As the world moves increasingly away from cash, cryptocurrency is emerging as a viable alternative to provide merchants and consumers with an easy-to-use medium of exchange. For example, one of the biggest problems of traditional currencies is double-spending. When two transactions are made simultaneously, both transactions can’t be completed because they have similar inputs. This problem doesn’t exist in Bitcoin since each transaction has its own set of new inputs that are created by computers solving complex algorithms.
The increasing value of Bitcoin also makes it useful for paying for goods and services. The Eurozone crisis may have aroused suspicion in investors over fiat currencies, stimulating them to look into other options. As early as March 2013, Overstock announced that it would start accepting Bitcoin as a method of payment. The company said that it would convert all payments into dollars the moment they are received to protect itself from any volatility in Bitcoin’s value. However, the move was heavily criticized by industry experts. To find out more about investing in bitcoin, head on over to Bitcoin smarter!
Understanding Double-Spending:
Bitcoin is a distributed, peer-to-peer system where an electronic form of money can be created overnight using a computer. The system doesn’t belong to any one agency, or government and transactions are not officially registered. However, since Bitcoin is the first of its kind, there are some built-in guidelines that users can follow in order to protect themselves from double-spending. The basic idea of double-spending is to earn Bitcoins without actually spending them. The easiest way to counterfeit Bitcoins would be to spend the same amount of Bitcoin more than once. The problem is similar to counterfeiting a dollar bill in the physical world. In fact, Bitcoin enthusiasts have come up with several ways of solving this problem.
Understanding the Problem:
Bitcoin is different from paper money in that it doesn’t have a central issuer. That means there can be no identifying information about the sender or receiver even after the transaction. Consequently, it is impossible to track down counterfeiters of Bitcoins as this would require an undertaking of tracing them back to their last Bitcoin addresses. The most common way for double-spending is to send Bitcoins to a second address, where it gets withdrawn and spent again.
However, Bitcoin addresses are anonymous, and there is no central agency to regulate them. Thus the only way of identifying double-spending would be to follow the actual transaction using the network that tracks it. As soon as a transaction is tracked, all subsequent transactions are disregarded as they may just be diversions. This makes it extremely difficult to catch any fraudsters, and this has given rise to a new industry, i.e., Bitcoin mining, where people mine for Bitcoins by solving complex mathematical problems with their computers.
How To Prevent Double Spending On The Bitcoin Network?
Double spending is an issue when people create a transaction on a network and then try to broadcast it later to the network more than once. However, the Bitcoin network registers all nodes as they receive the transaction and checks whether the transaction has already been used or not. If this is not the case, then it accepts the transaction. Every node works as a gateway to other networks, thereby keeping track of all transactions. However, this doesn’t mean that the network doesn’t flag double-spending transactions. It actually discards those transactions, but it is not possible to know whether a certain transaction is authentic or fraudulent.
The first approach for preventing double spending is proof-of-work. In this case, the sender has to do some proof of work before he can spend the coins. This approach makes it easy to know if a transaction has already been transmitted or not because every node will have a log of all the transactions. However, placing work as an additional requirement to spend Bitcoins has one drawback; it slows down the network.
Role Of Proof Of Work Consensus:
Every transaction must be confirmed by the network before it can be recorded on the ledger. The work required to confirm a transaction is called proof of work. This is to protect the network because if anyone moves more transactions than other nodes, it will disrupt the Bitcoin system. In order to stay ahead of other nodes, each node has to continue working hard in order to get more transactions confirmed quickly. There are more nodes on the network that carry out this process, and every node, in turn, must do this for any new transactions being added to the block.
Conclusion:
The Bitcoin network is a peer-to-peer network where the transactions are verified without any central agency. Due to this, it is difficult to trace and track double spending on the Bitcoin network. For this reason, several members have come up with ways to solve this problem. The most common way to prevent double-spending is proof of work. The other option is to make transactions look tempting, making them easy to track.
