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How does a blockchain prevent double-spending of Bitcoin?
Prevent double spending in Bitcoin
The Bitcoin blockchain prevents double expense using timestamps, proof of work done, a network of nodes with copies of the blockchain, and incentives.
In the Bitcoin whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System,” Satoshi Nakamoto outlined the individual or group plan to address double spending:
In this paper, we propose a solution to the double-spending problem by using a peer-to-peer distributed timestamp server to generate a computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
This is how you prevent double spending through Bitcoin’s famous Proof-of-Work mechanism.
Key points
- One technical issue that arises with the notion of digital currency is the ability of someone to duplicate digital currency and spend it simultaneously in two or more places.
- This “double spending” problem is prevented in blockchain-based cryptocurrencies like Bitcoin by using consensus mechanisms.
- This consensus is achieved by a decentralized network of “miners” who not only ensure the fidelity of past transactions on the blockchain ledger, but also detect and prevent double spending.
Timestamp to prevent double spending
Blocks form the foundation of a blockchain. Blocks are files that contain several fields, each of which has its own fields. The structure of a Bitcoin block includes four fields:
- Block size
- Block header
- Transaction counter
- Transactions
The block header consists of the blockchain software version, the hash of the previous block, the Merkle root, a timestamp, the difficulty target, and the nonce (number used once). It is the field that blockchain uses to prevent double spending.
The timestamp field is important because it marks the time and date the block was created. It is broadcast to the network when the block proposer broadcasts his block and solution to all other nodes, and then is used to determine the longest chain in case a fork occurs and questionable blocks are accepted.
Proof of work to prevent double spending
Proof of work is probably the most widely understood process on the Bitcoin blockchain. It involves generating hashes from the block header by incrementally adjusting the nonce to find an output equal to or lower than the network’s difficulty target. What is not as commonly understood is that the nonce is a field limited to 4 bytes, meaning it can only grow to about 4.5 billion. This limit is typically reached by a miner in less than half a second.
Another number, called an extra nonce, is used once the nonce limit is reached. It is adjusted and then the nonce repeats its incremental adjustments. The extra nonce is found in the coinbase script, which can contain up to 100 bytes, so between the two fields miners can generate up to 296 hash possibilities.
Once a participant discovers a hash of the correct value, they broadcast the proposed block (which includes the hash generated to win) to the network as proof that they have done the work. Nodes on the network quickly verify that block because all they have to do is hash the header, make sure it matches, and broadcast the results to the rest of the network. All of this is accomplished while they are hashing for the proposed new blocks. The block is added to the chain and the process repeats.
Participation in the network prevents double spending
The distributed network of nodes is of utmost importance for the Bitcoin Blockchain. In addition to working on solving the hashing puzzle and proposing their own blocks, nodes also use their computational power to provide security to the blockchain.
Each node adds its own processing power to the network. The more nodes there are, the faster the network. As the network grows in size, it becomes increasingly difficult for attackers to overcome it. On June 1, 2024, there were 19,535 reachable nodes, which had a network hashrate of 670 exa hashes per second (670×1018 hashes per second).
To conduct the infamous 51% attack and spend some bitcoin twice, a group would have to control more than half of the network’s hashing rate and time its blockchain version correctly. The network is so fast that it is economically unfeasible to attempt this attack.
Reward system for prevention
Bitcoin’s reward system is based on its proof-of-work mechanics and serves two purposes: it attracts participation and it incentivizes it. Both of these factors lead to a large network of participants which also helps prevent double spending.
By rewarding the worker who proposes a block and wins the bitcoin hashing competition, developers believed that more people would want to join and add their own processing power to the network.
It worked: the network grew to a size and speed that made it impossible for someone with bad intentions to take control of it. Additionally, an automatic prize reduction program ensured that competition (and participation) remained fierce.
The disadvantage of reducing premiums
Approximately every four years, the blockchain undergoes an event known as a halving. Block rewards are reduced by 50%, reducing the annual incoming supply. This has traditionally been met with increased participation, or at least increased network hash rates, as participants have increased their hash rates with more and improved equipment.
It is difficult to predict how this event will affect the network’s ability to prevent double spending in the future. Difficulty adjustments keep the blockchain moving at one block every 10 minutes. However, if participants abandon their efforts because the rewards are no longer worth the cost, double spending could become a problem again as network participants leave in search of profits elsewhere.
Concerns about the Bitcoin method
Years after its introduction, Bitcoin’s market value remains an attractive profit prospect for many businesses and individuals. However, there are several concerns regarding the design of the blockchain.
Energy use
The main concern with Bitcoin’s method of dealing with double spending is the amount of energy required. Many studies have been conducted on the amount of energy expended and little effort has been made to reduce it.
Most of the problems surrounding Bitcoin’s energy use can be traced back to the way it is treated by investors and speculators. If it had not attracted the attention of investors, it is possible that its market value would have remained much lower and would not have increased as much. However, as it became a speculative asset, it ended up attracting the attention of those with enough capital to turn it into a for-profit business.
These companies have created vast farms of mining machines and increased the hash rate of the network so much that they consume more energy than many small countries do. If companies were removed from the network and the hashrate was returned to individuals as intended, Bitcoin’s hashing difficulty and energy consumption would likely decrease. But since there is the promise of profitability, this is unlikely to happen until Bitcoin becomes unprofitable.
Scaling issues
By itself, Bitcoin is not designed for scalability, which, for blockchains, is generally described as the ability to handle an increasing amount of transactions. Fees remain high on the main blockchain, with participants able to afford to offer higher fees to miners who receive priority for their transactions.
Sidechains and second layers have been created to solve these problems, but in most cases these efforts have not had the desired effect. It appears that Bitcoin is stuck in a slow and expensive process due to the way it is designed.
What is an example of a double spending problem?
The most commonly used example is an attack on a blockchain by an entity with more than 50% of the network’s hashing power. This person or group could introduce an altered blockchain and spend the same tokens more than once.
How is double spending detected?
Typically, nodes in the blockchain network detect attempts by comparing hashes. Manual double-spend detection is not feasible, as the network would go well past the block being compared before it could detect any attempts.
What is the problem of double spending in banks?
Banks have used digital ledgers for many years, but require human checks or software designed for verification. Both can make mistakes or be altered and cause money already spent to be credited to someone else to be spent again. This is a problem inherent to digital currencies.
The bottom line
The Bitcoin blockchain was the first to implement a solution to double-spending, i.e. using a timestamp server, encryption and the computational power of a network of nodes.
Although other solutions have emerged since Bitcoin was first introduced, it still remains one of the most popular methods for preventing double spending.
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