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What is Double Spending? Bitcoin Double Spending Problem Explained | Bitpanda Academy Lesson 4 - YouTube
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According to the Bitcoin white paper,
a double spend should never happen.
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Double spending in cryptocurrencies is one
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of the main reasons why crypto
currencies use block chain technology.
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So what is a double spend?
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And how is it prevented?
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We're back with another
Bitpanda Academy video.
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I'm Jessica Walker.
Let's get into the video.
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Well, double spending means that the same
unit of cryptocurrency could be spent
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twice, if you go to the supermarket and
with your one Euro, you purchase one soft
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drink, you then can't use that same
one year to purchase a loaf of bread.
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You've spent that money, but in
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cryptocurrency, double spending would
destroy the trust in the cryptocurrency.
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So double spending is a major computing
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problem that is solved
by every cryptocurrency.
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If not, the cryptocurrency in question is
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essentially worthless because anyone can
duplicate a transaction with the currency
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at any time. Cryptocurrencies prevent
double spending by using block chain that
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combines an open ledger with
a cryptographic algorithm.
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It sounds more complicated than it is.
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So let me walk you through it.
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So, why is double spending so important?
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Well, double spending would basically
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destroy the technological grounds
on which blockchain is founded.
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A database that is not only tamper..Proof,
but also records every single transaction
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that's ever taken place
within the network.
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Therefore, it's potential to execute
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double spending would fundamentally
undermine the trust in a cryptocurrency
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like Bitcoin or any other
blockchain database.
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And you typically see the value
decrease as a reaction to this.
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So preventing double spending can actually
be explained in five simple steps.
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That is many nodes, or as we like to call
computers, that communicate with each
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other constantly forming
a peer-to-peer network.
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If I send you one Bitcoin, that
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information is sent to all nodes that
are running on Bitcoin software.
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Every node on the network saves this
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information that you now have one
Bitcoin and I no longer have it.
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If I try to spend that bitcoin that I just
gave you again, the network rejects my
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transaction because it knows that
you are the owner of that Bitcoin.
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So, now we've solved the
double spending problem.
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If only it was that simple. So, it's also
important to know, the networks are
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designed to prevent
double spending attacks.
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Cryptocurrencies need to have BFTs
built into that protocol.
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BFTs mean that a computer system has to
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keep functioning to a level of
satisfaction if errors or breakdowns
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occur. Even if some of the
participants try to cheat the system.
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In line with this ownership structures of
crypto currencies are recorded in the
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blockchain, a public ledger or a high tech
database, while being simultaneously
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confirmed by cryptographic
protocols and the crypto community.
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As all transactions are openly recorded
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and secured in an open ledger running on
thousands of computers all over the
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world at the same time, everyone sees the
transactions that have already been made.
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In the case of Bitcoin, transactions are
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verified by miners who ensure the
transactions during the verification
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process are irreversible, final and cannot
be modified by computers. Therefore,
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solving the issue of
potential double spending.
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So, when is a double spend possible?
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Well, there is one of three ways.
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Let me walk you through them.
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First up, a race attack is a double spend
attack where two transactions are sent in
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a quick succession and only one
is confirmed on the blockchain.
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The next attack can only be performed
by a miner. This is a Finney attack.
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The miner premines
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a transaction into a block from one wallet
to another. Like a race attack, a finney
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attack is only possible if the recipient
attack is an unconfirmed transaction.
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Next, a 51% attack is when 51%
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of the network actually manages to
be controlled by a single entity.
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Then the entity has control of the hashing
power, giving them the opportunity to
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rewrite blocks and add fraudulent
transactions to a ledger.
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Sophisticated or larger cryptocurrency n
etworks are actually pretty much immune to
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double spending due to their large hash
rate. So this is highly unlikely that they
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be at risk with such a thing because
conducting such an attack would be so
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expensive that it actually wouldn't
be worthwhile for the hacker.
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So there we have covered what is double
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spending, the three types of attack that
make cryptocurrency vulnerable to double
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spending. And we hope you
found this video useful.
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As always, be sure to subscribe to the
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Bitpanda YouTube channel to not
miss any other content like this.
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I'm just Jessica Walker.
You're watching Bitpanda Academy.
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