Cryptocurrencies are solving a problem that is most commonly known as double spending.
What is double spending?
Double-spending is a flaw through which the same currency can be spent more than once.
This issue is only applicable to digital currencies since there is a possibility to reproduce digital information. For example, a digital currency holder can copy a token which he then sends to another party, while he retains the original.
On the contrary, physical currencies (cash and coins) do not have this issue because they cannot be easily replicated. Aside from that, in most cases, individuals that partake in a transaction can easily verify whether or not a paper bill or coin is original.
How does it happen?
There are two types of doubles spending attacks on the cryptocurrency network:
- Race attacks, which are achieved when two transactions from a cryptocurrency wallet are being sent to two wallets simultaneously, without transaction confirmation.
In the end, only one wallet receives the funds, with the transaction appearing first in the blockchain while the second one is rejected along the way.
- A 51% attack is also a possibility. This situation occurs when an attacker controls more than 50% of a cryptocurrency network. When this happens an attacker is able to create his own blockchain and start stacking transaction blocks.
However, the odds of this happening are very slim since it requires a lot of computational power and, depending on today’s mining difficulty, high electricity costs, and hardware expenses.
How is Bitcoin protected from double spending?
Bitcoin is, by design, shielded from double spending attacks. It has a mechanism based on transaction logs that helps the network verify the authenticity of all transactions being made, preventing double-spending as a result.