A problem that arises when a user is transacting a digital currency by spending the same currency numerous times is double-spending. One of the major concerns of any cryptocurrency developer is crypto double-spending. It is a situation where an individual spends their balance of cryptocurrencies more than multiple times. For example, in the case of Bitcoin, the major reason for Bitcoin double-spending is that the digital currency can be easily mined. There are two ways to contain double-spending; blockchain and centralization.
What is Double-Spending?
Double-spending is a major problem that emerges when the user is transacting with digital currencies and has spent the currencies numerous times. Several transactions that share the same input are broadcasted into the network which might become a problem for that digital currency. This problem can be prevented by using blockchain, like Bitcoin, that uses a consensus mechanism identified as Proof-of-Work (PoW).
Types of Double-Spending Attacks
Developers consider that the problem of double-spending can be solved by using blockchain technology; Here are the types of double-spending which include Finney attacks, Race attacks, and 51% attacks.
- A race attack is also known as a “double-spend attack” where two transactions are executed in quick succession and one of the transactions is confirmed by the blockchain. The main objective is to purchase a thing using an unconfirmed transaction and invalidate it before confirmation. It is possible only if the merchant/recipient accepts this and confirms the transaction.
- The next type of attack is the Finney attack and can be performed only by a miner. The miner should pre-mine a transaction into the block from one wallet to another wallet. Next, they use the first wallet to execute the second transaction and broadcast the first transaction which includes the pre-mined block. Just like a race attack, it is possible if the merchant/recipient accepts an unconfirmed transaction.
- 51% attack is carried out when an individual or a group controls over 50% of the hashing power of the network to alter the blockchain. Using this control, a double-spend attack is launched; but, because of Bitcoin’s high hash rate, it is an unlikely situation in bitcoin’s protocol.
How to Counter Double-Spending?
To prevent double-spending attacks, a very strict verification process is necessary. It should ensure that the same input should not be shared with multiple transactions. There are 2 important ways to counter double-spending.
Potentially, centralization can mitigate the risk of double-spending when a digital currency transaction takes place. This is carried out by implementing trusted and central third parties for verifying the transactions. These entities can perform the function of central counterparty clearing.
Bitcoin, a decentralized digital currency uses consensus mechanisms that are used for verifying the transactions with confidence. To carry out the double-spend attack, the user should need a significant amount of hashing power to remove the previous blocks in the blockchain and to carry out double-spending. Eventually, the confirmation done on the blockchain grows exponentially by further protecting the transaction’s integrity.
How does Bitcoin Prevent Double-spending?
Bitcoin combats double-spending fraud using the powerful technology known as the blockchain. It works like the monetary system or like the ledger used for fiat currencies and traditional currency, by recording and keeping track of the transactions in the blockchain network. The blockchain records of Bitcoin are time-stamped transactions that are shown in a chronological sequence dating back to 2009 when it first started its operations.
In conclusion, Bitcoin double-spending attacks have been discussed and studied in the blockchain community. Bitcoin is immune to this type of double-spending attack; other cryptocurrencies have less hashing power that can be double-spent using 51% attacks. These attacks have been targeted on a cryptocurrency exchange that has large holdings, as these attacks are quite expensive. To make a profit, the attackers should successfully need to double-spend more than the cost of attack.