Understanding Double Spends
Throughout our economic history, we’ve devised all kinds of different processes to mitigate the everyday challenges that arise when trying to transact with each other.
Long ago, we moved on from barter systems, where people directly exchanged goods between one another, to using physical forms of moneyWhat Is Money? Money is a tool that enables humans to perform 3 basic functions: store value, exchange value, and account for value. In order for money to perform its... like coins and notes. To manage who owns what, we developed written ledgers to record transactions. Eventually those ledgers moved to the modern electronic and digital systems of today.
Bitcoin represents yet another pivotal moment in our transactional history, enabling people to transact directly with one another without having to rely on traditional intermediaries. As with every monetary system, of course, there are still issues to address.
One of these major issues in transactions – that we’ve poured trillions of dollars into in an effort to prevent – is double spending.
What Is A Double Spend?
It’s no surprise that Satoshi mentioned double spending as the very first issue that Bitcoin solves. Doing so is what differentiated bitcoin from every other attempt at a digitally-native money up until that point.
As the name suggests, a “double spend” simply refers to the act of using the same funds more than once. With traditional paper fiat currency, you can see why double spending is a bit difficult – once I hand the cashier the physical money, I physically don’t have any more to spend again.
In the digital world of abundance, where you can reproduce anything with a single keystroke, double spending suddenly becomes a much more real problem.
Since information isn’t physical in the digital space, it’s theoretically possible to double spend “digital” money that’s malleable. Anyone can easily copy digital information, potentially allowing dishonest users to spend the same money multiple times.
People have been trying to make digital currencies for decades, but Bitcoin was a revolutionary breakthrough precisely because it solved what other digital currencies couldn’t: double spending.
An Example Of Double Spending
Thinking of a double spend is actually fairly simple; Just think of what happens when you write a bad check.
Let’s say BobWho Are Alice and Bob? Alice and Bob are fictional characters who are often used to describe problems or dilemmas in cryptography or communications protocols. Alice and Bob are typically... has $1,000 in his bank account. He pays his friend AliceWho Are Alice and Bob? Alice and Bob are fictional characters who are often used to describe problems or dilemmas in cryptography or communications protocols. Alice and Bob are typically... $1,000, but the transaction takes some time to process. Before processing, Alice happily spends the $1,000, thinking she has the money available.
Now, assume an emergency comes up for Bob and he’s forced to cancel his $1,000 payment to cover emergency expenses. The transaction cancels and reverts the money back to Bob, but Alice already spent the $1,000! This demonstrates a double spend: Alice never received the $1,000, but she’s already spent it.
Knowingly double spending is a criminal offense in most jurisdictions, and banks can still penalize you for it, even if it was an accident.
The Problem With Double Spending
If we simply left double spending unaddressed and tried to operate the economy while accounting for it, we wouldn’t have an economy to begin with.
Double spending isn’t just a nuanced payment problem; it undermines the very foundation of trust and security in an economic system. Imagine that you just spent $100 online for a brand new pair of shoes, only to find out a day later that someone else used the same payment to buy shoes of their own, rendering your initial transaction null and void.
In the context of bitcoin specifically, think about its design for a moment:
Whenever you transact with bitcoin, you broadcast the transaction to every node upholding the network. Because of this, on-chain transactions take more time to confirm.
This delay causes problems for digital currency like bitcoin when we have to verify which transactions are valid and which aren’t. What prevents someone from duplicating a transaction and rebroadcasting it before the network confirms the original transaction?
How Have Third Parties Tried To Solve Double Spending?
Since the initial development of digital payments, countless third parties have tried to tackle the double spending problem with a centralized approach.
Some of the centralized attempts at double spending mitigation include:
- Banks and payment processors: Traditional payment systems, like credit cards and online banking, rely on these centralized entities in order to function. These authorities maintain a centralized ledger of transactions and try to prevent double spending by verifying and authorizing each transaction.
- Transaction reversals: Some, but not all, payment systems are able to reverse transactions within a limited timeframe. So once detecting a double spend, these systems are able to go in and reverse the transaction. However, once again, this approach relies on intermediary involvement and may not work for all digital assets.
- Account-based systems: Certain digital payment systems employ account-based models where balances are tracked internally, which prevent users from spending more money than they have in their accounts. Of course, by doing this, you’re placing trust in the central authority to track and enforce these rules reliably and fairly.
Are you picking up on the common problem that centralized authorities have when trying to address double spending? They all require trust.
How Does Bitcoin Solve Double Spending?
Bitcoin solves double spending by approaching the problem from an entirely different angle: by relying on a public, distributed ledger that anyone can verify, and enforcing proof-of-work (PoW) mining to prevent centralized control over this ledger.
Let’s go back to the basics of bitcoin and break down how each component works, and how they both come together to create a double spend-proof monetary network.
Understanding The Bitcoin Blockchain
Bitcoin’s blockchainWhat Is The Blockchain? The blockchain is the public record of bitcoin transactions, which are organized into blocks that are all chronologically linked to one another. Because every block is... is a distributed ledger: a chronological and immutable record of all transactions that anyone (hence “distributed”) can interact with and verify, not just a central bank or payment processing company.
So let’s say, for example, that you want to try and double spend some bitcoin. In practice, this would mean sending the same BTC to two different Bitcoin addresses simultaneously. Initially, you may think you’ve succeeded, as both unconfirmed transactions will then go into Bitcoin’s mempoolWhat Is The MemPool? The MemPool, short for memory pool, is a short-term database of unconfirmed transactions that is kept by each node. Although the term "MemPool" is frequently used,... – the queue for all pending transactions.
However, since the network must come to a consensus about the state of transactions, the Bitcoin blockchain will only approve the first transaction and void the second one. It only selects the transaction with the highest number of confirmations from other nodes, while discarding the second transaction.
By gaining consensus from nodes, the transaction validation process rejects any attempts at double spending. Transactions flow chronologically through the Bitcoin blockchain, so any attempts to disrupt that flow are penalized.
Now, this might all seem like a quick fix, but anyone can code up a blockchain with similar properties. To ensure that Bitcoin’s ledger can’t be replicated or manipulated, bitcoin requires Proof of WorkWhat Is Proof Of Work? Proof Of Work, often abbreviated as PoW, is both the method for achieving consensus across the entire Bitcoin network as well as a piece of....
Detecting Double Spends
Let’s get a bit more technical now.
Detecting a double spend requires looking through the hashes – those long strings of numbers generated by PoW mining. When you feed data through Bitcoin’s SHA-256 hashWhat Is A Hash? A hash, or cryptographic hash, is a mathematical function that takes digital data of any size as an input and produces a digital output of a... function, it creates a single hash. However, any attempts to change the original data, no matter how small, will create an unrecognizable hash. And since a hash is a one-way function, you can’t pull the original data from it, you can only verify that the newly-generated hash matches the original data that created it.
Bitcoin requires real energy, or “work”, to generate new hashes. How “difficult” it is to generate a valid hash adapts algorithmically so that generating it – or mining a new block – takes approximately 10 minutes.
Miners don’t merely search for any hash; they strategically adjust the nonceWhat Is A Nonce? A nonce, short for "number used once", is a pseudo-random number used by miners to iterate the output of their block hash. Miners use a trial-and-error... – an integer value that creates a hash when combined with transaction data and other block information – to generate a hash that’s lower than the current target value of difficulty.
Preventing Double Spends
The nonce is essentially the transaction’s sequence number – meaning that if a miner sees an erroneous or out of place nonce, they can determine that it’s invalid and won’t serve as “Proof of Work.”
Bitcoin’s blockchain upholds the chain that accumulates the most “Proof of Work” – or in other words, the “longest” chain. It’s an elegant design, but it requires constant upkeep. If the Bitcoin network allowed for centralized entities to simply take control over network consensus (as is the case with all other monetary networks), then bitcoin wouldn’t really be solving anything.
The critical difference with bitcoin is that consensus requires Proof of Work, and Proof of Work is expensive.
Mining bitcoin is resource intensive and becoming increasingly difficult over time. So counterintuitively, while the world has been in constant transition towards more “efficient” solutions, making manipulation of information easier than ever before, Satoshi NakamotoWho Is Satoshi Nakamoto? Satoshi Nakamoto is the creator of Bitcoin and the first user of the original Bitcoin client. He has said in a P2P foundation profile that he... went against the grain to create a system that’s highly difficult to change. You have to expend time, money, and energy to have a “voice” in the network.
And having the “loudest” voice – the ability to override the network’s agreed-upon rules (also known as a “51% attackWhat Is A Bitcoin Attack? A Bitcoin attack is when someone launches any number of different cyber attacks against the Bitcoin network or its users. Some attacks are launched directly...”) – would require a single entity to spend enormous amounts of capital to attack it.
Bitcoin’s decentralization makes sure of this: You’d have to spend more resources than half of what the collective of Bitcoin miners dispersed around the globe spend.
Using a distributed ledger and a proof-of-work system to enforce it, Bitcoin not only solved the double spend problem but also laid the foundation for the broader adoption and acceptance of digitally-native currency as a legitimate form of exchange.
How Bitcoin’s Solution Benefits The Future
Trustlessly solving the double spending problem has profound implications for the future of finance and society at large. It’s enabling the world to enjoy an open monetary network that promotes:
- Trustless transactions: Since bitcoin introduces the precedent for truly trustless transactions, this empowers individuals to transact directly with each other and reduce our dependence on costly intermediaries.
- Global accessibility: With a reliable digital currency, the entire world has access to bitcoin’s open monetary network, opening up all kinds of different financial opportunities for the world’s 1.7 billion unbanked people as well as those with limited access to financial services.
- Borderless payments: Bitcoin allows us to seamlessly transfer money across international borders without the complexity and delays that come with traditional international transfers.
- Financial sovereignty: Most importantly, creating a double spend-proof currency like bitcoin gives individuals greater control over their wealth. People no longer have to store their wealth in the hands of another institution. Owning a Bitcoin private keyWhat Are Bitcoin Keys? Bitcoin keys are randomly generated strings of numbers and letters that are used to send bitcoin and/or verify ownership of a bitcoin address with a digital... lets people opt out and store their wealth with a truly counterparty-free solution.
The foundation of any civilization is a robust economy. By mitigating the double spend problem in an entirely trustless manner, we remove so many of the inefficiencies that hold our current economy back and hinder our ability to progress forward.
Final Thoughts
Beyond the technical achievement of solving double spending, SatoshiWhat Is A Satoshi? A Satoshi (sat or sats for short) is the smallest unit of a bitcoin. 1 Satoshi is a hundred millionth of a BTC (1 sat =... Nakamoto ushered in a paradigm shift in the way humans think about our financial system.
Because Bitcoin was the first digital currency to solve the double spend problem, it lays the foundation for a new financial world built on trustless, secure interactions that avoid human error or malpractice.
We can now think beyond the confines of centralized economic planning. How much cheaper can our financial services become if they don’t require a middle man? How much time do we save by letting a distributed ledger manage our money instead of intermediaries? How much fraud, theft, and anxiety about our finances do we prevent that would’ve paralyzed us otherwise?
FAQs About Double Spending
Q: Can’t we rely on trusted intermediaries to prevent double spending?
A: “Trusted third parties are security holes.” By placing trust in someone else, you introduce a potential security risk that’s out of your control. Bitcoin removes the need for trust and enforces decentralized consensus to eliminate this reliance on third parties, making transactions more secure and far less likely to be double spent.
Q: Is double spending a concern for all digital currencies?
A: Yes, double spending is a fundamental challenge for any digital currency. It arises due to the ease of copying digital information. Bitcoin’s solution is groundbreaking because it makes producing digital information difficult. The more expensive it is to execute a double spend, the less likely it is to happen.
Q: Why is double spending a problem?
A: Not only do double spends undermine the validity of transactions, they actively exacerbate inflation by creating newly copied currency that was non-existent prior to the double spend. Bitcoin’s solution to double spending not only ensures transaction validity but also inflation resistance by keeping the BTC supply fixed to 21 million units.