You may have heard the term “51% attack”, but what does it actually mean ?
Bitcoin miners use powerful computers to verify that each person who wishes to spend Bitcoins actually has Bitcoins to spend and isn’t trying to fool the system. They do this by reviewing the Blockchain – a digital file that documents every Bitcoin transaction ever made. Miners usually groups together in mining pools so they can combine their mining power and become more efficient.
The power of the miners verification process comes from it’s decentralization. For example, let’s say there’s a transaction that is going through the block chain. Each miners will review this transaction and decide if the sender actually has the bitcoin he wants to send. If the majority of miners rules the transaction is valid it will go through.
But what if someone could get a hold of more than 50% of the network’s mining power and manipulate the system for his own needs. Theoretically speaking, if someone manages to pull off such an attack he can double spend his money – meaning he can pay with the same Bitcoin twice or even more.
The attacker will also be able to prevent transactions from being confirmed and prevent other miners from generating new Bitcoins. But more on double spending and confirmations will be reviewed in later videos.
For now, here’s a real live example of the 51% attack. In January of 2014 one of the mining pools got so big it neared 51% of the total mining power. This of course created some panic in the Bitcoin community but was fixed shortly after by miners who left the pool in order to balance things out.
One of the things to keep in mind is that someone with so much mining power would probably make more money using this power to mine legitimately than by actually blocking transactions or double spending. This reduces the risk for such an attack substantially.