How Blockchain is solving the Problem of Double-Spending in the Finance Sector?

The Blockchain technology is gaining popularity and getting worldwide acceptance. Blockchain-aided cryptocurrencies have revolutionized the usage of digital currency. Undeniably, cryptocurrencies have gained global recognition; it is redefining the way we use the money, and slowly the world is moving towards digital currency.

There are various places where we make the use of digital currency but with many benefits of digital currency there are some major disadvantages and double spending is one of them. Well, in this blog, I will be highlighting on double spending and how Blockchain is solving this problem.

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Before heading further to understand how Blockchain solved the problem of double spending, here is a brief overview of what is double spending.

What is Double-spending?

In simple words, double spending means spending the same money twice. Here is an example to explain the same:

For example, you went to an ice-cream shop, and there you paid $15 for a product in an ice-cream shop in cash. When this transaction takes place in cash then you cannot use the same money again because it lies in the cash vault of the ice-cream shop.

Now let’s take the scenario but the payment for the ice-cream is made via digital currency, and you will not be paying in cash. Thus there is a probability that one can copy the transaction and rebroadcast it. It leads to spending the same digital currency twice which we call as double-spending. Now the question arises, how this will happen? Well, let’s go back to the same example, you paid at the ice-cream shop in cash then the received instant confirm, and the retailer verifies the payment, but in case of the digital transaction if the verification mechanism goes missing, then it can lead to double spending. Well, this is not only the case with digital-currency but any form of digital transaction, there is a probability of a transaction getting double spent. So, this poses a significant threat to the successful adoption of the digital transaction. But, despite being a digital currency Will, this solve the Issue? To know how this happens, read further.

How Double-Spend Attack takes Place? 

  • Attack 51% –

    In this, the attacker gets control over 51% of the hash power of the network and double-spending happens. Hash Power means the computational power that is used in the verification of transactions and blocks. The attacker who gets the control can reverse the transaction and make a private Blockchain which will appear as real but still, no such thing has happened because getting 51% control over the network will involve a huge investment.

  • Race Attack-

    In this case, the attacker sends the same coin swiftly to one or more different addresses. In case the merchant doesn’t wait for the confirmation then there is a 50% probability that the merchant will get the double-spent coin.

How Blockchain will solve the problem of double-spending?

The rise of Blockchain Technology has been quite revolutionary in different aspects and solving the problem of double-spending is one of them. It seals all the bottlenecks that exist in the conventional technology that we are using. When we talk about the issue of cryptocurrency, then Blockchain easily handles this by implementing the confirmation mechanism and has a universal ledger which is distributed to all peers in the network

Blockchain is the core technology of cryptocurrencies, and it comes with features that make this technology an inevitable one. Any transaction or data exchange that takes place on this platform has the data stored in chronological order and is time-stamped. This makes tracking of the information very easy. In fact, every transaction is verified by nodes after which it enters a universal ledger. In every 10 minutes, the block which is a group of transactions is added to the ledger, and every node in the network has the copy of the same.

How Blockchain prevents Double-Spending?

Let us take a scenario where a person makes a cryptocurrency transaction and tries to spend it twice.  Well, the person would not be able to do so because, once the transaction is initiated, it goes in the pool of unconfirmed transactions. In Blockchain, only the first transaction gets the confirmation and verification by the miners. But the other transaction or the second similar transaction, doesn’t get enough confirmation because the miners get to know that it is invalid.

Now you might be thinking, what if both the transaction takes place at the same time? In such cases, the transaction which gets the maximum number of confirmations from the miners is included in the Blockchain while others get discarded. The merchants are advised to wait for at least six confirmations. It means that after a particular transaction gets added to the Blockchain, six more blocks should be added on top of that particular block. Each transaction and blocks are mathematically associated with the previous one. Once the transaction gets an entry in the DLT or Blockchain, it becomes difficult to change or alter the transactions, thus making it safe.

Thus, if the merchant gets a minimum of six confirmations then he/she is assured that the transaction is not double–spent. The reason the merchant can be guaranteed is that if the sender wishes to double-spend, then he/she has to go back and reverse all the transaction in the six blocks which are computationally impossible.

Till now there have been no such cases of attack thus Blockchain nullifies the double-spend attack.