Double-Spending

What Is Double-Spending?

Double-spending is an attempt to spend the same unit of money more than once. Physical cash cannot be double-spent, because a banknote can only be in one place at a time. Digital money is different. A digital record can be copied, so without a safeguard the same balance could be sent to two different recipients. Preventing this is a basic requirement of any digital payment system.

How It Is Prevented

In traditional banking, a trusted central record keeper, such as a bank's ledger, tracks every balance and transfer. When a payment is made, the ledger deducts the funds from the sender's account once and credits the recipient. A second attempt to spend the same funds is rejected because the balance has already been reduced. The system works because everyone relies on one authoritative record.

Decentralized cryptocurrency networks face a harder version of the problem, since no single party controls the record. Bitcoin addresses this with a blockchain that a network of participants maintains together. Transactions are grouped into blocks, and the network agrees on one order of transactions through a consensus mechanism. As later blocks are added on top of a transaction, reversing it becomes increasingly costly, which makes a double-spend impractical.

Types and Risks

• Race attacks: the attacker sends two conflicting transactions to different parts of the network and hopes the one sent to the merchant is confirmed first.
• Majority attacks: an attacker who controls most of a network's computing power, or hash rate, may be able to rewrite recent transaction history and reverse payments.

Both risks are greater on smaller networks and when a payment has few confirmations.

Why It Matters to Investors

For investors, double-spending is most relevant to digital assets, where the security of the network underpins the value of the currency. Exchanges and merchants often wait for several confirmations before treating a payment as final. Understanding how a network prevents double-spending is one part of understanding the risks of a digital asset.