Even decentralized cryptocurrencies can fall under the control of several people. But why? We have come up with a quick guide on 51% attacks, listed their key features, and explained why they happen.
A 51% attack occurs when a miner has a “controlling stake” in the hash rate, that is, the computing power, and gains control over the entire network.
If a miner (or a pool of miners) controls more than half of the hash rate, then they have an opportunity to fully control the network: add new blocks, manipulate two-way operations and not confirm new transactions. A big threat of the 51% attack is double-spending, i.e. using the same coin more than once. For instance, carrying out such an attack, hackers convince the network participants that a payment was wrong, and it needs to be redirected. The good news is, the attacker cannot change hash in already added blocks or generate new crypto coins. Ethereum Classic, Callisto, Verge, Bitcoin Gold, and many other cryptos were destabilized in 2018–2020.
We don’t see Bitcoin and other big players on the list above, as only small cryptocurrencies with little computing power are attacked. Most often, these are coins based on the PoW (Proof-of-Work) algorithm. There are ready-made solutions from the developers of several cryptocurrencies, for instance, protection systems like Horizen, Komodo dPoW, and PirlGuard.
Networks using the PoS (Proof-of-Stake) consensus algorithm are much less susceptible to the threat of 51% attacks, so the attempts are unprofitable. Cryptocurrencies based on a non-blockchain architecture (IOTA, Zold, ByteBall) can combat such attacks not only by increasing computing power but also algorithmically, making it impossible to modify any successfully completed transactions.
Disclaimer: This article should not be considered as offering trading recommendations. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. We kindly ask traders to do their research.
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