In May of 2018, Bitcoin Gold, at the time the 26th-largest cryptocurrency, suffered a 51% attack. The malicious actors controlled a vast amount of Bitcoin Gold’s hash power, eventually stealing more than $18 million worth of Bitcoin Gold.
Recently, the Bitcoin SV (BSV) network suffered a similar attack in August 2021.
A 51% attack, also known as a majority attack, occurs when a single person or group of people gains control of over 50% of a blockchain’s hashing power.
Hackers who complete successful 51% attacks can achieve this by renting mining hash power from a third party.
In this blog, we are going to discuss how 51% attacks work, and some simple ways to protect yourself as an investor.
How 51% Attacks Work
Cryptocurrencies are encrypted using blockchain technology, which is a public ledger that helps verify and record transactions. Blockchain is constantly reviewed by a network of users, which makes it difficult to hack.
Let’s use Bitcoin as an example. Bitcoin generates a new block about every 10 minutes. Once a block is mined, it usually cannot be altered since a fake version of the public ledger would be quickly spotted and rejected. This is where 51% attacks come in.
The majority of miners are adding and broadcasting blocks to a public blockchain. Hackers trying to inject a 51% attack will only add blocks to a private blockchain, but not broadcast them to the public blockchain.
If an attacker were to spend 1 BTC in exchange for a product, a 51% attack would trigger a refund to own both the BTC and the product.
Crypto hackers would be able to prevent any new transactions from attaining confirmations, allowing them to stop payments between some investors.
51% attacks give hackers the power to disrupt the network and interrupt the recording of new blocks on the blockchain by preventing other miners from settling the blocks, in what is known as a mining monopoly. If a set of malicious miners were able to successfully control 51% of the blockchain network, this could cause nearly irreversible damage.
51% attacks could also lead to a process called “double spending” of coins. With double-spending, there is an increased risk of cryptocurrencies being spent more than once; this could create a disparity between the spending record and the amount of crypto available.
The cryptocurrency attacks are more harmful to smaller projects like Bitcoin SV or Ethereum Classic (ETC). A hacker group that plans on attacking the Bitcoin blockchain would need a huge amount of money to gather mining equipment to generate enough computing power.
How to Protect Yourself Investments
While you may not be able to protect an entire project’s blockchain on your own, you can mitigate the damage a 51% attack can cause by following some standard security practices.
When given the option, always activate two-factor authentication to help secure your transactions. It is crucial to have an extra layer of security for the different wallets and exchanges you use.
It is recommended that most of your funds should sit in secure multi-sig cold storage wallets. Hot wallets, which are responsible for automating withdrawals, should have minimal funds because they are most vulnerable to hacks.
Don’t put all your crypto in the same wallet. If possible, use separate wallet addresses for each platform. This will help minimize your exposure to a loss. Even if one platform is hacked, the other would be safe.
You should check your wallet approvals regularly. If you aren’t staking in a DeFi project, cancel the access rights for that project to your wallets.
Be mindful of any phishing emails. Phishing is a type of online scam where hackers impersonate legitimate organizations via email, text message, or other means to steal sensitive information.
Phishing emails may look like they are from a company that is well known or trustworthy. They may look like they are from a crypto exchange, a credit card company, a social networking site, an online payment website or app, or an online store. At the application level, add mandatory two-factor authentication checks for transactions.
Wrapping Up – Don’t Be Discouraged
As a blockchain network grows and acquires new mining nodes it makes the chances of a 51% attack taking place less likely. The cost of performing these attacks rises when the computing power increases.
Even if an attacker were to reach above 50% of the hash rate, the size of a blockchain could still provide security. Because blocks are linked together in the chain, a block can be altered only if all blocks are confirmed blocks are eliminated.
With basic crypto security practices, you can keep your investments safer, in the event these attacks occur. It may be annoying to keep up with multiple codes and wallet addresses, but it is the best way to keep cybercriminals guessing. The more thorough a wallet is, the less likely it can be exploited by 51% attacks or any other potential hacking attempts.
It’s also worth noting that Bitcoin and Ethereum blockchain projects are more resistant to a 51% attack than smaller projects. Still, many projects remain vulnerable to this attack.
Take the time to thoroughly research all the cryptocurrency projects you may be interested in. On the surface, they may have great use cases, but they could be a disaster security-wise.