As the cryptocurrency mining is becoming less profitable for the small miners with rising electricity costs and a shrunken market due to big commercial miners pool, these pools pose a risk of a 51% attack to the cryptocurrency.
Understanding the concept of 51% attack
A 51 percent or majority attack is an attack on the network that requires an extremely high amount of hash rate. This kind of attack can also happen while someone is waiting for his confirmation. By acquiring the majority of the hash rate of the network, one can revise the transaction history and prevent the confirmation of new transactions as well.
Bitcoin miners basically utilize powerful computers in order to verify the transactions. Usually, there are mining pools which have groups of miners to combine their mining power and be more efficient. However, if someone gets more than 50 percent of network’s mining power, they can use it to manipulate the system as per their personal needs.
Bitcoin mining: Small independent miners & large commercial miners
In most of the American states, it costs more than $3,000 to mine a single bitcoin. For profitability, miners need to purchase powerful hardware chips but the powerful a computer is, the more electricity it would consume and the more it will cost. For a small scale crypto miner, electricity cost is a significant concern.
Earlier in the days, when the hash difficulty of the bitcoin mining increased to great levels resulting in decreasing the profitability, smaller crypto miners came together to combine their computing resources that resulted in the formation of mining pools.
It wasn’t long before these mining pools started dominating the crypto mining space. Furthermore, companies started manufacturing the customized mining hardware that helped in boosting their profits. Bitmain and ASIC miner are a few popular names that mines on a commercial scale. Reportedly, these companies made profits of about 3 to 4 billion dollars from mining.
Is 51% attack a possibility?
It is quite unlikely that someone gets the majority of the mining resources for a cryptocurrency and threaten their security with a 51 percent attack. When it comes to bitcoin, it operates on a proof-of-work consensus mechanism where individual transactions are verified by the miners. If the majority of mining powers gets into the hand of a single miner, that entity can pose a severe threat to bitcoin.
Once such example is Ghash.io which is one of the largest pools of bitcoin miners that has come close to obtaining the majority of bitcoin network’s hashing power twice in 2014.
If the pool had been able to obtain the 51 percent of network power, it would have been able to do the double spending, prevent any transaction for confirming and reverse past transactions among a number of other things.
Another point worth noticing is having a large number of pending transaction in mempool means miners can benefit from high mining fees.
With the threat of a 51% attack rising with big mining pools gaining more power, it has become essential for cryptocurrencies to find the solution to this problem ASAP.
How do you think the problem of majority attack can be addressed and solved?