The Cost of Hacking the Bitcoin Network
Cryptocurrencies based on distributed ledger technology have grown to reach a market capitalisation of over $150 billion, with Bitcoin accounting for just under half of this amount. But, with the blockchain based technology reliant on community agreement and code, how susceptible is it to being overthrown or hacked?
Immutability is used to imply unmodifiable, meaning information which is validated by a consensus of miners on the blockchain becomes unalterable following its encryption.
The consensus of confirming the information truthfully on the blockchain is dependent on the honesty of a collective of individuals who could, theoretically, decide to collectively input the information on the blockchain as they wish. However, the overwhelming majority would have to do so for the transaction to be signed onto the ledger. This is where the idea of a 51% attack comes in.
The immutability of the ledger can be undermined by a 51% attack: where a single entity has more capacity than the remainder of the network and can continue the main blockchain with a new block, inputting whichever information it desires.
In practice, such an attack would require superior mining capacity in relation to the remainder of the network combined and would therefore be difficult to achieve. It would be difficult because (1) the energy needed to power a massive amount of (2) mining equipment would be colossal, both implying a need for access to an extremely large amount of funds that would amount to somewhere in the region of $2.5 billion USD.
However, there are entities that do have access to such funds and could have motivations for reversing transactions. One obvious example is nation states.
Moreover, if we take China — the country where the most amount of mining takes place and therefore the state with the largest hash power — the authorities could seize the mining pools to reverse any transactions. In such a case, people would know what was going on but would not be able to stop it without rewriting Bitcoin itself.
Exploiting the code and forking
Forking is key to blockchain technology and means that to reverse a transaction you would have to have consensus or a fork would take place. A fork occurs where there is a disagreement on the network about which information is correct.
One other point of note is that, where code is law, exploits in the code make what would be a fair system vulnerable to theft and manipulation.
If a hack takes place then alterations to the code will have to be made to prevent it happening further and disagreements in relation to which changes (if any) should be made may arise. In such a case, a fork would take place, with Ethereum here presenting itself as the perfect example to highlight the above.
Mutable by consensus
So, in the end, blockchains are not as immutable as purported by many, and are alterable in cases where the community agrees to go back and rewrite the information placed on the chain. However, we can all agree that, although hacking the blockchain and making changes is possible in theory, in reality, the practicality of doing so makes it extremely costly and difficult.
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Reprinted from here