51% hash rate attack: Trouble in the mining machine rental market

To maintain decentralized power, cryptocurrencies that use a proof-of-work (PoW) system must never allow any single party to control a majority of all computing power.

But as the liquidity of the global hashrate pool grows, cryptocurrencies face another important test. They must be able to resist attacks from renting hashrate. Otherwise, arbitrageurs may find that renting hashrate is feasible to a certain extent in order to execute a 51% attack.

The mining machine rental market is growing

Computer storage was once an illiquid market, but now it is a highly liquid online commodity. The same thing is happening with hash power.

Rising cryptocurrency prices will incentivize miners to invest in computing power until any incremental revenue equals the cost. In other words, if prices continue to rise, global computing power will also continue to rise.

The total proportion of computing power rental will increase, because both buyers and sellers benefit from the ability to rent. Computing power rental leads to a lower threshold for mining and an increase in efficiency. This is why users would rather rent mining machines than mine by themselves, so that they can focus all their time on finding opportunities with the highest return on investment. At the same time, mining farm owners can also reduce their business risks because the income from rental is fixed, while the income from mining is unstable. In this way, they only need to focus on the rental relationship, asset utilization and maintenance.

Tokens vulnerable to tenant attacks

NiceHash is a computing power rental platform .

ETP , the 91st ranked token by market capitalization, can rent up to 21 times the computing power on the NiceHash platform, with the cost of an attack being only $162 per hour.

NiceHash may even rent out 2x their total rental capacity . This makes tokens like ETC and BCN vulnerable to attacks.

A 5x increase in leasing capacity would put tokens like Dash and BTG at risk.

Fortunately, it is impossible to create transactions for a wallet that does not own the private keys. However, controlling a majority of computing power means that you can perform a double-spend attack by temporarily reverting certain transactions on the ledger.

When a miner finds a new block, they are supposed to broadcast this news to all other miners so that they can verify it and add a new block to the blockchain. However, a corrupt miner can create his own blockchain in secret.

To perform a double spend attack, the attacker would spend their tokens on the real chain, but they would place those transactions on the forked chain.

If a saboteur miner is able to build a longer chain faster than all the other miners on the network, they can broadcast the fork to the rest of the network.

Since the protocol follows the longest chain, the newly broadcasted fork becomes the de facto, true blockchain. The transaction history previously spent by the attacker is deleted.

Just because miners control 51% of the hashrate doesn’t mean they always have a longer chain. To guarantee this in the short term, an attacker might want to control close to 80% of the network’s hashrate.

Exchanges may be targeted

To profit from a double-spend attack, you have to find a way to extract value from the currency. If the currency you spend does not generate value, then there is no point.

The attackers are most likely to spend the coins on exchanges, as they are the largest buyers of various cryptocurrencies.

To counter this attack, exchanges can increase deposit and withdrawal times and account verification security.

The longer withdrawal time will make it more expensive for attackers because they have to maintain a majority of hashrate for a longer period of time. But it will also cause dissatisfaction among legitimate users, who will complain that it takes too long to withdraw cryptocurrency from exchanges.

Another way is to carefully screen those tokens that are vulnerable to attacks. However, delisting also means a reduction in trading volume and revenue. This is good for the market, because the tokens that are only used for speculation are in urgent need of survival threats.

The more difficult it is to successfully escape a double-spending attack, the higher the cost for the attacker . In the long run, the balance of these two forces will converge on some market equilibrium.

How will cryptocurrencies respond, with more obscure algorithms or fewer miners? Fewer miners means it will be harder to increase hashrate. If hashrate grows, then the algorithms will no longer be obscure.

New projects may be betting their security on mainstream blockchains, pushing for new consensus algorithms that are more resistant to 51% attacks.