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Double-spending

Double-spending is a potential flaw in a digital cash scheme in which the same single digital token can be spent more than once. This is possible because a digital token consists of a digital file that can be duplicated or falsified.[1][2] As with counterfeit money, such double-spending leads to inflation by creating a new amount of fraudulent currency that did not previously exist. This devalues the currency relative to other monetary units, and diminishes user trust as well as the circulation and retention of the currency. Fundamental cryptographic techniques to prevent double-spending while preserving anonymity in a transaction are blind signatures and particularly in offline systems, secret splitting.[2]

Prevention

The prevention of double-spending has taken two general forms: centralized and decentralized.

Centralized

This is usually implemented using an on-line central trusted third party that can verify whether a token has been spent.[2] This normally represents a single point of failure from both availability and trust viewpoints.

Decentralized

By 2007, a number of distributed systems for double-spending prevention had been proposed.[3][4]

The cryptocurrency Bitcoin implemented a solution in early 2009. It uses a cryptographic protocol called a proof-of-work system to avoid the need for a trusted third party to validate transactions. Instead, transactions are recorded in a public ledger called a blockchain. A transaction is considered valid when it is included in the blockchain that contains the most amount of computational work. This makes double-spending impossibly difficult, and more infeasible as the size of the overall network grows.[5] Other cryptocurrencies also have similar features.

References

  1. ^ The Double Spending Problem and Cryptocurrencies. Banking & Insurance Journal. Social Science Research Network (SSRN). Accessed 24 December 2017.
  2. ^ a b c Mark Ryan. "Digital Cash". School of Computer Science, University of Birmingham. Retrieved 2017-05-27. 
  3. ^ Jaap-Henk Hoepman (2008). "Distributed Double Spending Prevention". arXiv:0802.0832v1Freely accessible [cs.CR]. 
  4. ^ Osipkov, I.; Vasserman, E. Y.; Hopper, N.; Kim, Y. (2007). "Combating Double-Spending Using Cooperative P2P Systems": 41. doi:10.1109/ICDCS.2007.91. 
  5. ^ Janus Kopfstein (12 December 2013). "The Mission to Decentralize the Internet". The New Yorker. Retrieved 30 December 2014. The network’s "nodes"—users running the bitcoin software on their computers—collectively check the integrity of other nodes to ensure that no one spends the same coins twice. All transactions are published on a shared public ledger, called the "block chain"