Bitcoin and other cryptocurrencies have used decentralization as their selling point ever since their advent. With the currency growing on such a large scale, even the slightest risk that an unknown party might be able to control the currency’s ledger poses a threat to the users worldwide and potentially the loss of millions of dollars. Bitcoin’s consensus algorithm leaves such loopholes in the system.
Proof-of-Work, bitcoin’s consensus algorithm, requires each miner to solve complex cryptographic and mathematical puzzles in order to calculate the hash of a transaction, which is verified by other readily available nodes and the transaction is added to the block. The hash rate, hence, is the measure of the times a network can attempt to complete this puzzle every second. High hash rates ensure security, and provide safety against 51% attacks, while blockchains with low hash rates are prone to these hacking incidents. The point of concern here is that even blockchains with high hash rates can sometimes be breached due to high hash powers. Hash power is the ability of a machine to solve hashing algorithms. Very high computing powers can make the mining process easier for a specific miner and as a result, make it more controllable for the mining party. It has already been seen that most of the blocks of bitcoin are mined by the same 6 to 7 miners, almost 5 out of which are data centers based in China. This gives China substantial power over bitcoin.
We have already seen that other currencies using the same algorithm but having low hash rates have been compromised by 51% attacks in the recent past. Bitcoin Cash, a fork of bitcoin, and a currency that lies at number 4 in the coinmarketcap ranked on the basis of market capitalization was also subjected to the risk of 51% attack recently when an unknown miner controlled 50% of the hash rate for a span of 24 hours. The miner mined 73 blocks during the time period and although the miner apparently had no illicit intentions, the fact that he could manage to generate that huge hash power poses a big security threat to these blockchains.
Ethereum Classic has already faced grave consequences for their low hash rates, as the required hash power to carry out a 51% attack with successful double-spending attempts was achieved by the hackers. Not only did ETC face a huge dent in its reputation, but a big amount of ETCs were stolen and most of the major exchanges delisted ETC from their platform. According to the founder of Dogecoin, Jackson Palmer, the 51% hash power could have been achieved by NiceHash, an online hash power rental service, which means for a 51% attack, the attacker doesn’t even have to own actual hardware and by spending a little money they can actually rent mining hardware and carry out the attack. He also believed that the consensus algorithms could not be blamed here as they are not made to be perfect. He stated:
which means for a 51% attack, the attacker doesn’t even have to own actual hardware and by spending a little money they can actually rent mining hardware and carry out the attack.
Although bitcoin mining difficulty has increased to a point where it is very difficult to achieve the hash power required to control the chain, but if huge organizations decide to control bitcoin, a huge amount of hash power can be generated to successfully perform the feat.