Before we can properly explain a 51% attack we’ll need to cover some basic facts about how Bitcoin works, why it’s valuable and how it’s secured.
When Satoshi Nakamoto invented Bitcoin he solved something that had been plaguing computer scientists for years: the double-spend problem.
This was an unapparelled achievement and became the very basis for what makes Bitcoin so valuable. Nakamoto’s solution, although elegant, is not invulnerable however and that’s where a 51% attack comes in.
When people ask why Bitcoin has value one of the easiest explanations is to say that Bitcoin is the first digital “thing” ever that cannot be copied. Just as you cannot put a gold bar in a Xerox machine and make another, you cannot press Control C and Control V on Bitcoin and expect to get anything.
This alone gives Bitcoin tremendous value as it’s a provably scarce resource, even more so than fiat currencies which can be (and are) printed at will by federal banks.
The reason Bitcoin can’t be copied is that it’s secured by one of the world’s largest computer networks. This computer network is composed of specialized machines called ASICs. An ASIC, which looks like a black brick with a fan on the back, is a computer specially designed to secure the Bitcoin network.
It’s difficult to know exactly how many ASICs there are in the Bitcoin network but given that more than half a million came online in 2019 alone, it’s probably safe to assume there are more than one million ASICs mining Bitcoin.
All of those ASICs are doing the same thing: solving complex math problems. The Bitcoin network forces these million-plus machines to do trillions upon trillions of calculations every minute in order to solve a difficult equation.
Out of these tens of trillions of equations that will be solved, just one will provide a solution that’s “correct.”
When that correct solution is found the ASIC that solved is rewarded with a bunch of Bitcoin (Currently 12.5, soon to be 6.25) and a new Bitcoin block is formed.
This happens on average once every ten minutes which is why Bitcoin has a ten minute block time.
This type of security mechanism is called POW (Proof of Work) and it’s one of the most common consensus mechanisms in the cryptocurrency ecosystem.
Now that we’ve covered the basics we can address the problem at hand: a 51% attack. This is an attack whereby a hacker controls a majority of the hardware that is being used to secure the Bitcoin network (hence the 51% reference).
Once the hacker controls a majority of the network he can start to act in a way that benefits himself and hurts everyone else. For instance, he can approve his own double-spend transactions, he can block transactions from certain people and if he has enough hash power he can even make changes to Bitcoin’s history.
This, however, is very difficult and becomes even more difficult the further you go back in Bitcoin’s history. The question we must ask is: how likely is a 51% attack? The answer: unlikely. As mentioned, there are more than a million ASICs securing the Bitcoin network.
A single top of the line ASIC can sell for in upwards of $3,000. So even if we underestimate the hardware required to perform a 51%, and assume it’s only 500,000 ASICs, the would-be attacker would need to spend $1.5 billion to acquire enough ASICs to attack the network.
But it’s not quite that simple. For one thing, $1.5 billion represents only the hardware costs and doesn’t include the cost of cooling, building massive warehouses, labor costs, etc. Then there’s the acquisition problem.
There are only really two or three major ASIC manufacturers in the world and there are not an infinite number of ASICs for sale. An order for half a million ASICs would raise all sorts of red flags and steps would be taken to prevent a 51% attack.
Namely, the manufacturers would probably decline the order or only deliver a fraction of it. Acquiring the equipment over the course of a couple of years is not an option either as ASICs can only mine Bitcoin efficiently for about a year before newer hardware makes them obsolete.
Having said that, there is one attack route that could be exploited: the concentration of miners in China. Due to grey-area regulations and cheap electricity, there is a huge concentration of Bitcoin mining farms in China.
At any point (in theory) the Chinese government could seize all of these operations in unison and force the miners to perform a 51% attack on the network. This was a major concern in 2018 and 2019. The Chinese government never gave any indication that it was planning such a coup but that didn’t stop the cryptocurrency community from worrying about the possibility.
Thankfully Bitcoin mining operations are becoming increasingly decentralized as new mining farms open in places like Canada and the United States. Chinese miners, although still very powerful, are seeing their dominance decrease and the threat of a Chinese government takeover and subsequent 51% attack is becoming less likely by the day.
As mentioned earlier, other cryptocurrencies with networks less secure than Bitcoin’s are much more susceptible to a 51% attack. Bitcoin Gold, Ethereum Classic, Vertcoin, all of these have suffered a 51% attack. In fact, CoinDesk keeps an archive of articles detailing all of the coins that have been attacked.
When considering whether to invest in any cryptocurrency it’s important to examine its security, determine how likely a 51% attack is and also trade on the best exchange once you’ve found a coin to invest in.
Once a 51% attack happens developers and investors typically write off the coin as a failed project. Even if development continues and prices rise, that coin will always be followed by its history of having been compromised.
This is just one of the reasons why Bitcoin is so valuable, it’s never been attacked and its robust network indicates that it’s unlikely to happen anytime soon.