An oft-repeated worry from cryptocurrency skeptics is the so-called ”double spending problem”. However, a recent study from the Bank of Canada has shed some light on this issue, concluding that double-spending in a blockchain environment is, in fact, ”unrealistic”.
This study, which centers on the ”incentive comparability” of blockchain technology, focused on a proof-of-work protocol where the behavior of dishonest and honest miners was modeled in order to determine the likelihood of double-spending.
Essentially, double-spending can occur when a user spends the same digital token several times. Since cryptocurrencies are digital by nature, any ownership record can in theory simply be copied and reused multiple times.
Centralized payment systems, such as PayPal, usually employ trusted third parties in order to manage the ledger, in effect preventing double-spending. However, since cryptocurrencies rely on decentralized ledgers, they do not have trusted central authorities to validate the transactions.
This is why some argue that cryptocurrencies can potentially be susceptible to double-spending. Although cryptocurrencies instead rely on a vast network of decentralized validators working in unison, this is not always a fail-safe measure for protecting against double-spending.
More specifically, so-called ”51% attacks” where a single miner controls more than half of all the computational power allow for this sort of double-spending. For example, Toshi Times has previously covered how ZenCash fell victim to such a double-spend attack earlier this year.
The Bank of Canada study states that researchers modeled a system in order to explore where a digital ledger such as a blockchain could readily be cheated into double-spending, finally determining that the occurrence of wide-spread double-spending should be regarded as ”unlikely”.
Moreover, the fact that the blockchain users themselves guard the system through validating transactions was lauded in the paper. Nevertheless, the study also acknowledged the possibility of the aforementioned 51% attacks.
However, it also noted that 51% attacks require a vast amount of resources from the dishonest miner trying to take over the network.
In addition to this, the researchers also write that assuming dishonest miners will do this is ”unrealistic”, as it requires such substantial investments to carry out the attacks that there’s ”little economic incentive” to actually launch a 51% attack.
This becomes increasingly true with larger networks, with significant computational power from other users. In theory, a large enough blockchain should, therefore, become practically impossible to take over, as the computational investment required becomes impossible to amass.
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Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the cryptocurrency industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.