One major problem that plagues digital currencies is double-spending. Ultimately, this exploit allows users to spend their funds multiple times by manipulating the records.
But what you may not know is that Bitcoin removes this problem entirely. That is why in this article I will be providing a detailed explanation of how Bitcoin prevents double spending and much more.
So without further ado, let’s jump right in.
Bitcoin counteracts double-spending as it logs all transactions on the blockchain with a corresponding time stamp. Since its inception, there has been a permanent and unalterable transaction history. Therefore, if a user attempts to spend the same funds twice the transaction is denied as there is a previous record of the funds being spent.
What is double spending?
First of all, let’s define double-spending. In essence, double spending is an exploit in digital currencies whereby users can spend the same funds twice.
As the funds are digital they can often be manipulated and falsified. In other words, records stored on a database can be artificially edited to allow continued spending of capital.
In traditional finance a third party prevents this exploit by verifying the transaction. That being said, all parties involved must place their trust in this intermediary. Not to mention, the third party represents a single point that can fail.
This is where Bitcoin thrives. Ultimately, the trust is placed in the smart contract and code rather than a middleman. Moreover, the transactions are immutable meaning they cannot be altered or deleted once spent.
How does Bitcoin prevent double spending?
Bitcoin prevents double-spending by recording all transactions of the network in a distributed ledger known as the blockchain. Each computer (known as a node) in the network stores a copy of the ledger.
When new transactions are confirmed by miners they are given a timestamp that is immutable meaning it cannot be edited or reversed. This is then recorded by all nodes in the network as a permanent record.
If there is a second transaction waiting in the mempool to be confirmed this will be denied as there is a previous record of the funds being spent with the corresponding timestamp.
As the majority of nodes in the network must confirm the transaction is valid for it to be added, it counteracts potential manipulation by bad actors.
Ultimately, a malicious party cannot hijack the consensus mechanism without securing the majority of the computing power.
Can double spending happen in Bitcoin?
As mentioned previously, if a bad actor secures the majority of the computational power of the network they can double spend. This is what is referred to as a 51% attack.
At this stage, they have governance over the platform as they secure the majority of the voting power. At this point, they can reverse and edit transactions which in turn allows them to spend the same funds twice.
That being said, this would require billions of dollars in computational resources. Moreover, if this did occur then the value of the network would collapse immediately rendering Bitcoin’s value worthless. Therefore, there is little financial incentive for this attack.
If you want to view this article in a more visual format then please check out my video below:
As you can see, Bitcoin prevents double-spending by assigning each transaction a timestamp that cannot be edited. Not to mention, each node in the network contains a copy of the ledger which is used to verify the legitimacy.
This creates a robust system without a single point of failure. I hope you found this article useful and thanks for reading it. Want to learn about why Bitcoin’s price fluctuates so much? Click here to read my previous article.