Discover How Bitcoin Prevents Double Spending
Bitcoin is fast gaining popularity all over the world as a form of digital currency and payment system that is secure, private and reliable.
In order to understand how bitcoin solves the double spending problem, you will need to know what double spending is. It’s a pretty simple concept to understand and this problem only exists on the internet and not in the real world since you can’t double spend with traditional currency.
Wikipedia states that double spending is, “a failure mode of digital cash schemes, when it is possible to spend a single digital token twice. Since, unlike physical token money such as coins, electronic files can be duplicated, and hence the act of spending a digital coin does not remove its data from the ownership of the original holder.”
So, what does this mean?
Let’s look at this scenario. You visit a store to buy a book. You have ten dollars in your wallet and the book costs ten dollars. Once you pay for the book with your cash, the money will now be in the store’s cash register. The money can only be in one place at one time. It absolutely cannot be in your wallet and the store register at the same time.
With online monetary transactions however, this can happen.
The online sales and purchases are all done using computer codes and algorithms. That basically means, the same money could be in different places at the same time. To prevent this from happening, there are extremely sophisticated payment gateways and processors such as PayPal, Worldpay, Authorize.net and many more to make sure double spending does not occur.
These payment processors have systems in place that review all the transactions carefully to prevent any mistakes from occurring and also to prevent fraud which is always a threat.
Despite these processors being first rate and highly reliable, there are some disadvantages too. If there are any technical issues or the systems flag your transaction as shady, your transactions will be denied. This is known as a single point of failure.
Not only that, your account may be suspended pending review. Your funds will also be stuck till your account is cleared after the review.
Many people have reported having their PayPal accounts suspended for no good reason. Besides this, in order to maintain their service, these processors charge fees ranging from 2% to higher. Depending on your volume of transactions, these can add up and be quite exorbitant.
Bitcoin solves the double spending problem because it does not rely on a single point of failure. The bitcoin payment system uses the block chain to prevent double spending from occurring and it does so without incurring high fees.
Without getting too technical, a block chain is a database that is shared by all the nodes participating in the bitcoin system. This database has a record of all transactions that have taken place using bitcoin.
Every block has the hash from the previous block. So, the blocks are in chronological order and you cannot just modify one block because every other block down the line will have to be modified too. This makes double spending very difficult because every transaction depends on the one before it and the one before that. At any point in time, the bitcoin’s movement can be traced all the way back.
There is much more to the block chain but for now, the point is that bitcoin prevents double spending online without incurring fees or having your funds locked. This is one of the best features of using bitcoin for your online transactions. No hassles as far as your funds are concerned. That’s a plus point in anyone’s book.