The concepts that underpin and link blockchain technology are relatively straightforward, despite the fact that they are undoubtedly complex and necessary for the world of crypto and NFTs. As a result, the "51 percent attack" is one of its most important concepts. This is a threat that constitutes almost an unrivaled threat to decentralized technology. The fundamentals of blockchain technology are essential in understanding what that is and how it might impact Web3.
Digital blocks connect to create a chain-like record of information flow in the blockchain, which is a distributed digital database. A key aspect of blockchain systems is that they are run by a network of computers and users known as nodes, which verify transactions collectively instead of using an intermediary, such as a bank or a centralized data server operated by a large corporation.
The question is, what is a 51 percent attack?
A blockchain system's security can be determined by the number of validating nodes within it. Taking control of the majority of the nodes in the system — 51 percent — would be required for a hacker or group to alter the blockchain record and fake transactions involving crypto and NFTs, potentially causing millions of dollars to go missing. This means bad actors can hijack the blockchain, causing disastrous financial effects by manipulating transactions in the network.
The nodes could be taken over by hackers or by group collusion between the groups and individuals who control them. It is more difficult to accomplish this when there are more nodes. There are thousands of validators in the Ethereum blockchain, for example, whereas there are fewer in other blockchains.
Examples of 51 percent attacks
Five of the nine validating nodes of the Ethereum-linked sidechain Ronin's blockchain-based play-to-earn game Axie Infinity were taken control of by hackers associated with the North Korean government in March 2022. In the largest hack in the history of that network, hackers forged withdrawals of $625 million from the network. For months, the Ronin team paused the blockchain network after realizing what had happened and restarted transactions a centralized way.
Bitcoin Gold, a token that separated from the Bitcoin blockchain, was also subjected to a 51 percent attack by hackers in 2020. Double-spending was possible for the hackers. An individual who initiated the transaction can reclaim their tokens when a cryptocurrency is used twice or more.
What are the chances of a 51 percent attack occurring?
Blockchains are more secure as they become bigger: the larger the network, the more vulnerable it will be to this type of attack. There is simply not enough computing power available in order to carry out a 51 percent attack on a system running on an energy-intensive proof-of-work (PoW) consensus mechanism (like Bitcoin); it is simply not worth the hackers' time and money to attempt a 51 percent attack.
They could continue to attack the system until network administrators perform a "hard fork" if they manage to pull it off, however. It occurs when a blockchain's protocol undergoes a significant change, which leads to the splitting of the blockchain into two incompatible editions. The emergence of new cryptocurrencies is often attributed to such events, as was the case with Bitcoin Gold.
However, 51 percent attacks can be disincentivised. A PoS-operated network, such as the Ethereum blockchain, consumes significantly less energy as opposed to a PoW-operated network. Validating nodes are accepted by staking a significant amount of cryptocurrency. It is theoretically possible to take control of a PoS system if enough validators collude. In spite of this, Ethereum administrators have the option of "slashing" the staked Ethereum, thereby erasing the investment as well as the ability for the violating nodes to attack again in the future. A 51 percent attack is not fatal to the blockchain, according to Vitalik Buterin.
Discussions regarding decentralization
Buterin asked people in a Twitter poll before Ethereum switched over to the energy-efficient PoS consensus system it now uses how long they'd wait until they'd support "extra-protocol" intervention. A simple question marked the discussion: could a centralized authority intervene in extreme circumstances and make a judgment call for the entire blockchain?
In addition, the question is not rhetorical. Hard forks aren't unique to Bitcoin. Many other blockchains have been forced to hard fork as a result of attacks. As a result of attackers exploiting flaws in an application running on the Ethereum blockchain in 2016, Ethereum implemented a hard fork that restored funds to users who had been impacted by the exploit.
As a whole, blockchain technology is opposed to such centralized actions: Despite the overwhelming support for centralized intervention in Buterin's poll, a significant portion of the Web3 community does not feel comfortable with such action, as indicated by the comments below the same poll. Nonetheless, they remain a necessary evil in the short term for ensuring the stability of these systems in the event of an emergency. NFTs and crypto circles continue to be controversial topics of discussion. Decentralization by centralized means may be the best path forward, despite its paradoxical nature, just like the discussion surrounding decentralized Web3 marketplaces.