Explore

Blockchain fundamentals

Blockchain functions

Consensus Protocol

Bitcoin

Bitcoin Mechanism

Bitcoin transaction Inputs and Outputs

Blockchain philosophy

Blockchain in practice

Bitcoin transaction

Stories of Web3 - by the people who build it

Blockchain governance

Blockchain transactions

Crypto regulation

Bitcoin keys and addresses

Bitcoin wallets

Bitcoin consensus and mining

Bitcoin network

Bitcoin blockchain

Bitcoin private keys

Bitcoin public key

Bitcoin address

On the importance of decentralization

Blockchain ideological basis

Blockhain ecosystem

Mining

Mining and ecology

What is money

History of the Gold Standard

Wallets

Exchanges

Oracles

Smart contract platforms

Ethereum

Cryptocurrencies

Stablecoins

Ethereum design

Blockchain use cases

Tokenization: easy creation and transfer of values

Blockchain in finance

How Bitcoin works

Austrian economic school

Bitcoin governance

Proof of Work

Proof of Stake

Bitcoin security and double spending

Bitcoin block structure

Bitcoin forks

Merkle Tree

Smart contracts

Tokens

DeFi

Bitcoin mining and ecology

Blockchain underlying technologies

Bitcoin Whitepaper by Satoshi Nakamoto

BUILD/ blockchain infrastructure

CREATE / NFTs, metaverse and gaming

INSTRUCT/ crypto knowledge

ADVOCATE / crypto regulation

Web3

Web3 Music

Web3 Fashion

Top 5 DeFi protocols to illustrate the space

Dynamic information source on all things blockchain: Bitcoin and other cryptocurrencies, Dapps, real life use cases, crypto ecosystem, technical details, crypto regulation and more.

D.Center – All things Blockchain

Start your crypto journey by hitting the Explore button!

Bitcoinnn

Blockchain in use

Philosophy behind blockchain

Underlying technologies

Blockchain trilemma

Blockchain and DLT types

Bitcoin mechanism

Bitcoin Transaction

Bitcoin transaction inputs and outputs

Bitcoin implementations

Script

UTXO

Mainchain functions

Transaction inputs

Sidechain solutions

Cryptography

Transaction Fees

Keys and addresses

Private key

Public key

Adress

<figure class="wp-block-image"><img src="https://web.d.center/wp-content/uploads/2020/10/bitcoin-mechanism-l-1024x414.jpg" alt="" class="wp-image-1267"/></figure>



Bitcoin is an assembly of&nbsp; technologies and principles that interact in a predefined manner, securing the whole system performance.&nbsp;So how does it work? 



<div class="wp-block-image"><figure class="aligncenter"><img src="https://web.d.center/wp-content/uploads/2020/10/Bitcoin-mechanism-1.svg" alt="" class="wp-image-1316"/></figure></div>



<a href="https://d.center/explore/keys-and-addresses" class="ek-link">Keys and addresses</a>. Bitcoin is a decentralized system without any trusted third party, which means that no one can dispose of coins except for their rightful owner. Such feature necessitates extensive security measures, and Bitcoin ensures them using a system of cryptographic keys and addresses. 



<a href="https://d.center/explore/bitcoin-wallets" class="ek-link">Wallets</a><a href="https://d.center/explore/bitcoin-wallets" class="ek-link"> </a>are programs capable of communicating with the Bitcoin network. They generate keys and addresses that allow sending and receiving bitcoins, and can reconstitute the bitcoin balance of a particular account by researching the blockchain. 



<a href="https://d.center/explore/bitcoin-transaction" class="ek-link">Transactions </a>are generated and sent by wallets. Bitcoin transactions have a simple structure called UTXO, and a limited coding language script, which ensure the system’s robustness. 



<a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a> enjoys a Peer-to-Peer, or <a href="https://d.center/explore/p2p-network" class="ek-link">P2P</a>, architecture - its nodes communicate with each other without any central server. Network nodes run Bitcoin protocol to verify if a transaction is valid (the sender has enough coins on their account and their signatures are correct) and if a candidate block (set of confirmed transactions) sent by a miner is OK, then propagate them to the network. 



<a href="https://d.center/explore/bitcoin-consensus-and-mining" class="ek-link">Consensus </a>is needed in order to determine which node will add the next block to the blockchain and to guarantee that this block is not fraudulent. Bitcoin utilizes <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof-of-Work</a> consensus, where nodes need to find a solution to a cryptographic problem, which necessitates a big amount of electricity and specific equipment. As a reward for such work a node gets to add a block and receives newly created bitcoins. Such “bitcoin extraction” activity is called mining and the nodes engaging in it - miners. Mining is the only way to create new bitcoins.



 The node who finds a PoW solution first broadcasts a new block to the network, where, if the block is validated by the network, other nodes start working on the following blocks. Each block having a cryptographic reference to the previous one, a <a href="https://d.center/explore/bitcoin-blockchain" class="ek-link">blockchain </a>is being formed.

<div class="wp-block-image"><figure class="aligncenter"><img src="https://web.d.center/wp-content/uploads/2020/11/Bitcoin-blockchain.png" alt="" class="wp-image-1470"/></figure></div>



Bitcoin transactions are securely stored by the network, organized within a particular architecture called blockchain. 



<h2>Block structure </h2>



Transactions are gathered into blocks created by a miner approximately every 10 minutes. A block is made of a header, which contains specific data (notably the reference to the block’s content) and the <a href="https://d.center/explore/bitcoin-transaction" class="ek-link">transactions</a><a href="https://d.center/explore/bitcoin-transaction" class="ek-link"> </a>confirmed within the block. Every block contains a reference to the previous block in the form of its header’s [tooltip content=" fixed-length result of applying mathematical hash function to any volume of data. Hash is a one-way function: it is easy to get the result (also called hash) from the data, but impossible to get the data from the hash"] hash [/tooltip] - its unique identifier. The blocks always carrying a reference to the previous ones, a chain of blocks is formed. 



The first block ever created is called the Genesis block, i.e. block 0. The block 1 was created with the reference to the block 0, and so on. Block number is also called the block height (as if the blocks were built one above the other) and measures the distance to the Genesis block. The block n, whose header hash is mentioned in the header of the block n+1, is called the parent block, whereas the block n+1 is called the child block. 



<div class="wp-block-image"><figure class="aligncenter"><img src="https://web.d.center/wp-content/uploads/2020/12/Bitcoin-blockchain.svg" alt="" class="wp-image-1546"/></figure></div>



<h2>Forks </h2>



While a block can have only one parent, it could have several children - a temporary situation that appears when several miners simultaneously propose a new block to the network. This situation is called a fork, because the blockchain splits into several valid branches. 



In the majority of cases the forks are not intentional, but rather due to the nature of the consensus. It is theoretically possible though to create them intentionally in order to try and fraud the system and execute a double spending (even if such endeavour would require more than 51% of the network computational power). 



Some estimate that a 10 minutes interval between blocks is a compromise between the scalability (theoretical number of possible transactions per second) and the probability to have a fork. The shorter the block creation time, the more nodes have a chance to find themselves with candidate blocks at the same time. In the case of Bitcoin it is quite rare that a fork holds for more than two blocks. 



In order to secure the blockchain the miners have to find a <a href="https://d.center/explore/proof-of-work" class="ek-link">Proof of Work</a> before submitting a block to the network. The PoW process is such that anyone willing to rewrite the history and modify the data within the block n must redo the PoW of this block and of all others that follow, since they will contain references to the previous blocks. Such electricity spending cannot possibly be cost-effective. It is thus considered that beyond n+5 (the 5th confirmed block after n), the n  becomes near definitive. 



<h2>Merkle root</h2>



 The <a href="https://d.center/explore/bitcoin-wallets" class="ek-link">wallets </a>refer to the data within the blockchain in order to keep their balances and to initialize transactions. Therefore they have to maintain a copy of the whole blockchain at any moment. Full node wallets keep the entire blockchain, which makes them reliable, but also quite heavy and cumbersome. There is also another way of accessing the blockchain without downloading all of it - by using a piece of data called the Merkle root. This data sits within the header of every block and enables the usage of the so-called SVP wallets (SPV for Simplified Payment Verification). These wallets only download block headers, which makes them lighter and more user-friendly, however they have to connect to a full node wallet in order to function properly (see <a href="https://d.center/explore/bitcoin-network" class="ek-link">Bitcoin network</a>).

<figure class="wp-block-image"><img src="https://web.d.center/wp-content/uploads/2021/08/bitcoin-security-double-spending-2-1024x424.png" alt="" class="wp-image-2718"/></figure>



Can you cheat in Bitcoin? How do you hack an impartial system run on a worldwide network of independent peers?&nbsp;



Bitcoin is a digital money, and executing a Bitcoin transaction means transferring a digital item, i.e. something easily duplicated. However, because it is money we’re speaking about, such duplication must be avoided at all costs: while it is not at all problematic to send a photo by email and still have a copy of it on our computer, it would not make any sense for money transfer. This problem is known as double spending.



In the case of 
 fiat money 
 fiduciary money with no intrinsic value, dependent on the government and the central bank (like dollars or euros) 
 , the banks make sure that the amount of money sent is deduced from the account of the sender. Bitcoin protocol allows to do this without any trusted third party: the network is keeping a real-time ledger with all previous transactions and checks all incoming transactions against this ledger, thus preventing any attempt to spend the same bitcoin more than once.&nbsp;



<h2>Double spending mechanism</h2>



In theory, there is a way to double spend bitcoins, even if it is extremely difficult to execute.



Such possibility is in the hands of the miners and unfolds as follows:



<div class="wp-block-image"><figure class="aligncenter"><img src="https://web.d.center/wp-content/uploads/2021/08/Bitcoin-double-spending.svg" alt="" class="wp-image-2717"/></figure></div>



<ul><li>A miner spends bitcoins and gets something in return ( a merchandise, another cryptocurrency etc). This transaction indicates which bitcoins are being sent, or more precisely their UTXO (unspent transaction output) referenced in transaction’s input</li><li>This transaction will be confirmed as a part of the block added to the blockchain. The receiver of bitcoins sees its confirmation in their <a href="https://d.center/explore/bitcoin-wallets">wallet</a></li><li>An ill-intentioned miner starts to secretly mine another block at the same height as the one with the first transaction. This secret block contains a transaction sending the same bitcoins (referencing the same UTXO) to the miner himself</li><li>Still secretly, a miner continues to mine this new blockchain branch, adding new blocks to the one with the second transaction. As soon as the new branch, until now unknown by the network, becomes longer than the old one (more precisely it has a bigger sum of <a href="https://d.center/explore/proof-of-work" class="ek-link">PoW</a>), a miner will propagate it to the network</li><li>Upon receiving a new branch with valid blocks and a bigger sum of PoW than the actual blockchain, the network will switch to the new branch, which will effectively become the new blockchain. At this moment the bitcoins will disappear from the first transaction receiver’s wallet, despite all previous confirmations</li><li>The new blockchain does not contain the block with the first transaction, so it will appear as non-confirmed. It could be integrated into the mempool, where the miners pick new transactions to confirm, but, since the new blockchain already contains a transaction using the same bitcoins, it will be definitely rejected by the network</li><li>At the end, the receiver of the first transaction will see it disappear from the blockchain and thus will lose their bitcoins, whereas the fraudulent miner will still have their bitcoins and the goods they received in return from the first transaction.</li></ul>







Taking into consideration the methodology of the attack, a miner can execute double spending only with their own transactions.



<h2>Obstacles to a double spending</h2>



Among the main obstacles to a double spending we can name the blockchain structure itself, the number of confirmations and the absence of an economic interest.



<h3>Blockchain structure</h3>



Since every block contains a unique hash of the previous block’s header, a fraudulent miner must mine not a single block, but a whole new branch - a series of blocks linked together. In order to do so, they will not only have to find all the PoW of this branch, but to do it faster than the rest of the network - a highly ambitious task, which gets more difficult as the computational power of the network grows.&nbsp;



Theoretically, if a miner achieves more than 50% of the network’s 
 hashrate 
 number of hash operations done per second, reflecting a miner's computational power
 and is capable of maintaining it indefinitely, at one moment they will get a chain containing more work (as in PoW) than the actual chain - a situation called 51% attack. It is possible to try double spending with less than 50% of the network’s power, but the attack is much less likely to succeed.



<h3>Number of confirmations</h3>



A successful attack is useful only if an attacker receives the goods they spent their bitcoins on in the first transaction. That is why for important deals it is recommended to wait for a certain number of confirmations (blocks mined after the block containing the transaction in question) before sending the goods: if an attacker can’t gather more than 50% of the network’s power, they will not be able to mine several blocks in a row faster than the network. Indeed, the probability of a successful attack is an increasing function of an attacker’s hashrate percentage and a decreasing function of the number of confirmations needed before delivering the goods in return. In case of Bitcoin the standard number of confirmations required for serious transfers is 6.



<h3>Economic interest</h3>



Even if this kind of double spending is theoretically possible, its execution appears unlikely: from the economic standpoint the gain must be higher than the expenses. Taking into account the actual Bitcoin hashrate and thus the huge quantity of energy needed to get the half of it, this sounds quite unrealistic. An attacker would also need to buy or rent the specialist hardware to gather this computational power, which itself presents a serious logistic and financial challenge. Theoretically a collision of miners could gather the power needed for an attack, but mining being their primary occupation and means of subsistence, it is hard to imagine they would cut off the branch they're sitting on.



One can imagine a not-for-profit attack aiming at damaging the network, but once again its cost would be exorbitant, not to mention that the Bitcoin community would react and counter-attack in one way or another.