The entire existence of bitcoin is built on the premise that it can be transferred from one person to another without the help of a third party. It was built to transfer payment as easily as we transferred files from one device to another.
But when money can be transferred as easily as a document or music file, it means a copy of the original money can be spent several times. Double spending therefore became a major challenge for digital money.
The powerful and perhaps the most important technology of this century, blockchain is what solves the problem of double spending. This distributed ledger technology makes double spending practically impossible. Once transactions have been validated and a new block has been added, it is impossible to alter the distributed ledger as there’s no centralized ledger.
Digital information is relatively to reproduce, this is why pro double spending is a major problem of digital currencies. Fiat currency doesn’t have this problem. Cash handed to a cashier, or anyone cannot be reused again. With the technology behind bitcoin one can say – bitcoin double spending is impossible but is it really?
Has double spending occured on the bitcoin network?
On 21st January there was news that a possible bitcoin double spend caused bitcoin to fall 11%. A BitMex research suggested that there was a double spend flaw and double spending had occurred on the bitcoin blockchain. If this was true it could mean the 12 year old digital currency was just a hoax and Satoshi’s whitepaper wasn’t exactly true.
BitMex research tweeted at first that there was a possible double spend of 0.00062063 BTC ($21). Then there was another tweet that the transaction was actually an RBF. A situation where a transaction has been unconfirmed and replaced by a new one. When this happens there should be a bump in transaction fees but there wasn’t.
After another tweet by BitMex research it was concluded that there was no double spending. Insider reported according to Bitfinex CTO, Paolo Adriono that “In fact, what happened is that two blocks were mined simultaneously. As a consequence, there was a chain reorganization, which did not result in double-spending.”
The news did have some investors worried. If bitcoin wasn’t really solving the very problem it was designed to solve things could end badly for the crypto market. The clarification however doused tensions.
COO of OKcoin Jason Lao also told Coindesk that the chain reorganization that occured was a common one.
What caused a reorganization.
Bitcoin mining is highly competitive. Sometimes mining pools mine the same block at the same time which causes a split in blockchain history.
Now there’s a chain A and a chain B but there can only be one chain. If the next miner decides to add a block to chain A and the next 4 miners decide to add to chain B, chain B wins out over A and chain A becomes an irrelevant chain.
It is for this reason however, that Satoshi said a transaction should only be considered final after six more blocks have been mined to the chain that recorded the transaction.
Events such as this goes to prove how solid blockchain technology is and how accurate the bitcoin whitepaper is.
Double spending is the reason many proposed digital currency projects before bitcoin failed. Satoshi Nakamoto’s whitepaper solves this problem and in the last 12 years of bitcoin’s birth there hasn’t been any flaw in its security protocol.
Blockchain technology makes makes bitcoin double spend impossible. However, there is a scenario where blockchain might fail. This scenario is the 51% attack. This attack can happen if 50% of the computing power needed the run the distributed ledger is held by one user. This user will be able to process transfers and reverse them as if they never happened.