The recent months have been an absolute feeding frenzy for new and old Bitcoin fans alike. The granddaddy of all cryptocurrencies made headlines by skyrocketing in value to around the $40,000 mark.
After an expected settling into the mid to high thirties, the decentralised coin received another boost a few days ago when electric-vehicle company Tesla purchased $1.5 billion worth of Bitcoin ahead of its announcement that it would begin accepting the cryptocurrency as payment for its products.
This move by Tesla saw the currency surge another 16% to peak at an all-time high of $44,795.
Amid all the positive press coverage Bitcoin and its altcoin peers are currently receiving, there has been very little discussion of the recent concerns raised by reports of double spending and its impact on cryptocurrencies.
At the time that double spending was brought to the public’s attention, Bitcoin saw an immediate 15% loss, a fact that has been whitewashed by celebrity tweets and now Tesla’s big investment.
Are Bitcoins Infinite?
At the outset, it is worth noting that Bitcoin is not an infinite resource. Much like any other precious commodity, the value of the virtual coin is based on its perceived scarcity and user perception of worth.
When Satoshi Nakamoto created the blockchain-based coin he limited its scope to 21 million units. Once all 21 million Bitcoins have been mined there will be no new coins added to the Bitcoin ecosystem, at that point all that will happen is the circulation of existing coins.
It is theorised that at the beginning of 2021 approximately 2.5 million Bitcoin remained out in the wild. More importantly, there will never be the full 21 million coins in circulation given that millions of early coins are stuck in wallets where passwords have been lost or owners have passed on without leaving behind the means to access their wallets.
This reality of lack raised concerns over whether or not Bitcoin is adequately equipped to combat an activity known as double spend.
What is a Double Spend Attack?
As the name of the action denotes a “double spend” or “double spend attack” is when a technically savvy Bitcoin holder is able to spend the same Bitcoin more than once.
The most like form of double spend that will successfully bypass the verification processes inherent to the blockchain is known as a “51% attack”. This is when 50% or more of a particular series of transaction ledgers is processed by one user. This would allow them to process transaction to multiple wallets and then reverse them before they can be locked into the blockchain ledger – essentially allowing wallets to receive Bitcoin while the originating account never loses the coins it sent.
However, the larger the Bitcoin user base grows the more unlikely it becomes for a single user to be able to control in excess of 50% of the computing power that processes a string of transactions.
Is Double Spending Illegal?
The challenge of a decentralised cryptocurrency like Bitcoin is that it actively resists being boxed into existing frameworks. On the positive end this has created a free, fair and anonymous currency that is not at the behest of local governments, however on the flip side it has led to the coinage being used to process illicit transactions.
Looking at existing banking regulations the practice of double dipping is absolutely illegal. A transaction requires the passing of an asset from one user to another in return for another asset. In this case the buyer transfers their Bitcoin in return for a service or product.
In the case of a Double Spend Attack there is additional value added to one end of the chain while none is deducted from the source account.
The US Computer Fraud and Abuse Act (CFAA) covers the intentional actions of such bad actors under its regulations addressing “fraud and related activity in connection with computers”.
The criminal case would assume that it is illegal to:
“... knowingly cause the transmission of a program, information, code, or command, and as a result of such conduct, intentionally cause damage without authorization, to a protected computer.”
In this case injecting false and/or duplicate Bitcoin into the cryptocurrency’s blockchain-based ecosystem would be deemed as damage. Doing so currently holds a penalty of 10 years in jail and fines to be determined by a court of law. All that is required to trigger this penalty is the attempt to violate a CFAA statute where the loss incurred could be $5000 or more.
With Bitcoin values resting around $40,000 BTC violating the $5000 minimum loss trigger of this criminal statute is almost a foregone conclusion.
Does Bitcoin Solve Double Spending?
The short answer is yes it does. Given the size and momentum of Bitcoin’s network it is highly unlikely that a real 51% double spend attack will be possible. By timestamping groups of transactions and saving them to the blockchain across multiple nodes Bitcoin is protected from having single transactions added and removed at the rate needed to trigger a true double spend attack.
While BitMex did report on a potential Double Spend on block 666,833 in January 2021 market analysts do not consider it a real 51% attack based on the fact that no new coins were added to the blockchain.
In this instance a user tried to speed up an existing transaction by resending it with a higher fee cap. Rather than new transaction replacing the original one the network processed both transactions, however the one was sent to an active chain and the duplicate was sent to a stale (also known as invalid) chain.
In this case the blockchain only recognises one of these transactions, hence the duplicate being stored on an invalid chain. This way it is able to keep an accurate record of all posted transactions without the risk of adding false coins to the network.
While double spend attacks are theoretically possible it is very unlikely to be see one occurring in relation to Bitcoin. This is not however necessarily true of smaller altcoins who due to their limited size could fall foul to unscrupulous users who gain the required 51% processing power needed to abuse the system.