The bitcoin network is one of the most secure financial payment networks in the world. As a decentralized network, it lacks a focal point of failure and since its inception in 2009 it has never been successfully hacked, despite various attempts.
However, there exists the danger of a so-called 51% attack against the bitcoin network, which would cause massive internal disruption to bitcoin to the extent where the currency could become unusable.
A 51% attack refers to one bitcoin mining operation taking control of more than half of the bitcoin network’s hashrate.
Until very recently, most bitcoin holders believed the chances of a 51% attack ever happening to be very slim. The notion that a single entity would one day control more than half the computing power used to mine bitcoin was seen as an almost impossible task. For seasoned bitcoin users, however, the threat of a 51% attack has been an ongoing conversation in the crypto community, especially in light of large mining operations emerging in China, which would eventually collude to take over the network.
How would a 51% attack work?
For people who aren’t regular bitcoin users, the existence of such a threat is probably new. To get a better understanding of the danger this threat poses to bitcoin, here is a simple explanation on how it works.
Presently, they are close to 13 million bitcoins in existence and every 10 minutes 12.5 new coins are added through a process called mining. To mine bitcoins you need to deploy specialised bitcoin mining hardware that are specifically designed for the task. These computers will join other machines, which run the same program, in attempting to solve a complex mathematical algorithm to process transactions and, thereby, mine new blocks in the blockchain. For the new blocks mined, the miners are then rewarded in the form of new bitcoins. Currently, most miners are in mining pools with the aim of uncovering more blocks regularly and sharing the rewards.
Once a single mining operation would take control of more than half of the network’s hashrate it would have the power to reverse transactions and, therefore, engage in double spending. Once double spending occurs in the bitcoin network, no more trust will be left in it and it would most likley become unuseable as a financial payments network.
With the bitcoin network being open and accessible to anyone, nothing is really stopping a company from making a massive investment in mining hardware capable of taking over the entire bitcoin network. However, one could argue if this would be in the best interest for such a company. Even if someone were able to initiate a successful 51% attack, complete control of bitcoin would still be out of their grasp. While it would present a significant threat, controlling more than half of the hashrate is not enough to shut down bitcoin.
They may be able to reverse transactions, but only for those sent by wallets under their control. If two different users transact between each other, but neither is part of the entity holding more than half of the hashrate, their transfers cannot be reversed. However, they would have to put up with no network confirmations for some time. The perpetrators of such an attack would not remain in control for that long, making the entire undertaking quite inefficient to carry out.
In some ways, this seems as an important crossroad for bitcoin as an issue that has often been discussed in a theoretical sense is now within the realms of possibility. With mining pools in China holding large percentages of network hashrate, collusion can be a possibility.
It remains to be seen whether a 51% attack will ever happen but given the amount of vested interest in the bitcoin network staying decentralised, I would be surprised to see such as an attack taking place.