Blockchain 101: 51% attacks

Decentralized crypto-currencies are created to meet the idealistic rules of their creators, which sets them apart from national fiat currencies.

Whereas fiat currencies are controlled by a group of government approved appointees, decentralized crypto-currencies are governed by a technology, which is almost impossible for one entity to control. Of course, not all cryptos are decentralized as the Bitcoin, therefore for purposes of this article, we focus on Satoshi Nakamoto’s creation.

The Bitcoin is an idealist’s dream come true in many ways and it has survived for ten years open hostility from many quarters, price volatility and seriousness disagreements within its own community. Bitcoin just like other decentralized crypto-currencies owe their popularity to the trust engendered by the technology.

Users have confidence in the technology’s ability to live up to its promise of actual decentralization, privacy and immutability.

However, there is always a chance that some members of the Bitcoin ecosystem might actually violate some of the core tenets of this innovation. Miners or owners of the super computers that perform mathematical puzzles are an integral of Bitcoin and contribute towards the continued success of the currency.

The consolidation of miners into larger mining pools raises the possibility of an eventual centralized system that is if such consolidations surpass certain thresholds.

To illustrate, if one mining pool gains control of more than 50% of the hash power, it can always produce a “longer” chain than all the other miners combined and therefore it can reverse its own past transactions and/or refuse to enter transactions from others. Controlling a majority of the hashing power allows bad actors to potentially rewrite transactions.

So, it is important for the ecosystem of any crypto-currency that honest miners maintain less than 50% of the computational power in the system. In fact ,in the past some mining pools in Bitcoin have gained over 40% of the hashing power in the network, something that has raised concerns.

For example, in mid-2014, mining pool GHash.IO controlled about 50 percent of the total Bitcoin hashrate, making the largest crypto-currency “vulnerable” to a potential 51 percent attack.

These major pool members reportedly backed off from the 50% mark voluntarily, in order to preserve confidence in the system.

A Coindesk report seems to support the assertion that major mining pools backed off leading to more decentralization as the currency’s hashrate has become evenly distributed among the major mining pools. Canadian financial services firm Canaccord Genuity Group was the source of Coindesk’s report.

According to the firm, in 2019, no single mining pool controlled more than 20 percent of Bitcoin’s hashrate, with five mining pools having from 10–20 percent and the remaining groups controlling less than 10 percent of the total hashrate.

A hash rate is the measure of miner's performance. In other words, it is the hash function's output or it is the speed at which a miner solves the Bitcoin code. Hash per second represents SHA-256 algorithms that are used per second, known as hash rate. It is SI derived unit that is symbolized as h/s.

So this means for now, Bitcoin is unlikely to suffer a so called 51% attack as long as players adhere to the founding principles of the crypto-currency.

Cohesion within the Bitcoin community remains key for the currency’s long term prospects. There is no doubt that members of this community will find ways of solving disagreements without resorting to mudslinging or hacking attacks as has been reported in the past.

Failure to do this will allow other crypto-currencies to seize the initiative and takeover Bitcoin’s place as the number digital currency by market capitalization. At the same time, governments which long resisted digital currencies but are now more amenable to Blockchain backed currencies, will also exploit divisions within the Bitcoin community.

Governments will try to reiterate the message that only they are best placed to issue and manage currencies including crypto-currencies. 

Therefore, Bitcoin stakeholders need to understand that the currency is already achieving modest goals like forcing governments to accept that they no longer enjoy total monopoly in issuing currency. The fact that some governments want to issue their own crypto-currencies suggest that the long delayed currency reforms could be underway.

More reforms may be coming if Bitcoin and other crypto-currencies stay to true to the original cause.