In this post I am going to give you a overview of Blockchain Technology, Proof-of-Work consensus algorithm, 51% attack and how it is a threat to Blockchain Technology.
Blockchain Technology, a system of maintaining a decentralized distributed ledger in which transactions between two parties can be recorded. It is a peer-to-peer network in which each node in the network has a copy of that ledger to maintain the immutability of the transactions. Transactions occurred in the blockchain network can not be reversed once updated in the distributed ledger.
This technology was invented by a person or a group of people named Satoshi Nakamoto by deploying a first digital cryptocurrency called Bitcoin. Bitcoin network was made live in 2008.
Now let's understand Blockchain Technology simply with example of a Bitcoin transaction. Suppose there are two persons A and B who wants to exchange some bitcoins with each other. A sends let's say 1 BTC(Bitcoin) to B, first 1 BTC gets deducted from A's wallet and updated in B's wallet. Now the details of the transaction between A and B is placed inside a block. A block is record of previously occurred transactions, which is to be added further to the bitcoin's blockchain after being verified using some mechanisms.
Now blockchain being a decentralized technology there is no central authority to verify this transaction that A has 1 BTC or not to send and B receives the genuine bitcoin or not. Now both the persons has to come to a consensus using consensus mechanisms in blockchain. There are various types of consensus mechanisms in blockchain technology like Proof-of-Work, Proof-of-Stake, Proof-of-Elapsed Time, Proof-of-Authority, Proof-of-Weight etc.
Now in this post we will talk about Proof-of-Work consensus mechanism mainly because only the PoW can be hit or hacked by using 51% attack.
Now first let's start with PoW. PoW is a consensus mechanism to add new blocks to the chain. Every transaction that occurs in the bitcoin blockchain has a mathematical puzzle associated to it. By solving these mathematical puzzles the genuinity of a transaction can be verified. These puzzles are verified by using hardwares that are owned by any person who want to contribute in verifying transaction in return of which the person get some reward in the form of bitcoin.The genuinity of the transaction depends on the puzzle solving hardware, these are called miners. This is how PoW works.
Here comes the 51% attack , there are a large no of miners in the world who are contributing in the working of the bitcoin's blockchain. Suppose 51% of these miners starts lying about a transaction then what happens, the lie becomes the truth and transaction gets verified and added to the bitcoin's blockchain. This is called 51% attack. Previously this attack was just in theory, as it is impossible to make 51% of the miners to agree on fake a transaction. Till now it is impossible to attack Bitcoin's blockchain with this attack as it is very huge chain but for smaller chains or relatively new cryptocurrencies it is a threat. Verge, Bitcoin Gold and ZenCash are some that have suffered from this attack in the past days.
Cost to do a 51% attack on some cryptocurrencies.
I hope this post will help the people to gain a basic understanding of the topic.
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