In recent times, there has been a dramatic rise in the popularity of cryptocurrencies across the far reaches of the globe. The high volatility associated with these virtual currencies has attracted several investors. However, one of the major issues for cryptocurrency developers is double-spending. This can be defined as an activity that involves an individual transacting more money than the required amount, thereby causing a disparity between the amount of the available cryptocurrency and the spending record.
Traditional Fiat currencies monitor such issues by paying real cash or by employing the services of third-party intermediaries, including PayPal, banks, credit card services, among others. These parties are responsible for recording any changes that occur in the account balances, in accordance with the transactions. For instance, if you purchase a mobile phone with a $500 bill, you simply cannot turn around and spend that same bill in another transaction. Yet, when it comes to cryptocurrencies, they function in an open digital world, which consists of no third-party involvement. Its concept is in stark contrast with that of the traditional approach in the financial world. For this reason, if someone says they have 20 BTCs with them, how can they be trusted that they actually do?
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To keep track of transactions and promote trust, the blockchain records all transactions in a way that makes it impossible to be tampered with. In the case of Bitcoin, this ledger ensures that all Bitcoins transactions can be tracked, from the first time they were recorded. Again, it is worth pointing out that Bitcoin is a digital currency, which is not monitored by any third party. The concept of blockchain removed the need for intermediaries, unlike traditional financial services. For this reason, a Bitcoin owner who solemnly claims to have a certain amount of BTCs can be trusted since there is a public ledger that records all transactions. There is no way a user can lie about the number of cryptocurrencies in their possession since there is a technology that can keep track of every transaction right from the start. So, in every transaction, there are miners that check for any form of malicious double-spending by going through the public ledger. Once it is found perfect, then the transaction can be verified.
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How The Blockchain Deals with Double Spending
Take, for instance, a Bitcoin owner has 5 BTCs and they intend to spend this two times in two different transactions. They could try this by sending the same BTC to two different Bitcoin wallet addresses. What happens is that these two transactions will enter a pool of unconfirmed transactions. While the first transaction is approved as a valid transaction through a confirmation mechanism and added to the blockchain, the other transaction is seen as invalid by the confirmation mechanism and will not be verified. However, if both transactions happen to have been pulled from the pool of confirmation at the same time, the transaction that boasts the higher number of confirmations will be verified and added to the blockchain, while the other is discarded.
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Even though this effectively tackles the challenges of double-spending, it has its issues as well. For instance, the recipient of the failed transaction, as explained above, would have no part in that transaction failing, but would not receive the Bitcoin they had expected. There are instances when merchants wait for more than 6 confirmations of transactions. This implies that after a transaction, six subsequent blocks of transactions must be added to the blockchain. Then, it can be safely assumed that the transaction is a valid one.
It is only natural for traders and investors to be concerned about double-spending in networks that involve no third-party intermediary. To encourage trust, blockchain tracks every transaction and ensures that all users have what they claim.