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Double Spending in Cryptocurrency
If anything can prove the great possibilities of financial technology world over then cryptocurrency is it. Over the years, technologists struggled to come up with a purely virtual currency. But, such efforts all fell flat when it came to verification of transactions and curbing possible double spending. But lo and behold, blockchain technology and cryptography came just in time to turn around the situation.
Cryptocurrency exists as an investment option and a means of payment that has made trading fascinating as well as trendy. The system is all about digital or virtual currencies with decentralised ledger that makes the owners fully in charge. Cryptocurrency mining which is a high energy demanding complex process done on various computers called nodes creates new cryptos. As you transact cryptocurrencies, your transaction information is published in the cryptocurrency network.
In crypto world, computer systems have programs and a network that ensures that the same transaction does not happen twice. Be it a transfer of crypto, swapping of bitcoin, or whichever transaction is initiated, the programs ensure that they don’t duplicate. But as usual any system is bound to experience a failure and bound to have some duplication. The cryptocurrency system network isn’t any different from any other system that record flag out duplication. In such a case, a duplication represents a malfunction or anomaly that will be quickly pin pointed and an alarm raised for necessary remedy to be taken.
From system falsification or duplication, the issue of double spending in cryptocurrency may occur. Unlike in the case of physical currency, virtual currency is kept in a digital file that may be falsified or duplicated. All in all, a clear understanding of doubling spending in cryptocurrency would first entail a review of how a blockchain works.
Definition: Double Spending in Cryptocurrency
In cryptocurrency, when we say double spending, we simply refer to the risk that a crypto could be used more than once. There is a possibility that transaction information within a blockchain can be altered or duplicated if certain criteria are met. It is the specified conditions that give room for the modified blocks into the blockchain.
For some, it is referred to as a blockchain double spending which involves spending your digital cash of the same amount twice. A crypto transaction has a possibility of being re-broadcasted or even copied. This initiates a possibility that the same cryptocurrency say BTC, could be spent twice by the owner.
In the end, there is a potential flaw in a digital cash scheme. The same single virtual token can be used twice or more. It is the digital file within the digital token that can either be duplicated or even falsified. However, there are some initiated fundamental cryptographic techniques to curb cryptocurrency double spending while at the same time maintaining anonymity in transactions.
First, Let’s Understand and Review How Blockchain Works
In 2009, a technology of great potential and magnitude was introduced, the blockchain technology. This is a technology that allows two parties or more to make transactions without any third-party verification. Cryptocurrency is more of a distributed ledger thus no single entity with exclusive control of any transactions happening there.
A computer program is set to verify your cryptocurrency transaction. This computer program is made available to everyone and anyone dealing in cryptocurrency trading. It is the blockchain that maintains a secure and a decentralised record of all crypto transactions.
Each time a new crypto is mined, it is automatically introduced onto the blockchain. Thereafter such a virgin crypto receives an encrypted numerical identity. The encryption accorded includes a timestamp, transaction data, and information from the previous block. The encryption of this information is through a security protocol for instance, the SHA-256 algorithm for BTC.
After verification of a block of information by miners, it is then closed and a new one generated. The process is repetitive and results in the larger blocks of crypto available for buyers and traders. The main purpose of blockchain technology is to prevent duplicate copies of digital currency thus preventing double spending of the same crypto. But has this really been successful? Let’s find out.
An In-depth Understanding of Double Spending
After reviewing our understanding of the blockchain technology, you must be tip tops on double spending. The possibility of you double spending is if a secret block has been mined and it outpaces the generation of a new blockchain.
When such an occurrence is made possible, this new duplicate chain would be introduced to the network before any suspicions. This will definitely allow the network to recognize it as the latest batch of blocks and it is added to the blockchain.
For a decentralised system like cryptocurrency, the issue of double spending is particularly very hard to rectify. You realise that there is no need for a third party to verify transactions in cryptos. As a result of this hands on use, numerous servers store identical up-to-date copies of a transaction ledger. With the broadcasting of transactions, they will be arriving at every server somehow at varied times.
Therefore, if two transactions spend the same token, each server will consider the first transaction that arrives to be a valid one. The other ones arriving later on will therefore be invalid hence the servers failing to agree since each server’s observations is equally valid.
Minimising the Occurrence of Double Spending in Cryptocurrency
Though it has continued to be a sustained risk in cryptocurrency, there is a possibility that blockchain technology minimises its occurrence. The possibility of a secret block being created into the blockchain is very minimal. This is because a series of miners come together through a consensus algorithm to verify and accept every transaction.
The blockchain and the consensus algorithm move swiftly. This speed is very important to stop any modified block from having a chance into the blockchain. Duplicated blocks in such a case would be considered out of date before being accepted. Even if a server would accept it, the network would still have confirmed the information in the block and it would be rejected.
BTC has competently managed to handle the issue of double spending through its implementation of a confirmation mechanism and a common ledger. This is basically still known as blockchain technology. Therefore, it is very difficult to falsify or duplicate a block into the blockchain due to the huge amount of computing power you would need.
Double Spending Attack
The major risk for blockchain is in the form of 51% attack. This is mostly possible if a miner is in control of more than 50% of the computing power. The computing power in this case is the one validating transactions, creating blocks, and awarding cryptocurrency. A user in control of the majority of the computing system in the blockchain becomes more exposed to a 51% attack.