A consensus algorithm is a process in computer science used to achieve agreement on a single data value among distributed processes or systems. Consensus algorithms are designed to achieve reliability in a network involving multiple unreliable nodes. Solving that issue — known as the consensus problem — is important in distributed computing and multi-agent systems.
Fault-tolerant technology is a capability of a computer system, electronic system or network to deliver uninterrupted service, despite one or more of its components failing.
When we say blockchain is decentralized, fault-tolerant, censor-resistant, it basically means that at its core is a consensus algorithm that allows peers to verify and validate each data set presented as block in a tamper resistant chain. However, if 51% of block validating hash power is controlled by a single entity the chain becomes vulnerable to tampering. This is called a 51% attack.
Since Satoshi Nakamoto’s first disclosure of the Proof-of-Work (PoW) consensus algorithm in his bitcoin blockchain white paper in 2008, a countless number of consensus protocols have been developed and deployed. But, none can claim to be completely immune to a 51% attack. This is because:
A 51% attack on a blockchain network is when a single entity or organization is able to control the majority of the hash rate, potentially causing a network disruption. In such a scenario, the attacker would have enough mining power to intentionally exclude or modify the ordering of transactions. They can send a transaction and then reverse it, making it appear as though they still had the coin they just spent. This vulnerability, known as double-spending, is the digital equivalent of a perfect counterfeit and the basic cryptographic hurdle the blockchain was built to overcome. A network that was vulnerable to double-spending would quickly suffer a loss of confidence. They can also prevent other miners from completing blocks, theoretically allowing them to monopolize the mining of new blocks and earn all of the rewards.
There have been several 51% attacks on proof-of-work blockchains in recent years, including Verge, GameCredits, Ethereum Classic (ETC), Bitcoin Cash (BCH), Bitcoin Gold, so on and so forth. Krypton and Shift, two blockchains based on Ethereum, suffered 51% attacks in August 2016. In May of 2018, Bitcoin Gold suffered a 51% attack resulting in $18 million worth of Bitcoin Gold being stolen.
The case of Bitcoin Private is quite interesting, wherein a lone hacker took control of enough resources to control the Bitcoin Private network and live stream the hack on Twitch. For a low cap PoW blockchain the 51% attack could be that easy.
At the beginning of this year, Cointelegraph reported, the Ethereum Classic (ETC) blockchain experienced a 51% attack. It was found that an attacker had reversed four transactions, resulting in a loss of 54,200 ETC. Months later two miners reportedly executed a 51% attack on the bitcoin cash (BCH) blockchain. Those miners with majority control of the network — BTC.top and BTC.com — performed the attack in an effort to stop an unknown miner from taking coins that were sent to an “anyone can spend” address following the original hard fork in May 2017.
Last year a report commissioned by Ethereum stakeholders accused EOS blockchain of centralization because it used DPOS (delegated proof of stake) consensus algorithm with only 21 block producers elected by the EOS token holders, instead of PoW mining algorithm. In other words, 51% of EOS network was controlled by 11 block producers making 51% attack easy. Conversely, although Ethereum’s PoW mining algorithm portends to decentralize by spreading the block production across all the mining nodes indiscriminately, in reality, two mining pools control more than 60% hashing power. It’s like dividing the majority hashing power into just two entities for Ethereum transactions, versus eleven for EOS transactions. It’s no brainer to figure out that a PoW consensus algorithm, if not more, is at least as prone to 51% attack as DPOS is. In other words PoW is at least as centralized as DPOS if not more. Nevertheless, the cryptocurrency rating agency Weiss Ratings downgraded its score for the EOS blockchain, citing “serious problems with centralization.” According to the agency, doubts have been raised as to the legitimacy of voting results due to alleged collusion between block producers.
The series of 51% attacks and double-spends that we have seen in recent times are likely to continue and may even accelerate. While the debate on the most robust decentralized consensus algorithm goes on, the consensus protocol that sanitizes a blockchain from 51% attack alludes. There remains no consensus on consensus.