Decentralization Eloquently Solves the Double Spending Problem
Spinning the coin multiple times to spend it multiple times?
The classic double spending problem is a problem that faces any economy or token system. How do you stop someone spending the same coin, note, or token twice? Movie tickets and airplane tickets are torn on the perforated line to ensure that they are torn in order to show they have been used. You get to keep the other side of the ticket to prove you have paid for the ticket and have entered the movie or airplane. How do you prove that you have not spent the same bank note more than once? Every bank note has a serial number that identifies it. So if you duplicate a note, it can be verified that there are 2 or more bank notes with the same serial number. Therefore it is harder to duplicate. Other anti-counterfeit measures are taken to ensure that coins and notes are not spent more than once. With digital money and digital payment systems, the double spending problem is confounded. Digital money can more easily be duplicate. There are other issues that are involved in keeping Bitcoin secure. However the most significant factor as a payment system is the double spending problem. So this article is not supposed to be definitive, but deals with how the double spending problem is solved. This is meant to be an introduction to the topic of digital payment systems and blockchain and how they double spending problem.
Disclaimer: no products or services or tokens or DLTs that are mentioned are endorsed by this article. They are simply used as examples or to illustrate how the blockchain solves the double spending problem. This is not meant to be an exhaustive article. Rather it is a starting point in understanding how the double spending problem has been solved by the blockchain, which was originated by Bitcoin and then subsequently solved by blockchain and other types of DLTs.
Bitcoin’s Blockchain Solves the Double Spending Problem Eloquently
A central challenge of creating a digital payment system is to solve the double spending problem. Until Bitcoin there was not an eloquent solution to solve digital payment double spending. An intricate part of Bitcoin is the blockchain. Subsequently more blockchains have come up with different solutions to the double spend problem, such as gossip about gossip protocols. An example of a cryptocurrency built upon such a gossip protocol is IOTA, which runs on the IOTA Tangle. However Bitcoin was the first to solve the digital double spending problem. Therefore it is coined (pun intended) as the original cryptocurrency and all other cryptocurrencies are coined (pun still intended) as altcoins, or alternative coins to Bitcoin that is.
How does Bitcoin Solve the Double Spending Problem?
The spin that Bitcoin’s digitalized payment system had on all other systems was the creation of a DLT, decentralized ledger technology AKA the blockchain. Bitcoin was the first digital payment system to introduce the blockchain.
Bitcoin’s Unique Blockchain Solution
Each block on the DLT is given a unique number, known as a hash. All subsequent blocks in that chain are created by adding a unique hash that contains all the previous hashes until the original block and hash have been reached. This creates a blockchain. So each block is traceable.
How secure is Bitcoin and its unique blockchain? It is only as secure as 51%, but 51% is good enough. Miners are incentivized to be honest and proof of work (PoW) as a consensus mechanism forms an integral part of the Bitcoin blockchain, which provide defence against double spending. Each new block added onto the blockchain has to be mined. All blockchain copies are compared to each other. Thereby forming a consensus before the block can be added to the blockchain. This is how PoW works (pun intended). In this manner all blocks are verified and double spending is almost impossible. Thus solving the double spend problem eloquently.
Ethereum’s Blockchain Solution
As pointed out Bitcoin was at the cutting edge of technology when it solved the double spending problem. The next digital payment system to offer a solution to the double spending problem was Ethereum. It held that miners could use Proof of Stake (PoS) instead of PoW in order to reach a consensus. Basically however this has a very similar solution. Ethereum is not as secure as Bitcoin though because of a combination of factors. To reiterate, solving the problem of double spending is not the only thing that makes Bitcoin secure. However this is a discussion for a different article. Ethereum’s PoS has held up as a solution to the double spending problem. The question is can Ethereum surpass Bitcoin or replace it? The answer so far is a very clear and definite no.
Gossip about Gossip Protocols
Other alternative types of DLTs are worth a re-mention, but again these were created after Bitcoin. The Gossip about gossip protocol is a very good contender to the Bitcoin and Ethereum blockchains, but also have not replaced Bitcoin. These types of DLTs are also secure and solve the double spending problem eloquently, but they have a central point of contact, the person or people who created them. They are still decentralized, but like Ethereum, not the extent of Bitcoin.
Summary
The double spending problem was eloquently solved by Bitcoin first. It does not mean that therefore Bitcoin is the best cryptocurrency or that it is the most secure. PoW is central to solving the double spending problem as well as decentralization. There are different factors that come into how secure a blockchain or DLT is or is not. The question that this article begins to address is how was the double spending problem was solved initially and subsequently on a very basic level by a digital payment system.
