Before we discuss what a 51% Attack is, it is important to have a good understanding of what mining and blockchain-based systems are.

One of the biggest positives of Bitcoin and its blockchain system is its distributed way of building and verifying information. The decentralized work of the nodes ensures that the protocol rules are followed and that all network participants agree with the current state of the blockchain. This means that the majority of nodes need to reach a consensus regarding the mining process, the version of the program that should be used and the validation of transactions.

Bitcoin's consensus algorithm (Proof of Work) ensures that miners are only able to validate new blocks of transactions if the nodes collectively agree that the hash of the block provided by the miner is correct (e.g. the hash of the block attests that the miner exerted enough effort and found a solution to the problem in that block).

The structure of the blockchain – decentralized and distributed – prevents any centralized entity from using the network for their own benefits, and this is the reason why there is no type of dominant authority in the Bitcoin network.

The mining process in Proof of Work systems involves an immense use of energy and computational resources. Therefore, a miner's performance is calculated by the amount of computational power it has, which is usually called hash power or hash rate. There are several mining nodes in different locations and they compete to find the next valid block hash, and if successful, they are rewarded with new units of Bitcoins.

In this context, mining power is distributed among multiple nodes around the world, which means that the hash rate is not in the hands of a single entity. At least, it's not what you expect.

But what happens when the hash rate is no longer evenly distributed? What happens when, for example, a single entity or organization manages to obtain more than 50% of all hash power? One of the possible consequences is what we call a 51% attack, also known as a majority attack.

What is a 51% Attack?

A 51% Attack can be carried out against Bitcoin or any other blockchain network, in which a single entity or organization can control the majority of the hash rate, potentially causing and exploiting system failures. In other words, the attacking agent would have enough mining power to intentionally delete or modify the order of transactions.

An attack of this level allows malicious entities to roll back transactions they made while in control, which could lead to a double-spending problem. A 51% success attack would also enable the fraudster to prevent some or all transactions from being confirmed (a process known as a denial of service attack) or prevent some or all miners from continuing their work, resulting in what we call a mining monopoly. mining.

On the other hand, there are some things that the 51% attack cannot do, such as reversing transactions from other users or preventing new transactions from being created and transmitted to the network. Furthermore, the malicious entity is not able to create new coins out of thin air, change the block reward, or steal coins that never belonged to them.

How likely is a 51% Attack?

Since the blockchain is maintained by a network of distributed nodes, all participants cooperate in reaching consensus. This is one of the main reasons why blockchain networks are considered secure. The larger the network, the better its protection against attacks and data tampering.

Blockchain networks that use the Proof of Work algorithm, the more hash rate a miner has, the greater the chances of him finding a valid solution for the next block. This is confirmed because mining involves a large number of attempts to solve the calculation, and the more computational power, the more attempts per second and the greater the chances of finding the result. Several miners have joined the Bitcoin network in an attempt to contribute to its growth and security. Over time, the increase in the price of Bitcoin as a currency has led to many new miners joining the network in order to compete for the reward for solving cryptographic problems (currently 12.5 BTC per block). This very competitive scenario is one of the reasons why the Bitcoin network becomes very secure. Miners are not encouraged to invest resources if they are not competing fairly and honestly in an attempt to win the reward.

Therefore, a 51% Attack on Bitcoin is very unlikely due to the magnitude of the network. Once the blockchain becomes large enough, the investment required by a single person or group to obtain enough computing power to dominate all other participants reaches an unattainable level.

Furthermore, changing previously confirmed blocks becomes increasingly difficult as the network grows, because the blocks are all linked by cryptographic proofs. For the same reason, the more confirmations a block has, the higher the costs to change or reverse its transactions. Therefore, a successful attack would probably only be able to alter the most recent block transactions for a short period of time.

Moving forward, let's imagine a scenario where a malicious entity is not motivated by profits, but decides to attack Bitcoin just to destroy it, not caring about the costs. Even if the attack managed to disrupt the functioning of the network, the Bitcoin program and its protocol would be quickly modified and adapted to respond to the attack. This would require the other nodes in the network to reach a consensus for the changes to occur, but this would hardly be a problem in an emergency situation. Therefore, Bitcoin is very resilient to attacks and considered the most secure and reliable cryptocurrency in existence.

While it would be very difficult for anyone to obtain more computing power than the rest of the Bitcoin network, this is not impossible to achieve when it comes to smaller cryptocurrencies. When compared to Bitcoin, altcoins typically have little computing power protecting their blockchains. Little enough to enable a 51% Attack. Some notable examples of cryptocurrencies that have fallen victim to this attack include Monacoin, Bitcoin Gold, and ZenCash.