Double spending

What is the problem?

Digital data is easy to copy. When you email a photo, you still have it. If money were just a file, its owner could send the same file to two different people. With banknotes this is impossible, because the note leaves your pocket when you pay.

The traditional solution is a middleman. Your bank keeps the books and makes sure the same krónur aren't spent twice. In the Bitcoin WhitepaperWhitepaperA document in which the creators of a cryptocurrency or project describe how it works, what it is for and which rules apply to it., Satoshi Nakamoto points out the flaw in this: the entire money system depends on whoever runs it, and every transaction has to go through them.

How did Bitcoin solve it?

The whitepaper says the only way to be sure a transaction hasn't happened is to be aware of all transactions. That is exactly what Bitcoin does:

1. Every transaction is broadcast to all the nodesNodeA computer that runs a crypto network's software, keeps a copy of the blockchain and checks that new transactions and blocks follow the rules. on the network.
2. The nodes reject any transaction that tries to spend coins that have already been spent.
3. The consensus mechanismConsensus mechanismThe rules that let thousands of computers agree on a single version of a blockchain without trusting any one party., proof of workProof of workA consensus method where the right to add the next block to a blockchain goes to whoever first solves a hard computing puzzle., decides the order in which transactions are recorded. If two transactions try to spend the same coins, the one that gets into a block first counts.

In this way, a shared ledger that anyone can verify takes the place of the bank.

What to keep in mind

An unconfirmed transaction is not completely safe from double spending. The sender could try to send the same coins elsewhere with a higher fee. That is why exchanges and other recipients wait for several confirmationsConfirmationA sign that a transaction has been included in a block; each new block added on top counts as one more confirmation and makes it more secure. before they treat a payment as received. After that, double spending is only possible through a 51% attack51% attackAn attack where one party controls more than half of a network's computing power or stake and can then rewrite recent transactions., which is extremely expensive on large networks.