Double spending is the risk that a virtual currency or cryptocurrency can be spent twice.
When using physical money, you hand over the metal coin or paper money as proof of payment when you buy something. Since the money is given physically, you are not able to use that same banknote for another purchase afterward.
The same can’t always be said for cryptocurrencies which, due to their digital nature, can be very easy to reproduce — leading to a problem where the same digital coins are spent more than once.
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How does Double Spending Occur?
There are a couple of typical double spending scenarios that could happen. First, the cryptocurrency holder makes a false copy of a digital token. He/She then sends it to another party to pay for goods and services, all while retaining the original token. Alternatively, the holder may send the same cryptocurrency to two parties, receives the products or services from both but only pays one of them.
Another scenario is when the digital token’s holder sends a valid cryptocurrency transaction to another party then erases it after receiving the goods or services purchased.
In both scenarios, the other party, which is usually a merchant selling a product or service, suffers a loss. At the same time, the cryptocurrency holder retains ownership of the digital token plus the merchant’s goods. Double spending is a digital form of theft, akin to financial and identity theft.
Blockchain as a Solution to Double Spending
Double spending may sound scary, but it happens less now, thanks to blockchain technology use. When transactions get logged into ledgers or blocks, verification and confirmation processes take place. And after transactions are confirmed, they become public (or at least visible to everyone within the network) and immutable, which means that no one can ever change or delete them.
For example, if you have 10 BTC and try to spend it twice by sending them to two different bitcoin wallets, only one would go through. Both transactions will be pooled together with other unconfirmed transactions. Still, only one transaction will be confirmed, verified, and, therefore, approved. The other transaction becomes invalid.
Bitcoin was the first digital currency to use a blockchain, effectively lessening or eliminating the possibility of double spending. At present, more and more digital currencies are using blockchain-enabled platforms, including Tether, EOS, and Ethereum.
Is Double Spending Impossible?
The truth is that if double spending was entirely impossible, then we won’t be discussing it here. The growth of bitcoin use has made double spending (and other forms of attacks) possible, although there have been no confirmed cases yet.
Consider the hypothetical 51% attack that may occur when enough cryptocurrency holders converge. If a group of cryptocurrency miners controls more than 50% of a network’s computing power, they can do many things. For instance, they can stop new transactions from being confirmed, thereby preventing other users from getting paid. They can also reverse or cancel completed transactions, effectively enabling them to double-spend tokens.