Verge, Monacoin, Bitcoin Gold and Zencash - these cryptocurrencies have something tragic in common. They were all victims to 51% attack - the biggest accepted vulnerability in blockchain. Right from bitcoin's whitepaper people have known about it. But it was largely thought of as something hypothetical since it requires the attacker to have more than half the network's computing power.Recent advancements,especially in development of Application Specific Integrated Circuits(ASICs) has made it easy for people to gain access to large amount of hashing power from providers like NiceHash.
Someone has even created a list of cost required to do a 51% attack on different blockchain using NiceHash. Although bit oversimplified but it gives you the idea.
But before we go into how these events will affect the direction of development of new financial order, let me just formally describe a 51% attack,if you know what it is,feel free to skip to next paragraph.
Bitcoin and all other cryptocurrencies rely on some algorithm to reach an agreement among the nodes.These agreement forming mechanism or consensus algorithm are commonly Proof of Work or Proof of Stake with different variants (some can be completely different). That means that there are some rules that each node in the decentralized network trust and mostly they work correctly. For example,in PoW, miners constantly compete to solve the transaction data and existing blockchain information to obtain a nonce that completes the block which is then added to the blockchain in that node and updated blockchain is published to the network. However it may so happen that two nodes (with significant distance between them) simultaneously create two blocks. In such cases the blockchain is said to be forked. These are places where consensus algorithms have most important roles to play. In the most common approach the forks are allowed to happen and it is the longest chain that is selected. In the scenario where a malicious node has obtained gained a significant fraction of the network's entire computing power then it is able to create long chains of blocks and it is his blockchain that is going to be accepted, effectively giving him the limited(because still he can change only his transactions) control over the blockchain. So what happened in recent attacks is( Except Verge,which is story for another day) the attacker sent currency A to exchange on fork1 of the blockchain of A( fork1 is the accepted fork) then he exchanges currency A for currency B ,then he starts using fork2(in which he never sent A to the exchange) to mine the currency A,soon as he has more mining power than rest of the network,it is his blockchain that get accepted. In the end he has now both A and B.
This is a problem that even Satoshi Nakamoto knew about but this was the design cost of the implementation of the bitcoin).However there are few solutions that could be implemented.
Possible solutions according to me:
- Already implemented, increasing the number of confirmations to accept a transaction (to be implemented by Exchange)
- Saving data from one vulnerable blockchain into a well established blockchain like Bitcoin or Ethereum and using that confirmation as part of consensus.(implemented into consensus algorithm )
- Security measures when a fork occurs.(p2p layer of the blockchain)
- Centralisation,like in Ripple
These attacks are frightening not in the sense that exchanges may incur losses or people may get cheated but this shows that its no longer the same arena which was nurturing and supportive to newer technological solutions. But now newer blockchains run the risk of losing public trust and maybe never growing into a success even if they are offering something substaintial.If amount of decentralization today is not enough there is no survival.
Its the coming of maturity and a different phase in this space and everyone better be ready for it.