Let’s start by examining the hypothetical scenario of a 51% attack on the Bitcoin network. Bitcoin uses the Proof-of-Work (PoW) consensus, where miners expend electricity in a competition to solve a cryptographic problem.
This is where the strength of the decentralized network comes into play. Each time a miner mines a block, they must broadcast the block to the network. In doing so, they mine the next block in the Bitcoin blockchain, adding the transactions to the chain to earn rewards in BTC.
If a miner broadcasts a block with transactions that don’t correspond to the current state of the ledger, the rest of the network will very quickly figure out that something is wrong and reject it.
However, there is a scenario where the miner could reverse or duplicate transactions, which is known as the double-spend problem.
A miner would need to harness a majority of the mining power across the entire network to do this. Therefore, the attack is known as a 51% attack because whoever controls over 50% of the hash power can control the entire network.
Generally, the smaller and more centralized a blockchain network is, the more likely it is to fall victim to an attack. The most recent example is Bitcoin SV, which came under a series of attacks this summer where the malicious actor in question attempted to re-write blocks to double-spend the BSV currency.
In 2020, Bitcoin Gold suffered a similar incident where hackers were able to steal over $70,000 worth of the BTG token in an attack that’s thought to have cost them under $2,500. Ethereum Classic (ETC) was also hit by several 51% attacks last year. However, despite the attacks, all three tokens remain in the top 100, proving that a 51% attack isn’t necessarily fatal to the token price.
In reality, the Bitcoin network has proven resilient enough to withstand a 51% attack over the years. In fact, due to the size of the Bitcoin network and the extent to which hash power is decentralized, along with the cost of mining equipment, it’s prohibitively expensive to attack Bitcoin. We estimate it would cost over $13 billion:
The current Target Hashrate on the Bitcoin network is 145,472,737.165 TH/s.
Assuming cheapest Electricity Price (for retail) in the world is USD 0.01 per kWh (source).
Required Equipment = Target Hashrate / Hardware Hashrate = 145,472,737.165 / 100 ≈ 1,454,727 circuits.
Hardware Cost = 1,454,727 circuits * USD 9,300.00 = USD 13,528,961,100.00.
Electricity Cost = 1,454,727 circuits * 2.95 kWh * USD 0.01 * 24 hours = USD 1,029,946.72.
Therefore, the total cost is USD 13.529B.
Theoretically, with the current mining rewards, the hardware cost spent by the miner could break even in less than one year. Interestingly, given Bitcoin’s current valuation of USD 815.5B, the theoretical cost of the 51% attack makes up about 1.66% of the market cap. One of the possible interpretations of these findings may suggest that the current Bitcoin valuation economically incentivizes a wealthy miner to engage in double-spending activity.
In light of the increasing prevalence of Proof-of-Stake (PoS) consensus, is a 51% attack any easier or more difficult? In a way, it’s both. In PoS consensus, network validators compete to validate blocks by expending energy and holding the biggest stake. Therefore, theoretically, all someone needs to do to launch a 51% attack in a PoS network is to accrue over 51% of the network’s total circulating tokens.
However, even if someone were able to accrue 51% of the tokens, as a result of doing so, they’d have little incentive to attack the network. The majority token holder would be the worst hit by any drop in the token’s value resulting from the attack. Therefore, smaller PoW networks tend to be the prime targets for 51% attacks.
No system is perfect, and the theory behind a 51% attack is important in understanding the vulnerabilities of a blockchain network. However, networks derive their strength from their size, and the Bitcoin network is a testament to the security of blockchain’s design. Based on 12 years of uninterrupted operation, it seems likely that the Bitcoin network will stand firm against a 51% attack for a long time to come.
The “double-spend” problem is one of the many pieces of jargon that often seems confusing to anyone unfamiliar with cryptocurrencies because it doesn’t exist in traditional finance. Understanding the double-spend problem and how Bitcoin solves it is key.
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