You may have heard the term 51% attack, but what does it actually mean? Bitcoin miners use powerful computers to verify that each person who wishes to spend bitcoins actually has bitcoins to spend, and isn’t trying to fool a system. They do this by reviewing the blockchain, a digital file that documents every bitcoin transaction ever made. Miners usually grouped together in mining pools so they can combine their mining power and become more efficient. The power of the miners verification process comes from its decentralization – for example let’s say there’s a transaction that is going through the blockchain. Each miner will review this transaction to decide if the center actually has the bitcoin he wants to send. If the majority of miners rules the transaction is valid it will go through.
What if someone get hold of more than 50% of the network’s mining power and manipulate the system for his own needs? Theoretically speaking, if someone manages to pull off such an attack he can double spend his money. Meaning he can pay with the same bitcoin twice or even more. The attacker also be able to prevent transactions from being confirmed and prevent other miners and generating new bitcoins, but more on double spending on confirmations will be reviewed in later blog post.
For now here’s a real live example of the 51% attack, in January 2014 one of the mining pools got so big it neared 51% of the total mining power. This of course created some panic in the bitcoin community but was fixed shortly after by miners who left the pool in order to balance things out. And recently Bitmain who own Antpool and Btc.com nears 51% of bitcoin’s network hashrate, 27.2% for BTC.com and 14.6% for Antpool. One of the things to keep in mind is that someone with so much mining power would probably make more money using this power to mine legitimately than by actually blocking transactions or double spending. This reduces the risk of such attack substantially.
So you now know what a 51% attack is, for more information about crypto related topics – please check out our other blog posts.