Bitcoin, the world’s first blockchain, was created as part of an attempt to create the
world’s first truly viable digital currency.
Bitcoin was not the first attempt to create a digital currency, but it was the first which
was able to successfully solve a long-standing problem – the “Double Spend” problem.
The Double Spend problem is quite simple.
Let’s say Alice owes a debt of $5 to both Bob and Carol.
Alice’s total debt is $10, but let’s assume she only has $5 currently.
If Alice’s transactions were recorded on two separate ledgers, it is possible that one
ledger would show she paid $5 to Bob, while the second ledger may show she paid $5 to
Carol.
It would be impossible to tell who actually got paid.
This is the double spend problem – any financial ledger MUST prevent Alice from spending her
$5 more than once.
Digital assets are particularly vulnerable to the double spend problem as we generally
design them to be easy to copy and distribute.
If you’ve got a great picture you took with your phone, it’s easy to post one copy to
Facebook, another copy to Instagram, then you might text a copy to your spouse, and
email a copy to your parents.
We live in a world where digital assets are easy to copy and distribute, by design.
A digital currency should NOT be easy to copy and distribute though.
It was overcoming this technical challenge that lead to so many failed attempts at digital
currency before Bitcoin, and the innovations that the solution to this problem has delivered
are now being leveraged to track and manage many different types of assets and data that
we never could easily manage before.
It is this possibility of building tools and solutions that were never before thought possible
that has so many people excited about the blockchain revolution!
(Source: LinuxFoundationX LFS170xBlockchain: Understanding Its Uses and Implications)
▬ 5 steps to prevent double spending
► Many nodes (computers) forming peer-to-peer network
► Information is sent to all the nodes
► Every node saves the information
► Sending again is rejected by network
► Double-spending problem solved It is also important to note the networks are designed to prevent double spending attacks. Cryptocurrencies need to have BFTs (Byzantine Fault Tolerance) built into their protocol. BFTs mean that a computer system has to keep functioning to a level of satisfaction if errors or breakdowns occur, even if some of the participants try to cheat the system. In line with this, ownership structures of crypto currencies are recorded in the blockchain, a public ledger or a high tech database, while being simultaneously confirmed by cryptographic protocols and the crypto community. As all transactions are openly recorded and secured in an open ledger running on thousands of computers all over the world at the same time, everyone sees the transactions that have already been made. In the case of Bitcoin, transactions are verified by miners who ensure the transactions during the verification process are irreversible, final and cannot be modified by computers, therefore solving the issue of potential double spending.
▬ When is a double spend possible?
► Race attack: A double spend attack where two transactions are sent in a quick succession and only one is confirmed on the block chain
► Finney attack: The miner premines a transaction into a block from one wallet to another. Like a race attack, a finney attack is only possible if the recipient attack is an unconfirmed transaction.
► 51% attack: 51 percent of the network actually manages to be controlled by a single entity. Then the entity has control of the hashing power, giving them the opportunity to rewrite blocks and add fraudulent transactions to a ledger. Sophisticated or larger cryptocurrency networks are actually pretty much immune to double spending due to their large hash rate.(Bitpanda Academy) https://www.youtube.com/watch?v=DhYegGIS3do)