51% Attack; What it means for the Bitcoin Network

#MiningMondays  Issue 4

First of all, as we are covering a broader range of topics, #PrivacyMondays is now #MiningMondays

In this episode we will cover different aspects of a 51% attack on the Bitcoin blockchain including what is it, how it happens and what are the costs and consequence for the attacker and the network. 

What it means?

51% attack on the Bitcoin blockchain means a single entity or a group of entities under single authority control more than 51% of the network hashrate and take advantage of it to fulfill their rules/benefits. Having 51% is necessary but it is not enough. That group should also maintain a direct link the Bitcoin blockchain or in other words operate their own mining pool.

The Consequences

1. Whitelist Attack

Let’s imagine a case where the attacker owns 51% of the hashrate and everybody else own 49%. The attacking entity, will be able to create blocks and only include their desired transactions into them and thus halt the network.

2. Blacklist Attack

Instead of only processing their whitelisted transactions, the attacker may wish to block their undesired transactions coming from specific addresses or UTXOs. One of the pools started doing so a while ago. They obviously didn’t reach the 51% threshold.

3. Double Spend Attack

Also, the attacker can go back in time (ignore a few of already mined blocks) and double spend their already spent coins (spent in those ignored blocks). This way they can send the same amount of Bitcoin to two different exchanges and convert those into other assets.

These attacks will keep happening as long as the 51% ownership is maintained by the attacker. The attackers will keep creating new blocks only on top of their approved blocks and will ignore any blocks mined by the 49% during this time. Since they have 51% ownership and slightly bigger chance to mine new blocks, the chain created by the attackers will eventually win, unless the 49% group agree to exercise a fork and continue building on their approved chain of blocks.

How much does it cost?

It costs a lot for the attacker to maintain the attack. Imagine running millions of ASICs and pay for the electricity to keep them hashing. Good news is an individual can’t buy or rent hashing power at this scale, but a government or an institutional miner might be able to.

There is a rare scenario that may reward the attacker to do so. If their chain wins, they will receive block rewards that could mean they are no longer considered an attacker but a winning occupying force.

In another episode we will cover national pools, their risks and rewards.