Bank of Canada Concludes that Double Spending is Unrealistic for Blockchain

Double spending on the blockchain network has often been regarded as one of the biggest security flaws concerning digital currencies. Despite this aspect, the Bank of Canada has recently published a study regarding ‘incentive compatibility’, and concluded that double spending represents an unrealistic outcome for blockchain networks. 

With this in mind, the study actively focuses on the proof-of-work (PoW) consensus mechanism, and attempts to model and understand the behaviour associated with honest and dishonest miners.

To put things better into perspective, double spending is a technique that miners can use to modify records in the ledger, for personal profit. In other words, in a double spending attack, the same coins are spent in more than one transaction, by the same user.

Additionally, the study also confirms the biggest innovation of blockchain technology – consensus, which means that the blockchain confirms new transactions as long as all network users agree. Therefore, in the unlikely situation where a miner has control of over 51% of the network’s computational power, it would be able to stage various types of attacks, as such: “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 [...] and, thus, can always cheat by double spending.”

While such attacks on the network are factually possible, the Bank of Canada has concluded that such assumptions are mostly unrealistic. Because of this, in practice, there is little incentive for the launch of such attacks, granted that other miners have large computational investments. For bitcoin, a hypothetical scenario of a double-spend attack would require several mining operators to team up in order to profit from the network. However, this would entail a massive loss of trust in mining, followed by a sharp price fall and the demise of bitcoin.