How Does a Blockchain Prevent Double-Spending of Bitcoins?

Preventing Bitcoin Double-Spending

Bitcoin's blockchain prevents double-spending by using timestamps, proof that work was done, a network of nodes with copies of the blockchain, and incentives.

In Bitcoin's whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System," Satoshi Nakamoto outlined the individual's or group's plan to deal with double spending:

In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.

Here's how double spending is prevented through Bitcoin's famous Proof-of-Work mechanism.

Timestamping to Prevent Double-Spending

Blocks form the foundation of a blockchain. Blocks are files that contain different fields, each of which has its own fields. A Bitcoin block's structure includes four fields:

• Block size
• Block header
• Transaction counter
• Transactions

The block header consists of the blockchain software version, the previous block's hash, the Merkle Root, a timestamp, the difficulty target, and the nonce (number used once). It is the field that the blockchain uses to prevent double-spending.

The timestamp field is important because it marks the time and date the block was created. It is broadcast to the network when the block proposer broadcasts its block and solution to all the other nodes, and then it is used to determine the longest chain if there is ever a fork and questionable blocks accepted.

Proof of Work to Prevent Double-Spending

Proof of work is probably the most widely understood process on the Bitcoin blockchain. It consists of generating hashes from the block header by incrementally adjusting the nonce to find an output that is equal to or less than the network difficulty target. What's not as commonly understood is that the nonce is a field limited to 4 bytes, which means it can only increase up to about 4.5 billion. This limit is generally hit by a miner in less than half a second.

Another number, called the extra nonce, is used once the nonce limit is reached. It is adjusted, and then the nonce repeats its incremental adjustments. The extra nonce is in the coinbase script, which can hold up to 100 bytes, so between the two fields, miners can generate up to 2⁹⁶ hash possibilities.

Once a participant discovers a hash of the correct value, it broadcasts its proposed block (which includes the hash it generated to win) to the network as proof it did the work. Nodes on the network quickly verify that block because all they have to do is hash the header, ensure it matches, and broadcast their results to the rest of the network. This is all accomplished while they are hashing for their proposed new blocks. The block is added to the chain, and the process repeats.

Network Participation Prevents Double-Spending

The distributed network of nodes is of utmost importance to the Bitcoin Blockchain. In addition to working on the solution to the hashing puzzle and proposing their own blocks, nodes also use their computational power to provide security for the blockchain.

Each node adds its processing power to the network. The more nodes there are, the faster the network is. As the size of the network grows, it becomes increasingly more difficult for attackers to outpace it. On June 1, 2024, there were 19,535 reachable nodes, which had a network hashrate of 670 exa hashes per second (670x10¹⁸ hashes per second).

To conduct the notorious 51% attack and double spend some bitcoin, a group would need to control more than half of the hashing rate of the network and time its blockchain version just right. The network is so fast that it is economically unfeasible to attempt this attack.

System of Rewards for Prevention

Bitcoin's reward system is based on its proof-of-work mechanic and serves two purposes: it attracts participation and incentivizes it. Both of these lead to a large network of participants which also helps prevent double spending.

By awarding the worker who proposes a block and wins the hashing competition with bitcoin, the developers believed that more people would want to join and add their processing power to the network.

It worked—the network grew to a size and speed that made it impossible for someone with bad intentions to take over it. Additionally, an automatic rewards reduction program ensured that competition (and participation) remained fierce.

The Downside to Reducing Rewards

About every four years, the blockchain undergoes an event known as the halving. Block rewards are cut by 50%, reducing the incoming yearly supply. This has traditionally been met with more participation, or at least more network hash rate, as participants increased their hash rates with more and improved equipment.

How this event will affect the ability of the network to prevent double-spending in the future is difficult to predict. Difficulty adjustments keep the blockchain churning at one block every 10 minutes. However, if participants abandon their efforts because the rewards are not worth the cost anymore, double-spending could become an issue again as network participants leave in search of profits elsewhere.

Concerns About Bitcoin's Method

Years after it was introduced, Bitcoin's market value remains an attractive profit-making prospect for many businesses and individuals. However, there are several concerns about the blockchain's design.

Energy Use

The primary concern about Bitcoin's method of addressing double spending is the amount of energy it requires. Many studies have been conducted regarding the amount of energy expended, and there have been few efforts to reduce it.

Most of Bitcoin's energy use problems can be traced back to how it is treated by investors and speculators. If it had not gained investors' attention, it's possible that its market value would have stayed much lower and not increased as much as it has. However, since it did become a speculative asset, it ended up attracting the attention of those with enough capital to turn it into a profit-seeking business endeavor.

These businesses created vast farms of mining machines and increased the hash rate of the network so much that it consumes more energy than many small countries do. If the businesses were to be removed from the network and the hashrate returned to individuals as it was intended to be, Bitcoin's hashing difficulty and energy consumption would likely drop. But because there is the promise of profitability, it is not likely to happen until Bitcoin becomes unprofitable.

Scaling Issues

On its own, Bitcoin is not designed to scale, which, for blockchains, is generally described as the ability to handle an increasing amount of transactions. Fees remain high on the main blockchain, with participants who can afford to offer more in fees to miners receiving priority for their transactions.

Sidechains and second layers have been created to address these issues, but for the most part, these efforts haven't had the intended effect. It seems that Bitcoin is stuck in a slow and expensive process because of the way it is designed.

The Bottom Line

The Bitcoin blockchain was the first to implement a solution to double-spending, namely using a timestamp server, cryptography, and the computational power of a network of nodes.

While other solutions have emerged since Bitcoin was first introduced, it still has one of the most popular methods of preventing double-spending.

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