What Is a Digital Copy?

Digital copy in reference to Bitcoin means a duplicate record of every confirmed Bitcoin transaction that has taken place over a peer-to-peer network.

Digital copy is one of the security features of the Bitcoin platform that was implemented in order to tackle the problem of double spending.

How a Digital Copy Works

The rise of cryptocurrencies began in 2009 with the introduction of Bitcoin. One of the catalysts behind the creation of Bitcoin was the desire of its creators to invent a digital currency that could not be controlled by any central authority and did not require a trusted third party to guarantee transactions.

Unlike the U.S. dollar, which can be inflationary or deflationary based on the Federal Reserve Bank's monetary policy, Bitcoin is independent of any controlling body. That is because Bitcoin operates through a decentralized network of independent computers worldwide that communicate and transmit Bitcoin transactions and data to each other.

The Double-Spending Problem

Transacting in digital currency using a decentralized system brought about a problem known as double spending.

Double spending occurs when a user buys from two sellers using the same Bitcoin. Take as a hypothetical example Dave who has $700 in his checking account. His checking account is linked to both his investment accounts with Broker A and Broker B.

When Dave completes a buy order, the funds are automatically transferred from his checking account to his investment account where the order was placed. Dave buys one stock worth $700 including the trading fee from Broker A and makes the exact same buy order for the same stock at the same time with Broker B. In a situation where there is a lag in the system and transactions can be processed at the same time, both brokers will receive information that Dave has the required funds in his account, earning Dave two shares instead of one.

Fortunately, spending money more than once is a risk that traditional currencies avoid through institutions like clearinghouses, banks and online payment systems like PayPal that check to makes sure that the funds are not spoken for before the transaction is processed. (And even then mistakes can occur.)

In order to solve this problem in a digital currency platform, the maker of Bitcoin created a process whereby each transaction copied onto a ledger is verified by multiple Bitcoin miners distributed across the network.

The Distributed Ledger and Multiple Digital Copies

Every Bitcoin transaction is recorded in a ledger known as a blockchain, and then stored and copied digitally across multiple networks in the decentralized system. To prevent manipulative users from spending digital money twice, digital copies ensure that every bitcoin participant holds an encrypted digital copy of everyone’s bitcoin holdings.

Bitcoin miners verify new transactions and add them to the distributed ledgers. The first miner to confirm a legitimate transaction adds it to the queue of new transactions to be included in the ledger and publishes his or her results. Other miners verify the first miner’s results before adding the transaction to the ledger queue of their digital copies.

Transactions are finally and permanently recorded in the blockchain after six miners have confirmed that the user has the necessary funds to complete the transaction. From the example above, the first miner may mark Dave's order with Broker A as legitimate, and cancel his transaction with Broker B given his insufficient funds. If the other miners follow suit, Dave's transaction with Broker A is finalized and recorded in the ledger. In a way, the need for a single, trusted authority is replaced by a distributed, secure community of ledger-keepers.

With digital copies of Bitcoin transactions across the ledger, it is highly improbable for a transaction's history to be compromised. A user who tries to manipulate a transaction on the ledger for his own gain would do so in vain as the transaction must be verified by multiple miners, and he is only able to change his own digital copy. For a transaction input to be changed on the ledger, the user will have to access everyone’s copy. (The exception to this is a 51% attack.)