Double spending in cryptocurrency

Users are able to navigate the blockchain for bitcoin and review transactions in terms of quantity only. Details about the identities of the buyer and seller in any transaction are protected by high-level encryption, which also protects the ledger from tampering by outside sources. When the blockchain ledger is updated, so too are all bitcoin wallets.

Imagine that you have 1 BTC and you attempt to spend it twice in two separate transactions. You could attempt to do this by sending the same BTC to two separate bitcoin wallet addresses. Both of these transactions will then go into the pool of unconfirmed transactions. The first transaction would be approved via the confirmation mechanism and then verified into the subsequent block. However, the second transaction would be recognized as invalid by the confirmation process and would not be verified.

If both transactions are pulled from the pool for confirmation simultaneously, the transaction with the highest number of confirmations will be included in the blockchain, while the other one will be discarded. While this effectively deals with the issue of double spending, it is not without its issues.

For example, the intended recipient of the second failed transaction would not have part in the transaction itself failing, and yet that person would not receive the bitcoin they had anticipated. Many merchants wait for at least 6 confirmations of a transaction meaning that six subsequent blocks of transactions were added to the blockchain after the transaction in question.

At this point, the merchant can safely assume that the transaction is valid. There remain other vulnerabilities in this system which could allow double-spend attacks to take place. If an attacker were somehow able to get control of this much computational power, they could reverse transactions and create a separate, private blockchain.

However, the rapid growth of bitcoin has virtually insured that this type of attack is impossible. Now let's get a little more technical. The way that users detect tampering such as an attempt to double-spend in practice is through hashes , long strings of numbers that serve as proof of work PoW. Put a given set of data through a hash function bitcoin uses SHA , and it will only ever generate one hash.

Due to the "avalanche effect," however, even a tiny change to any portion of the original data will result in a totally unrecognizable hash. Whatever the size of the original data set, the hash generated by a given function will be the same length. The hash is a one-way function: it cannot be used to obtain the original data, only to check that the data that generated the hash matches the original data.

Generating just any hash for a set of bitcoin transactions would be trivial for a modern computer, so in order to turn the process into "work," the bitcoin network sets a certain level of "difficulty. Setting difficulty is accomplished by establishing a "target" for the hash : the lower the target, the smaller the set of valid hashes, and the harder it is to generate one.

In practice, this means a hash that starts with a long string of zeros: the hash for block , for example, is ddefdbb1bd75e8d78ff2e8d. That block contains 2, transactions involving just over 1, bitcoin, as well as the header of the previous block. If a user changed one transaction amount by 0.

Since a given set of data can only generate one hash, how do miners make sure they generate a hash below the target? They alter the input by adding an integer, called a nonce "number used once". Once a valid hash is found, it is broadcast to the network, and the block is added to the blockchain. Mining is a competitive process, but it is more of a lottery than a race. On average, someone will generate acceptable proof of work every ten minutes, but who it will be is anyone's guess.

Miners pool together to increase their chances of mining blocks, which generates transaction fees and, for a limited time, a reward of newly-created bitcoins. Proof of work makes it extremely difficult to alter any aspect of the blockchain, since such an alteration would require re-mining all subsequent blocks. It also makes it difficult for a user or pool of users to monopolize the network's computing power, since the machinery and power required to complete the hash functions are expensive.

Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. You pay in cash. The service provider at Restaurants instantly confirmed that you have paid, and you received your coffee in exchange for the money. The answer is NO. But what if the answer is YES? It means the same person can use the same cash more than one times. This type of problem is known as Double Spending Problem. In a physical currency, the double-spending problem can never arise.

But in digital cash-like bitcoin, the double-spending problem can arise. Hence, bitcoin transactions have a possibility of being copied and rebroadcasted. It opens up the possibility that the same BTC could be spent twice by its owner. Bitcoin handles the double-spending problem by implementing a confirmation mechanism and maintaining a universal ledger called blockchain.

Let us suppose you have 1 BTC and try to spend it twice. You made the 1 BTC transaction to Alice. Again, you sign and send the same 1 BTC transaction to Bob. Both transactions go into the pool of unconfirmed transactions where many unconfirmed transactions are stored already. The unconfirmed transactions are transactions which do not pick by anyone. Now, whichever transaction first got confirmations and was verified by miners, will be valid.

Another transaction which could not get enough confirmations will be pulled out from the network. In this example, transaction T1 is valid, and Alice will receive the bitcoin. Suppose two different miners will pick both transactions at the same time and start creating a block. Now, when the block is confirmed, both Alice and Bob will wait for confirmation on their transaction.

Whichever transaction first got confirmations will be validated first, and another transaction will be pulled out from the network. Now suppose if both Alice and Bob received the first confirmation at the same time, then there is a race will be started between Alice and Bob. So, whichever transaction gets the maximum number of confirmations from the network will be included in the blockchain, and the other one will be discarded.

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