Like most currencies, bitcoin has its own layers of protection. You know, like ATM’s defend money by spilling ink over them, governments keep a record of the fiat currency by their serial numbers and electronic money trails, bitcoin has its own ways to protect itself. But, can it though?
It is a decentralized platform, most people don’t even know what to call it. People do not know what to think of it, as a company but without a CEO and without a face? Perhaps, if it is a brand, who does its branding, what and how does its website work? There are a lot of questions in a noobs head, I know there are in mine. So, I asked myself, what is it that I would like to know before the rest, and I figured it should be the Bitcoin 51% attack. What is all the rave about.
So there is no single party who owns the currency, it is shared right. It is decentralized and ruled by the agreement of its people, its members i.e its miners, it is ruled by the consensus.
This is important to ensure that the organism remains free of any outbreaks or greedy cults taking over. Any dominating group or party controlling the majority of the hash-power can double-spend, reverse or censor transactions, simply because they have the power to do so by the virtue of being a majority, making the decentralized currency lose its meaning and thus it will be performing the dreaded 51% attack. This attack means that 51% of the miners combined forces and stood against bitcoin itself forming a leadership that rejects and defaults the system.
This attack is made possible by the fact that nodes automatically follow the longest chain (i.e. that with the most accumulated proof-of-work). This could be understood as an attacker beginning to secretly build a new chain on top of a given block (without broadcasting it to the network), whilst the remainder of the miners continue to build on what is decidedly the main chain.
Given the masses of hash-power that the attacker has, they’re able to keep up with the rate of new blocks being appended to the main chain, selectively including (or, indeed, excluding) transactions. In order to make such an attack profitable, it’s probably at a point after they ‘forked’ that they’ll choose to begin making large purchases on the main chain, without including these transactions on their secret chain.
A merchant will generally wait for a certain amount of confirmations before accepting that the deposit is valid, which, for all intents and purposes, it will be. Worth noting is that exchanges tend to require a high number of confirmations on less secure chains (if the coins/tokens are buried, they’re less likely to be reversed or double-spent).
The attacker reveals it’s doing once bigger purchases show up, highlighting a fork, this means the main chain now shows that the one node they conquered was not enough thus, they are pulling in other nodes into their system trying to form a bigger organism. A notification is sent to all nodes about the disturbance and all nodes cast the valid-until-then chain to the side and the ledger is reorganized. On this new chain, the attacker is still in possession of all of the funds they had spent in the other state.
This is the 51% attack in a nutshell.