Cryptocurrency transactions are secure and trustworthy thanks to blockchain technology. However, as with most innovative systems, the blockchain has exploitable vulnerabilities, which can lead to double spending. But what is double spending, and how is it prevented?
What Is Double Spending?
Double spending occurs when a single entity spends the same cryptocurrency token more than once. This is caused by a flaw in digital currencies that makes them easily reproducible.
The information on the blockchain network can be modified during transactions, provided certain conditions are met. When these conditions are fulfilled, the altered blocks of transactions can enter the blockchain, allowing the perpetrator to reacquire previously spent crypto tokens.
To better understand how this happens, here is a simplified process description. When a transaction is carried out on a blockchain network, say Bitcoin, it creates a block that contains the transaction data, the data from the previous block, and a time stamp. The block has an encrypted code called a hash.
The people who mine Bitcoin on the Bitcoin network then verify the transaction via a proof-of-work consensus algorithm, close the block, and create a new block. The new block contains the timestamp, the previous block’s hash, and the new transaction data. Afterward, the victorious miner receives block rewards (BTC) for verifying the hash.
To successfully execute double spending, the perpetrator has to mine a secret block that outpaces the creation of the actual block. To do this, the perpetrator has to introduce the secret block before the new block so that the network, deceived into thinking it is the latest set of the growing block, adds the fake block to the ever-increasing chain. The perpetrator can then reclaim the previously used crypto tokens.
Even though double spending is a well-known phenomenon in the crypto space, there is no documented case. That’s because verifying transactions is a complex process that requires tremendous computational power. Falsifying or duplicating a block is intense, as perpetrators must work ahead of every other miner on the blockchain.
Why Is Double Spending a Problem?
Double spending is an insult to the security of the blockchain network. It happens when there’s an exploitable weakness.
Furthermore, the blockchain network is supposed to be secure and trustworthy. If double spending occurs on a cryptocurrency network, it creates distrust for that cryptosystem, disincentivizing investors. And eventually, the value of the token will fall.
Additionally, double spending is digital theft. The hacker gains while someone else on the network, usually a merchant, loses. The perpetrator retains ownership of the merchant’s goods and the crypto token.
Examples of Double Spending Attacks
There are different forms of double-spending attacks that cyber criminals employ. Here are some of them:
