What is double spending (double spending problem)?

What is double spending and how is it achieved in the traditional financial system? What is double payment? How is it related to?

This article will introduce why double spending is needed. Double spending (triple) payment system: a new payment method based on blockchain technology, which allows both parties of a transaction to send or receive payments to each other, settle using existing funds, and complete instant exchange.

This technology makes cross-border payments possible; another method is to use existing assets and fiat currency for cash exchange, thereby improving the efficiency of the entire system and reducing costs.

Although double spending seems to be a new concept for many people, it is not the actual situation. Due to the existence of two problems in double spending – one is that two different payments occur on the same transaction, and the other is different from conventional double spending, it is impossible to ensure that no significant changes will occur in double spending. To solve such problems, the double spending system allows users to process a transaction directly through an electronic wallet, rather than relying solely on banks or other institutions to complete the transaction.

In general, double spending means that users can make transactions without relying on intermediaries. However, for most digital tokens, if there is no intermediary to process these transactions, the demand for double spending cannot be met, such as bitcoin.

When we consider bitcoin, there are two key differences: the first reason is that they are completely decentralized, scalable, and unaffected cryptographic assets. The second factor may be that when people buy an asset and they want to sell it to someone else, they want to keep it in their cold storage so that they can profit from it and also earn interest in bitcoin. This is exactly what causes double spending. The main characteristics of double spending include two parts:

(1) One-sided transactions: the occurrence of bilateral liquidity makes two-sided transactions easier to carry out, rather than only involving a single transaction.

(2) Zero-fee transfers (for example, when you do long/short for a certain amount), increasing the payment limit to help save time and money, as it eliminates the burden of intermediaries.

(3) Fast transactions, such as transaction fee payments and small transactions, such as increased demand in the lending market. In addition, as the transaction volume expands, each transaction may generate more price fluctuations, which means that the trading volume will increase accordingly.

Although this solution is popular, it also faces challenges in some areas. For example, due to lack of regulation, most exchanges are struggling to avoid fraudulent activities, especially those involving companies engaged in bulk commodity futures trading.

Double Spending Problem

For some time, people have been thinking about how to solve the double spending problem. Because blockchain technology can help us achieve zero trust and high transaction efficiency. However, currently, many users still cannot transfer funds or make credit card payments using traditional banking systems. Therefore, more and more customers hope to exchange their digital assets into fiat currency through electronic wallets or third-party applications. This problem is mainly manifested in two aspects: one is the issue of account balance- when you send funds to others, it will display your bitcoin address (Bitcoin address). This means that anyone can access the service through a smartphone or computer to process payments and complete cross-border remittances.

On the other hand, since the blockchain itself can be used for various purposes and has a decentralized nature, if you want to make payments easier and more efficient, you need a more cost-effective way to solve this problem. For example, if you want to buy cryptocurrencies with fiat currency instead of obtaining funds directly from another entity, and if you want to purchase goods and services with another cryptocurrency, you need to deposit it into a company’s bank first, and then convert it back to another company. This can increase the value of the entire system, making more people accept this process. However, without such a solution, you may incur losses due to missing certain functions. That is why many merchants overlook the importance of “multisig” (Cointelegraph).