Those who are interested in investing in cryptocurrencies like Bitcoin should know about various types of issues with legitimizing the blockchain.
One is the 51% attack, sometimes called the “Area 51” attack by fans of extraterrestrial conspiracy theory.
The premise here is simple – anyone who is able to take control of 51% of the network hash rate is going to be able to wreak havoc on the blockchain by revising transactions and corrupting data to their own ends.
When you look at the nature of the block chain, the 51% attack seems profoundly sensible.
Going back to proof of work, proof of stake and proof of ownership models, critics of a delegated proof of ownership model using amount of ownership as a basis were always concerned that the biggest fish would run rampant over everyone else.
What you have with the 51% attack, though, is a system where the dominant mining pool can actually create their own record and rival the crowdsourced model that the blockchain runs on.
To put this another way, think about the blockchain as a list of witnesses. In order to verify blockchain transactions, the system puts the transaction in front of, say, 100 people and looks at the consensus to determine verification – so if 51 people say something is so, they get their collective voice validated.
So the obvious problem is that if a mining pool owns more than 50%, it can essentially fail to tell the truth and still get its consensus its way.
A piece on Cryptopotato by Benjamin Vitaris last week explains how this works, talking about using the network hash rate to revise transaction history and prevent new transactions.
Stephane Giminez on Bitcoin Stack Exchange takes it further:
“Actually, it’s very easy to do damage to the network once you have 51%; just build your own chain faster than the network, and broadcast it whenever you like. If you send some of your coins to a new address in your own chain, all the transactions issued in the live network by spending those same coins will be reversed at the moment the longer chain is broadcast.”
Giminez enumerates possible manipulations, including reversing some transactions, preventing some transactions, creating coins out of thin air and fraudulently sending digital cryptocurrencies.
Then there’s the “double spend” attack where the dominant mining party spends coins somewhere and allows the coins to enter the blockchain, and then create a false fork with their 51% of miners in order to re-spend the coins.
“This could theoretically be repeated for as long as the attacker maintained control of 51% or more of the hashrate,” writes David Perry, adding this disclaimer: “Realistically, 51% is only the point at which this becomes possible not the point at which it becomes likely or easy. An attacker would probably need something like 65% to actually execute such an attack.”
Keep an eye out for these types of problems and how they can effect crypto markets.
