A 51% attack in crypto occurs when an individual or group controls 51% or more of the cryptocurrency network’s mining or validation power. This group uses that power to create invalid transactions or deny legitimate ones. A successful 51% attack allows miners or validators to take control of a cryptocurrency blockchain ledger for financial gain.
Successful 51% attacks on large crypto networks such as Bitcoin and Ethereum are extremely unlikely, but not impossible. Keep reading to learn more about what 51% attacks are and how they work, including what 51% attacks mean for you as an investor.
Definition and Examples of a 51% Attack
A 51% attack occurs when a person or group takes control of more than half of all the computing power or validation authority of a cryptocurrency network. Having majority control of a cryptocurrency’s blockchain enables that group or person to create and manipulate transactions.
Cryptocurrencies rely on a network of miners or validators to verify all transactions on the blockchain.
Theoretically, 51% attacks could, but are unlikely to, impact large cryptocurrencies because the possibility of an individual or group controlling greater than half of all the mining or validation power of say, Bitcoin, is so unlikely as to be essentially impossible. Smaller crypto networks, which use less computing power or have more concentrated validation authority, are more vulnerable to 51% attacks.
Here are a couple of examples of 51% attacks:
- Bitcoin Gold, 2018: Bitcoin Gold, a cryptocurrency originally based on Bitcoin, suffered an attack that led to $18 million in theft from cryptocurrency exchanges.
- Ethereum Classic, 2019: This crypto based on the Ethereum blockchain experienced a 51% attack that led to roughly $1.1 million stolen.
Beyond monetary theft that can be quantified, a successful 51% attack can severely damage the reputation and trustworthiness of a cryptocurrency. One or more 51% attacks can cause a cryptocurrency to lose its value.
How 51% Attacks Work
Although 51% attacks are difficult to accomplish, conceptually, they’re pretty simple:
Mining or Validation Power Is Accumulated
Cryptocurrencies using the proof-of-work consensus mechanism to operate their blockchains can be controlled by accumulating 51% of the cryptocurrency’s mining or computing power, while cryptocurrencies using the proof-of-stake protocol can be controlled by accumulating 51% of the cryptocurrency itself. It’s necessary to accumulate 51% of the relevant resource to complete a 51% attack.
A miner or validator would need a massive amount of computing power or a huge stake in a cryptocurrency itself to successfully conduct a 51% attack.
This accumulation of power, whether as computing power or validation authority, is difficult to amass regardless of the type of consensus mechanism. Controlling 51% of the mining hardware and paying for 51% of the energy use of a large crypto network is both extremely expensive and logistically impractical, and owning 51% of a cryptocurrency itself is cost prohibitive. These inherent limitations are how control of a crypto network stays decentralized.
Miner or Validator Gains Control
If, by some method, an individual or group gains more than 51% control of a network, it uses its mining or validation power to reject legitimate transactions and push through invalid transactions. The miner or validator may also be able to reorganize blocks in the cryptocurrency’s blockchain.
Crypto Network Is Altered
With control of 51% of the crypto network’s resources, the miner or validator can redirect transactions, double-spend currency, and ultimately steal currency from the network. The theft is not complete until the miner or validator converts the illegally-gotten crypto gains into another currency.
What 51% Attacks Mean for Individual Investors
Individual investors don’t have to worry too much about 51% attacks if they primarily invest in the largest cryptocurrencies, which generally have the most secure blockchains. For the cryptocurrencies with the largest market values and greatest adoption rates, the cost and resources required are simply far too great to make 51% attacks feasible. Only state-sponsored hacking groups could even contemplate a 51% attack on a major cryptocurrency.
You can lower your risk of dealing with a 51% attack by limiting your exposure to less-established cryptocurrencies that seem risky. Knowing about 51% attacks is a great first step toward minimizing the likelihood of your cryptocurrency ever experiencing one.
- A 51% attack occurs when an individual or group controls more than half of the computing or validation power of a crypto network.
- 51% attacks are unlikely, for financial and practical reasons, but not impossible.
- If a 51% attack does occur, the cryptocurrency is likely to lose community trust and at least some monetary value.