Double spending on Blockchain far-fetched: Bank of Canada
Bank Of Canada [BOC] concluded that the double spending problem on Blockchain is improbable. A study published by BOC on the incentive compatibility of Blockchain technology focussed exclusively on the Proof Of Work[POW] protocol to achieve consensus. The study modelled behaviours of an ‘honest miner’ and a ‘dishonest miner’.
Double Spending on Blockchain
BOC researchers conducted a study based on the types of cheating engaged on Blockchain. They studied the susceptibility of ledger technologies like the digital ledger to types of cheating like ‘double spending’ by creating a system that can check the immunity of the Blockchain.
Double spending is the process of copying and rebroadcasting the same digital currency on Blockchain. Bitcoin has tackled the problem of double spending by executing a confirmation mechanism which maintains a universal ledger akin to the traditional money system. Bitcoin’s digital ledger maintains chronologically recorded transactions which are time stamped since the beginning of its operation.
The study pinpoints that the key challenge is to design the rules for updating the blockchain so that it is hard to tamper with and, thus, users trust the information contained in the ledger. It says that the security of a blockchain is based on three elements; a consensus protocol, confirmation lags, and a reward scheme.
A consensus protocol is needed for a true history of transactions and confirmation lags forbids scammers to alter the history of a transaction. The miners have to be rewarded accordingly which is considered expensive. According to the study, these factors prevent double spending of the digital currency on Blockchain network.
The study also touches upon the 51% attack on a blockchain. 51% attack is an attack by a group of miners controlling more than 50% of the computing power. The attackers halt payments by preventing new transactions from gaining confirmations.
The study said: “If a miner controls more than half the computational power among all miners, confirmation lags, in theory, lose their power in controlling double-spending incentives. The dishonest miner creates an arrival rate that is larger than those of the other honest miners combined. This implies that he is certain to eventually outrun other miners in generating a longer chain and, thus, can always cheat by double spending. However, from an economic point of view, this requires that a dishonest miner has deep pockets and is risk neutral. These assumptions tend to be unrealistic and, in practice, users have little economic incentives to launch such an attack, especially when the computational investment by other miners is large.
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