Consensus Networks

Bitcoin is based on blockchains, a network of distributed ledgers that record every transaction made on the network and are available to all users for review, ensuring high transparency and network validity. When Satoshi Nakamoto first advocated Bitcoin, he explained a distributed consensus in which every participant agrees on the true state of the network. This includes information such as how many coins each address controls as well as the full transaction history.

This system forms the basis for all cryptocurrencies and when a blockchain currency uses a proof of work mechanism, the consensus forming also involves miners, who are responsible for confirming transactions on the network. The miners help facilitate the processing of the bundles of data that record all the completed transactions during a specific period of time, these bundles or blocks cannot be altered once finalized and the process helps ensure the validity of the entire network and public ledger.

In order to work harmoniously, the entire process involves an element of democracy, in which most users accept the majority view in order to operate on the same the network. This system works with the assumption that mining and specifically, the mining hashing power is shared equally throughout the network of miners. Problems arise if an individual miner or a small group of miners are able to control more than half the hashing power with the 51% figure being the crucial amount. Any person or group with 51% of more control is able to manipulate the consensus agreement process and begin to act as a central, network authority. If desired, this ‘authority’ could act nefariously and prevent new transactions from gaining confirmations, reverse completed transactions, as well as impose a new version of the network transaction history.

They can also prevent other miners from completing blocks and monopolize the mining of new blocks, allowing them to also monopolize the earning of rewards. They could if wanted perform ‘double spends’ where the same coins are spent multiple times. This could be achieved by sending a transaction, reversing it, and making it appear as if they still had the coin they just spent. Double spending has the ability to completely eradicate any trust or confidence the community has in a network.

Solutions

In July 2014, the mining pool ghash.io briefly exceeded 50% of the Bitcoin network's computing power and the pool voluntarily reduced its share of the network. Ghash.io also vowed not to reach 40% of the total mining power in the future.

The rise of a more decentralized network with a larger number of individual miners can also provide a strong basis for resistance against the possibility of a 51% attack. The larger mining groups also make use of specialist ASIC mining rigs and ASIC-resistant algorithms or coins that allow CPU mining are also viable defense mechanisms against 51% attacks.

The Proof of Stake consensus mechanism is also less susceptible to this type of attack as purchasing over 50% of all the coins available on a network is generally much more expensive than trying to gain 51% of the hashing power. In addition, any individual with an immense stake in any network would essentially be risking their own holdings by attacking the network in order to cause it to critically malfunction.