrencies pairs such as USTC USDT continuing to increase in value and popularity, more and more people are looking for ways to get in on the action. While some people mine their own cryptocurrencies, the easiest way to get involved is by purchasing some through an exchange. Unfortunately, these exchanges have become targets for hackers who want to steal cryptocurrency by executing a 51% attack.
In this blog, we’ll discuss what a 51% attack is and how it works, so that you can protect your cryptocurrency investment—plus, we’ll also show you how our new cryptocurrency security platform can help.
Understanding a 51% Attack
A 51% attack is a situation in which a single party (or small group) has the majority of the hash power on a blockchain network and can use that power to their advantage. Essentially, they have enough processing power to create new blocks faster than any other miner or pool of miners. This gives them control over the entire network and allows them to double-spend coins or prevent others from spending their coins.
In order to carry out a successful 51% attack, the attackers must have enough hashrate to maintain their dominance over other miners in order to prevent them from processing transactions on the network.
The consequences of such an attack are dire: it allows for double spending and invalidation of transactions by rewriting history on their own terms (and therefore destroying trust in any cryptocurrency).
What happens during a 51% attack on a blockchain network?
A 51% attack occurs when an attacker gains control of over half of the network hashrate. The most common way to do this is by renting hashpower from a mining pool, but it can also be done by buying enough mining hardware to achieve this goal.
Once an attacker has control over 51% of the network hashrate, they can begin double spending — meaning they can spend money multiple times while only paying once in return. This is possible because miners will confirm transactions as long as they’re valid (i.e., not fraudulent).
So if an attacker sends one transaction with one set of inputs and outputs, then another transaction with another set of inputs and outputs–but both transactions use exactly the same proof-of-work (PoW) — it will appear valid even though there are two different things being paid for with two different amounts of money going into two different wallets.
The timing of a 51% attack is important because it can be carried out at any time. However, there are certain periods when it’s more likely than others for miners to attempt this kind of attack.
One reason for this is that mining difficulty tends to increase over time as more people join the mining pool and begin contributing hash power towards solving blocks. This means that if you want your malicious miner to have any chance of succeeding in their efforts, they’ll need access to enough hashing power so as not just beat out other legitimate miners but also overcome these challenges posed by increasing difficulty levels too.
Outcome of a Successful Attack
A successful 51% attack can be used for many things, including:
- Double-spending coins (trading them back and forth)
- Censorship of transactions by preventing their inclusion in blocks or rewriting historical transactions
- Preventing new blocks from being created (a sort of denial-of-service attack)
- Creating new cryptocurrencies by mining blocks containing fraudulent information
Who Is at Risk of 51% Attack?
- Large mining pools
- Smaller mining pools
- Users who use a centralized exchange (this includes both fiat-to-crypto exchanges and crypto-to-crypto exchanges)
- Users who store their coins on a centralized exchange that does not have enough hashing power to defend itself against an attack by a 51% attacker. There are many reasons why people choose to keep their cryptocurrency in these types of wallets, but they should be aware that they are putting themselves at risk if they do so.
Preventive Strategies For 51% Attack
There are several things that cryptocurrency developers can do to prevent such an attack from succeeding on their blockchain. Here are some ideas:
1) Raise the minimum amount of coins a miner needs to own before they can join the network. This reduces the profitability of an attack.
2) Implement a rule that states no transaction can send coins outside of the blockchain (ie., sending coins directly from an exchange wallet). This prevents attackers from getting coins off-chain (outside of the blockchain).
3) Reward legitimate miners for helping maintain a healthy blockchain by subsidizing their efforts with extra coins earned for helping maintain the blockchain.
4) Encourage users to mine more cryptocurrency. Miners are a huge part of preventing a 51% attack because they confirm transactions within the network and can stop an attacker from gaining control over it. The more miners there are, the more difficult it will be for an attacker to gain control over the network and make fraudulent transactions without being noticed.
5) Another way to prevent this is by implementing a proof-of-stake system. A proof-of-stake system replaces traditional mining with a method in which users lock up some of their cryptocurrency in order to confirm transactions on the network.
In conclusion, we can say that 51% attacks are a very real threat to the cryptocurrency ecosystem. However, these attacks are not easy or cheap to pull off. The cost of acquiring enough hash power is prohibitively high and would require an enormous amount of resources.
Additionally, timing is everything when it comes to executing this type of attack since it requires coordinated control over all network participants at once while also keeping them unaware of what is happening so they don’t interfere with each other’s workflows by detecting suspicious activity within their own systems (i.e., double spending).