DEFINITION of 'Double-Spending'

The risk that a digital currency can be spent twice. Double-spending is a potential problem unique to digital currencies because digital information can be reproduced relatively easily. Physical currencies do not have this issue because they cannot be easily replicated, and the parties involved in a transaction can immediately verify the bona fides of the physical currency. With digital currency, there is a risk that the holder could make a copy of the digital token and send it to a merchant or another party while retaining the original. This was a concern initially with Bitcoin, the most popular digital currency or "cryptocurrency," since it is a decentralized currency with no central agency to verify that it is spent only once. However, Bitcoin has a mechanism based on transaction logs to verify the authenticity of each transaction and prevent double-counting.

BREAKING DOWN 'Double-Spending'

Bitcoin requires that all transactions, without exception, be included in a shared public transaction log known as a "block chain." This mechanism ensures that the party spending the bitcoins really owns them, and also prevents double-counting and other fraud. The block chain of verified transactions is built up over time as more and more transactions are added to it. Bitcoin transactions take some time to verify because the process involves intensive number-crunching and complex algorithms that take up a great deal of computing power. It is, therefore, exceedingly difficult to duplicate or falsify the block chain because of the immense amount of computing power that would be required to do so.

Hackers have tried to get around the Bitcoin verification system by using methods such as out-computing the block chain security mechanism, or using a double-spending technique that involves sending a fraudulent transaction log to a seller and another to the rest of the Bitcoin network. These ploys have met with only limited success. In fact, most Bitcoin thefts so far have not involved double-counting, but rather have been due to users storing bitcoins without adequate safety measures.

The greatest risk for double-spending comes in the form of a 51% attack, which can occur if a user controls more than 50% of the computing power maintaining the distributed ledgers of a cryptocurrency. If this user controls the blockchain they will be able to process transfer bitcoins to their wallet multiple times by reversing the blockchain ledger as though the initial transactions had never occurred.

RELATED TERMS
  1. Bitcoin Unlimited

    A proposed upgrade to Bitcoin Core that allows larger block sizes.
  2. Bitcoin

    Bitcoin is a digital or virtual currency that uses peer-to-peer ...
  3. Bitcoin Mining

    Bitcoin mining is the process by which transactions are verified ...
  4. Satoshi

    The satoshi is the smallest unit of the bitcoin cryptocurrency. ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. ...
  6. Bitcoin Misery Index

    The bitcoin misery index measures the momentum of bitcoin based ...
Related Articles
  1. Tech

    How Will Bitcoin 2.0 Change The World? (MSFT, OSTK)

    Since Bitcoin's 2009 launch, the decentralized, peer-to-peer digital currency and payment system has garnered worldwide interest.
  2. Tech

    Bitcoin May Be The Currency Of The Future

    Forget the dollar or the euro. Bitcoin may be the next big currency to hit the world.
  3. Tech

    What Determines the Price of 1 Bitcoin?

    There are several factors that affect bitcoin's price, including supply and demand, forks, and competition.
  4. Tech

    What Is Blockchain and Why Should I Care?

    While Bitcoins are still new and very volatile, the blockchain technology used shouldn't be ignored.
  5. Tech

    Can Bitcoin Be Hacked?

    Can bitcoin itself be hacked? Here is some essential information on the security of cryptocurrency.
  6. Tech

    Are There Taxes On Bitcoins?

    Here is a short guide to the tax implications when using or investing in bitcoins in the US.
  7. Investing

    Could Bitcoin Triumph in a Mr. Robot-like World?

    Does the cult TV series Mr. Robot present a possible scenario in which Bitcoin could become vital?
  8. Tech

    Bitcoin Vs. Litecoin Vs. Dogecoin: Comparing Virtual Currencies

    Read about several of the world's most widely used cryptocurrencies, and learn more about how they function and perform in the marketplace.
  9. Tech

    Bitcoin Predictions for 2017

    Bitcoin reached a 3-year high; does 2017 herald a continued bull run?
  10. Tech

    The Outlook for Bitcoin in 2016

    A look at the forces behind the recent surge in Bitcoin price and how it stands entering 2016.
RELATED FAQS
  1. Is Bitcoin legal in the US?

    Learn about the legality of Bitcoin as a form of payment in the United States, as well as how it is produced and concerns ... Read Answer >>
  2. Why do Bitcoins have value?

    Performing with transactional anonymity, Bitcoin has value as a private digital currency, investment tool and social networking ... Read Answer >>
Trading Center