Blockchain is a list of blocks. Each block comprises some information associated with some hash. Blockchain is used nowadays widely for transactions. It is an immutable, distributed, and decentralized ledger. The working of Blockchain is as follows. Suppose a user wants to make a transaction. A block is created and sent to other users. Users validate the block and the transaction gets executed. The block is added and the users get incentives.
Understanding Double Spending
Although Blockchain is secured, still it has some loopholes. Hackers or malicious users take advantage of these loopholes to perform their activities.
- Double spending means the expenditure of the same digital currency twice or more to avail the multiple services. It is a technical flaw that allows users to duplicate money.
- Since digital currencies are nothing but files, a malicious user can create multiple copies of the same currency file and can use it in multiple places.
- This issue can also occur if there is an alteration in the network or copies of the currency are only used and not the original one.
- There are also double spends that allow hackers to reverse transactions so that transaction happens two times.
- By doing this, the user loses money two times one for the fake block created by the hacker and for the original block as well.
- The hacker gets incentives as well for the fake blocks that have been mined and confirmed.
How Does Double Spending Happen?
Double spending can never arise physically. It can happen in online transactions. This mostly occurs when there is no authority to verify the transaction. It can also happen if the user’s wallet is not secured. Suppose a user wants to avail of services from Merchant ‘A’ and Merchant ‘B’.
- The user first made a digital transaction with Merchant ‘A’.
- The copy of the cryptocurrency is stored on the user’s computer.
- So the user uses the same cryptocurrency to pay Merchant ‘B’
- Now both the merchants have the illusion that the money has been credited since the transactions were not confirmed by the miners.
This is the case of double spending.
Example: Suppose a user has 1 BTC. He/She wants to avail of services from merchant A and merchant B. The user creates multiple copies of the same BTC and stores it. The user first sends the original BTC to Merchant A and gets the service. Simultaneously, the user sends the copied version of 1 BTC to Merchant B. Since the second transaction was not confirmed by other miners, the merchant accepts the bitcoin and sends the service. But the cryptocurrency that was sent is invalid. This is the case of Double Spending.
Types Of Double Spending Attacks
There are different types of Double Spending attacks:
- Finney Attack: Finney Attack is a type of Double spending Attack. In this, a merchant accepts an unauthorized transaction. The original block is eclipsed by the hacker using an eclipse attack. The transaction is performed on an unauthorized one. After that, the real block shows up and again the transaction is done automatically for the real block. Thus the merchant loses money two times.
- Race attack: is an attack in which there is a ‘race’ between two transactions. The attacker sends the same money using different machines to two different merchants. The merchants send their goods but transactions get invalid.
- 51% Attack: This type of attack is prevalent in small blockchains. Hackers usually take over 51% of the mining power of blockchain and therefore can do anything of their own will.
How Bitcoin Handles Double Spending?
Bitcoin is one of the most popular blockchains. To combat Double spending it uses some security measures. There are two types of examples of double spending in BTC.
- The first case is making duplicates of the same bitcoin and sending it to multiple users.
- The second case is performing the transaction and reversing the already sent transaction after getting the service.
To tackle these double-spending issues, some security measures are taken. They are:
- Validation: Validation of transactions by a maximum number of nodes in the network. Once a block is created, it is added to a list of pending transactions. Users send validation for the block. If the verifications are done then only the block is added to the blockchain.
- Timestamp: The confirmed transactions are timestamped, therefore they are irreversible. If a transaction is involved with a bitcoin it is verified and done. But in the future, if other transactions are made with the same bitcoin, the transactions will be canceled.
- Block Confirmations: Merchants get block confirmations so that they are assured that there was no case of double spending. In bitcoin, a minimum of 6 confirmations are done.
- Saving copies: A copy of each transaction is kept at each node so in case of network failure the whole network does not go down.
These security features have reduced double spending to a large extent. Let us discuss a detailed example of how bitcoin handles double-spending.
- A user wants to spend 2 BTC. He/She can create multiple copies of the same cryptocurrency.
- The user can send the same cryptocurrency to two different addresses say ‘Bob’ and ‘Alice’.
- Both of these transactions are sent to the pool of unconfirmed transactions.
- The first transaction T1 would be approved via the confirmation mechanism.
- The confirmation mechanism states that a minimum of six confirmations by miners should be done for block validation. The block is added to the network.
- However, the second transaction T2 didn’t get sufficient confirmation so it would be recognized as invalid by the confirmation process. The block with the highest number of confirmations is accepted and the other one is rejected. So transaction T1 is valid, and Alice received the bitcoin.
Solutions To Prevent Double Spending
Double Spending can be prevented using two approaches: Centralized and Decentralized
- Centralized Approach: In this case, a secured third party is employed to verify the transactions. The third-party can track each of the user’s balances. Suppose a user makes a transaction. The third-party identifies the transaction with a unique identity. Then it verifies the transaction and allows the transaction. The problem is that suppose we want to make transactions with other countries where a third party is not required. So in such cases, decentralized systems come into play. another drawback is if the whole system fails, the users cannot have access.
- Decentralized Approach: This approach is used by Bitcoin. In this, there is no involvement of central authority. Each transaction is verified using powerful algorithms. The decentralized approach proved to be more secure than the centralized approach. Protocols are established and each protocol does its job at each step. Therefore this also promotes transparency.
How to Combat Double Spending?
Double spending has been minimized to a large extent as companies are using many security features. But we as users also have some responsibility so that such attacks don’t happen.
- Any user should wait for a minimum of six confirmations of the transaction before performing another transaction. In the blockchain, more the confirmations by different users, lesser will be double spending attacks.
- Users should keep their hardware resources safe so that hackers do not misuse them for their own purposes. Often hackers target the hardware part because the hardware is costly. If they somehow steal the hardware, they can roll back any transaction or alter information.
- Users should delete spam mails and avoid phishing to avoid unnecessary malware attacks Phishing is a very common attack by hackers as hackers target login credentials.
- Software should be updated regularly with the latest antivirus installed. If the software is not up to date then the bugs present can cause major damage.
How Successful Double Spending is Administered?
With the increasing dependency on the blockchain, double spending attacks have also become a major problem. Many companies have adopted security features.
- Features like confirmation of the transaction by the nodes have been adopted. A minimum of six confirmations is required to approve the transaction.
- The blocks once created are immutable. They are made irreversible so that no transaction is reverted back.
- The network’s distributed ledger of transactions autonomously records each transaction. Each node has a copy of all transactions that are being done in the network.
- Verification of each transaction’s authenticity is done by Blockchain protocols to prevent double-spending. The concept of hashing is adopted. Here each block has a unique hash.
Disadvantages of Blockchain Concerning Double Spending
There are many disadvantages of blockchain concerning Double Spending:
- Control of the blockchain: The biggest disadvantage is if the hackers manage to take control of 51% computation power, they can do any transaction of their own will and can steal other users’ money. Therefore there is a threat to security as millions and millions of money are involved in transactions.
- Alteration of information: Transaction information can also be altered by hackers. They can mine blocks and hide the original blocks using attacks like Eclipse attack, Finney Attack, etc.
- No authority: The third major problem is no central authority is present to verify the transactions. But these problems will be eliminated if companies take proper security measures and users are also aware of the measures.