Most people who buy Bitcoin understand that this is a digital asset which lives on the blockchain. It is also widely known that blockchain networks are incredibly secure due to their decentralized nature and in-built incentive scheme, but it’s important to keep learning more about any potential risks that might be relevant, especially if you’re in this for the long term.
We sometimes hear about ‘quantum computing’ as one of the great dangers to Bitcoin. Others might wonder what happens when a solar flare hits planet earth and how this would affect Bitcoin. Over the coming weeks, we will be looking at some of these risk projections and assess their merit.
In this post, we will be learning what a ‘51% attack’ on the Bitcoin network is.
What is a 51% attack?
A so-called 51% attack on the Bitcoin blockchain refers to the situation where a single entity takes majority control of the Bitcoin network, which can happen when that entity is able to amass more than half of the global computing power.
During a 51% attack, a miner would have so much computing power that it is able to manipulate the Bitcoin ledger, which technically speaking is no longer ‘decentralized’. A miner could modify transactions, made during the time of the attack, making it possible to spend funds twice.
A successful attack would also allow the attacker to prevent transactions from being confirmed. Additionally, the attacker can prevent other miners from mining. This can result in the attacker being the only miner on the network. This is known as a mining monopoly.
During a 51% attack, the miner would not, however, be able to reverse transactions or steal coins from other wallets.
How likely is such an attack to happen?
Generally speaking, the larger and more distributed the network, the more secure. With Proof of Work (PoW) blockchain such as Bitcoin, the more computing power or hash rate a miner has, the higher the chance the miner has to find the solution for the next block and reap the rewards.
For each block that a miner is able to add to the blockchain, the miner is rewarded 6.25 newly Bitcoin (approx. 237,000 USD) plus all fees associated with the transaction first recorded in that particular block. In the future, when there is no more Bitcoin to mine, the price of Bitcoin should be high enough for the fees per block to cover the costs of the mining operations.
While they are thus incentivized to accumulate more computing power, miners are also incentivized to uphold the integrity of the chain. Attacking the blockchain, would be similar to someone setting their own house on fire. Instead, miners ought to be seen as guardians of the blockchain.
Other than that, the Bitcoin blockchain is incredibly large with mining facilities across the world. The likelihood of a single person or group obtaining enough computing power to take over the network is minimal.
Even if an attack were to occur, it would be short-lived. For the network to respond to any such disturbances, other nodes – miners – would need to agree and defend the network. Bitcoin is resilient to these types of attacks and is considered to be the most secure cryptocurrency and the most secure network in the world.
The Big Transition
A few years ago, it might have still been relevant to ask if BItcoin could suddenly drop to zero, but this conversation is no longer relevant. Bitcoin is an incredibly robust technology that offers a system far superior to the current financial system. While it might not replace all fiat money, it is likely to become an important safe haven asset and store of value, especially as the world becomes more and more digital.
It is likely that the mining industry will see considerable growth and innovation in the years to come, especially around green energy, and as a way to boost local economies. With such adoption ahead, the chances of a 51% attack grow smaller by the day.