Commercial Cryptocurrency Mining Could Push Bitcoin Towards a 51 Percent Attack
It is common knowledge that mining is becoming less profitable for smaller operations. Miners that have set up small to medium scale mining infrastructure are quickly finding out the infeasibility of their operation due to electricity costs and a declining market.
Cost of Bitcoin Mining for Small Users
To ensure profitability, miners have to buy more powerful hardware chips. However, a more powerful computer generally translates into more electricity consumption. According to a study by Marketwatch, it cost upwards of $3,000 to mine a single bitcoin as per the electricity rates in most American states.
The report does an excellent job at highlighting how electricity cost is a significant concern for most small-scale cryptocurrency miners.
The Larger Commercial Cryptocurrency Miners
In the past, when smaller cryptocurrency miners realized that hash difficulty of bitcoin had increased to astronomical levels, dropping the profitability, they decided to combine their computing resources and form a mining pool.
These mining pools slowly began dominating the cryptocurrency landscape. Soon, companies realized that they could manufacture mining hardware customized as per their needs to boost profits even further.
Mining hardware maker Bitmain and the manufacturer of the popular Antminer ASIC miner series also started mining cryptocurrencies on a commercial scale. According to another report published in Forbes, the two firms made an astonishing three to four billion dollars in profits from mining alone.
American company Bitfury is also reportedly building Northern America’s largest bitcoin mining center in association with Canadian Hut 8 Mining Corporation. In an interview with Laura Shin, Bitfury CEO Valery Vavilov estimated that it was profitable for Bitfury to mine bitcoin even down to a price of $2,500 to $3,000.
Potential of a 51 Percent Attack
In the unlikely event that someone has control over a majority of mining resources for a particular cryptocurrency, the security of cryptocurrencies is immediately threatened and may result in a 51 percent attack.
Bitcoin, for instance, operates a proof-of-work (PoW) consensus mechanism where miners verify individual transactions. When the majority of miners have approved of a particular transaction, it is propagated across the network and recorded on the blockchain.
If a single miner manages to gain control of more than 51 percent of mining power, the entity may pose a significant threat to the cryptocurrency.
Such an entity could stop newer transactions from being verified, prevent other miners from verifying new blocks, reverse some past transactions and could potentially double spend digital holdings. Another serious risk is that the hacker may purposely push empty blocks on the blockchain to crowd the mempool.
If there are a large number of transactions pending in the mempool, miners stand to benefit due to heightened mining fees.
Vitalik Buterin, the lead developer of Ethereum, said on Twitter that since capital costs dominate daily operational costs if any attacker gained control of the majority resources of the network, he would likely not be willing to give up his control soon.
It is worth considering that only 16 miners hold around 90 percent of all the bitcoin mining resources. Ghash.io, another mining pool, came tantalizingly close to owning 50 percent of all computational power in the bitcoin network.
Electroneum was victim to a 51 percent attack when users noticed last week that several new blocks which had no transaction details were being constantly mined. It is clear that all cryptocurrencies will have to find a way to protect themselves against the problem sooner rather than later.