After Verge and Bitcoin Gold: 51% Attack on an Investment Case

In May 2018 both Verge and Bitcoin Gold were victims of a 51% attack.

In May 2018, both Verge and Bitcoin Gold fell victim to a 51% attack. Afterward, questions about the safety of other cryptocurrencies surged. 51crypto promises to estimate the costs of such a robust attack.

51% attacks have been a hot topic again in recent weeks. Not only Verge, but Bitcoin Gold was also targeted recently. In short, miners with a substantial portion of a cryptocurrency’s hashrate can cause a lot of damage.

What can a 51% attack actually yield?

Two misconceptions are being propagated in several places. First, an attacker doesn’t need 51% of the hashrate to harm the network. Bitcoin Core developer Luke Dashjr recently posted a view on X about this topic. An attacker with only 30% of the hashrate can even undo transactions with more than six confirmations with a good chance. Right now the BTC.com mining pool accounts for 24.4%. So for BTC.com, transactions with six confirmations are effectively possible in about four percent of cases.

Second, the damage from a 51% attack is sometimes exaggerated. Some people think miners with high hashrate can control the entire network. That’s not true.

An entity with a sizeable share of total hashrate can not only claim all mining rewards for itself but also double-spend everything from its wallet. Finally, it’s possible for this entity to control transactions and thus deny access to the blockchain for certain transactions. While this is concerning, it isn’t as catastrophic as some make it seem.

Moreover, it’s important to remember that not only miners are involved in consensus: in a proof-of-work system, nodes manage the blockchain and can observe the enforcement of consensus. If a 51% attack happened, the nodes would detect it via a reorganization of the blockchain.

51% goes on the attack – a new form of investing?

For a long time, 51% attacks were rare. The recent strikes have brought the topic back into focus. Through 51crypto, the costs of attacking various cryptocurrencies have been broken down.

According to the site, the described attack is extremely cheap for some coins: an hour of Einsteinium attack costs only $56 — and that’s not even the cheapest option! But even Bitcoin could cost as little as $665,000. That might be within reach for many Hodlers!

But here you see the limits of this calculation: 51crypto has access to Nicehash data. Nicehash is a marketplace for hashing power. You can buy hashing power for different mining algorithms. Availability is, of course, limited. For Bitcoin, that means you can buy only 527 PH/s via Nicehash. With a global hashrate of nearly 37,000 PH/s, you can only purchase about 1% of the total Bitcoin hashrate.

This limited supply leads to another question: will these prices hold? The question arises whether, for example, Bytecoin’s hashrate can actually be bought without pushing prices up.

The 51crypto overview is interesting. Even though that isn’t the page’s intent, the question arises whether this isn’t nudging an “investment case network attack.”

This question can be generalized: Husam Abboud presents a valuation concept for cryptocurrencies in which their intrinsic value is tightly tied to security. His valuation model will be presented in another article.