Double spending is a fraudulent cash scheme where a single cryptocurrency token is used in more than one instance. This double spending problem has become an oft-repeated worry among the skeptic of cryptocurrency. A recent study by the Bank of Canada has elaborated on this issue saying that the problem is “unrealistic “and unworkable.
The study centers much on the “incentive comparability” of using blockchain technology. This study also focuses on proof of work protocol where the honest and dishonest behaviors of cryptocurrency miners were used to find out the possibility of double spending occurring.
Cryptocurrencies occur in digital form. Therefore, any record of ownership can easily be mimicked. These digital tokens copied can then be reused several times by the same user. Some payment systems like PayPal find it necessary to hire trusted third parties to curb the double spending menace. These third parties manage the ledger on how the digital coins are utilized.
However, most cryptocurrencies don’t employ the use of decentralized ledger systems. Such cryptos, therefore, lack trusted central authorities that can enable them to validate token transactions. Although some cryptocurrencies rely on a large network of decentralized token validation network is not a guaranteed measure for fighting double spending. These issues of lacking a decentralized ledge system are the main reason why many cryptocurrencies are susceptible to double -spending.
The study also found out that some miners control more than half of the computational power, the so-called 51% attacks. These attacks play a major role in double spending.
The Bank of Canada (BoC) study goes on to state how researchers modeled and redesigned a system so as they could find out where a digital ledger could be cheated into double spending. Besides, the research paper lauded the fact that users of blockchains guard the ledger systems through transaction validations. The validation of transactions made it a possibility for double spending to therefore occur.
However, during the study, it was noted that the 51% attacks need a large number of resources from the dishonest miner. This made it difficult for researchers to relate how double spending comes in, as most miners have little resources hence they are unable to take over the network entirely.
Finally, the researchers noted that it could not be assumed that dishonest miners are the critical reasons for double mining, terming it as “unrealistic.” Substantial investments (deep pockets) are needed to carry out attacks and that there is a little economic incentive that could facilitate the launching of a 51% attack.
Large networks with a substantial computational power from other users are however also at the risk of double spending. This has made it difficult for a large blockchain to fully take over as the computational investments have become a nightmare to implement. The blockchains also lack effectiveness and security hence cannot be depended on in banking.
The research concludes by elaborating on how the use of distributed ledger accounts has the potential of changing transaction banking globally.