What is Double-Spending in Blockchain & How to Prevent it?

 

Due to technological advancements, conducting monetary transactions in today’s digital era is quicker and more convenient. One potential downside to these luxuries is the increased likelihood of Double spending.

Double spending is an issue that needs to be addressed in the blockchain and cryptocurrency communities to ensure the security and privacy of digital transactions. Every cryptocurrency needs to solve the complex computational problem of preventing double-spending. Any cryptocurrency transaction could be duplicated at any time if this were not the case, rendering the currency worthless.

In this blog, we will talk about the Double Spending attack in blockchain technology.

First, What is Double-Spending?

Double spending, in its simplest terms, refers to spending the same digital currency more than once. This fraudulent action is made possible by exploiting the time it takes for transactions to be confirmed and recorded on the blockchain network. The challenge arises when a user tries to send the same funds to multiple recipients simultaneously.

In traditional financial systems, physical cash cannot be duplicated, making it inherently secure. However, in the digital realm, there is no physical representation of the currency, making it susceptible to duplication and misuse.

Since digital currencies are merely files, a malicious user can create multiple copies of the same file and use it in different locations. This issue can also occur if the network is altered or if copies of the currency are used instead of the original.

There are also double spends, which allow hackers to undo transactions so that they occur twice. It causes the user to lose money twice, once for the hacker’s fake block and again for the original block.

How Does Double Spending Happen in Blockchain?

Double spending occurs when a digital asset, like a cryptocurrency coin, is used more than once for different transactions. This unethical practice undermines the trust and reliability of the blockchain system, as it disrupts the immutability and integrity that lie at the core of its functionality.

In traditional centralized financial systems, double spending is almost impossible due to the presence of trusted intermediaries, such as banks, that validate and record transactions. However, in decentralized blockchain networks, there is no central authority to verify transactions, making them susceptible to double spending attempts.

Let’s now examine how a double-spending problem occurs:

1. The attacker starts a transaction on the network, like sending a certain amount of cryptocurrency to a legitimate merchant in exchange for goods or services.
2. The attacker also starts working on a private copy of the blockchain. This fork has a different version of the transaction history in which the cryptocurrency used in a legitimate transaction is sent back to the attacker’s wallet.
3. The attacker competes with the rest of the network’s computers to make sure that their private fork of the blockchain grows faster than the real one. The goal is to have a longer chain than the public chain before the merchant considers the transaction to be confirmed.
4. The attacker mines new blocks with the double-spending transaction on their private fork. As long as the attacker’s fork grows faster than the public chain, they will have more computational proof of work to back up their chain.
5. Before a transaction is considered final, merchants usually wait for a certain number of block confirmations. If the attacker can mine blocks quickly enough on their private fork, they can show the merchant a longer chain that shows the double-spending transaction as “confirmed.”
6. The merchant releases the goods to the attacker after concluding that the transaction has been confirmed.
7. Once the attacker’s private fork surpasses the public chain in length, it becomes the new valid chain. Since it is on the shorter, discarded chain, the transaction that initially appeared to be confirmed is now considered invalid. This reorganization of the blockchain eradicates all traces of the double-spending attack.
8. The attacker successfully double-spends the cryptocurrency and retains both the merchant’s goods or services and the original cryptocurrency in their wallet.

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