The Double Spending dilemma
One of the primary concerns of any cryptocurrency developer is double-spending.
This refers to the incidence of an individual spending a balance of that cryptocurrency more than once, effectively creating a disparity between the spending record and the amount of that cryptocurrency available, as well as the way that it is distributed.
The issue of double-spending is a problem that cash does not have; if you pay for a sandwich with a $10 bill, turning that bill over to the maker of the sandwich, you cannot turn around and spend that same $10 elsewhere. A transaction using a digital currency like bitcoin, however, is generated entirely digitally.
This means that it is possible to copy the transaction details and rebroadcast them such that the same BTC could be spent multiple times by a single owner.
In order for a digital payment network to be secure, it has to solve this issue.
Now, there was a solution to this issue, known as a trusted third-party known as a central server. Within this server, records are kept of the balances and the transactions as a whole.
The problem with this solution? This meant that a third party would have control over all of your funds as well as all of your personal details. Not acceptable.
Bitcoin however uses a decentralized network.
This means that every single participant has a job to do. This job is done through a Blockchain.
A blockchain is essentially a public ledger of all transactions that ever happened within a network that is available to everyone. This means that everyone within the network can see every other account’s balance.
What does all of this mean for the end-user?
It means that every single transaction is a file that has two public keys. The sender’s public key, and the recipient’s public key.
On this file, you will also find information about the number of coins transferred. Now, the transaction cannot be completed until it is signed off by the sender with their private key.
- A public key is a cryptographic code that is used to facilitate transactions between parties. This allows users to receive cryptocurrencies within their accounts.
- A private key is a sophisticated form of cryptography. This allows a user to access their own cryptocurrency balance. The private key acts as an integral aspect of bitcoin and altcoins. The use of its security helps a user protect themselves from unauthorized access to their funds.
Mining
Now, within a cryptocurrency network, miners have the ability to confirm each and every transaction by solving a cryptographic puzzle.
- A miner essentially gets a transaction, and through solving the cryptographic puzzle, the miner ensures that it is legitimate. Then the miner spreads it across the network.
- Every node of the network adds it to its database, and once this transaction is confirmed, it becomes unforgettable and irreversible.
- For all of this effort, the miner gets a reward.
Nodes
A node is a computer that connects to a cryptocurrency network. This node or computer supports the network itself. It does this through validation and relaying transactions. It also gets a copy of the full blockchain.
A bitcoin block is a file where the data pertaining to the bitcoin network is permanently recorded. A block records some or even all of the bitcoin transactions that have not yet entered any prior blocks. A block is a page of a ledger or record book in essence.
The cryptocurrency network is based on the consensus of all of the participants regarding the legitimacy of the transactions as well as the balances. If the nodes of the network disagree on even a single balance, the system can break.
To solve this, a lot of rules are programmed into the network that prevents this from ever happening.
The bottom line
The Blockchain is way more secure than a centralized network because the records are open and transparent to everyone in the system. This way it is close to impossible to double spend and makes the system more trustworthy than other forms of currency.
It’s all pretty crazy stuff but it’s the way this digital world works.
Now, let’s talk about some of the ways people all over the world are using Cryptocurrencies.
