The problem of double-spending is one of every cryptocurrency developer’s main worries. This refers to the occurrence of a person using a cryptocurrency’s balance more than once, effectively leading to a discrepancy between the spending history and the currency’s available supply and distribution patterns.
Cash does not have the problem of double-spending; if you hand a $10 bill to a sandwich vendor to pay for a sandwich, you cannot use that same $10 note to buy something else later. However, a transaction made with a digital money like bitcoin only happens online. This indicates that it is feasible to replicate the transaction details and rebroadcast them, allowing a single owner to spend the same amount of BTC several times. We’ll look at how bitcoin developers have made sure that double spending is impossible below.
Getting to know the Blockchain
A digital currency like bitcoin’s blockchain, which serves as its foundation, is unable to stop double spending on its own. Instead, all of the many cryptocurrency-related transactions are posted to the blockchain, where they are each individually authenticated and secured by a confirmation process. Transactions that have been thus way confirmed become irreversible in the case of bitcoin and many other cryptocurrencies; they are made public and kept in perpetuity.
The problem of double spending was initially addressed by Bitcoin, a leading digital currency. It accomplished this by putting in place this confirmation mechanism and preserving an all-encompassing shared ledger system. Thus, the bitcoin blockchain keeps track of time-stamped transactions dating back to the cryptocurrency’s inception in 2009.
A “block” is a collection of data that is permanently stored in a Bitcoin transaction. Similar to a stock transaction ledger on an exchange, all recent transactions are recorded in blocks. Every few minutes, information from new blocks is added to the ledger, which is maintained by all network nodes. Users can search the bitcoin blockchain and view transactions based solely on their volume. High-level encryption safeguards the identities of the buyer and seller in any transaction and prevents tampering with the ledger by outside parties. All bitcoin wallets are updated along with the blockchain ledger.
Explained: Proof of Work & “Mining”
Let’s now talk in more technical terms. Hashes, which are lengthy strings of numbers that serve as evidence of labor, are the primary method by which users in practice identify manipulation, such as an attempt to double-spend (PoW). A hash function (SHA-256 is used by bitcoin), when applied to a piece of data, will only ever produce one hash. The “avalanche effect,” however, causes even a minor alteration to any aspect of the original data to produce a completely unrecognizably hash. The hash produced by a specific function will have the same length regardless of the size of the underlying data set. The hash function is a one-way operation; it can only be used to verify that the data that produced the hash matches the original data.
How do miners ensure that they produce a hash that is lower than the objective when a particular collection of data can only produce one hash? They change the input by including a nonce, which is an integer (“number used once”). A block is added to the blockchain whenever a valid hash has been discovered and announced to the network.
Although the mining industry is competitive, it is more like a lottery than a race. Every ten minutes, on average, someone will produce acceptable proof of employment, but no one can predict who it will be. Together, miners can boost their chances of finding blocks, which produces transaction fees and, for a while, the potential to get newly produced bitcoins as a reward.
Due to proof of work, it is very challenging to change any component of the blockchain because doing so would necessitate mining all new blocks. Additionally, because the equipment and power needed to perform the hash functions demand a significant investment, it becomes impossible for a single user or group of users to monopolize the network’s computational capacity.
