Leading Bitcoin operator Coingaming Group has released a white paper addressing the single leading threat to the security of cryptocurrency: double spending.
Discouraging Double Spending
Solutions to the leading threat for fraudulent Bitcoin payments were outlined by author Erich Erstu out of Tallinn, Estonia within the proactive, preventative strategy called “Disincentivizing Double-Spending by Making it Unprofitable.”
Eliminating the Costs of Double-Spending
The report takes a preventative economic perspective to build a strategy for reducing the operating costs which result from fraudulent activity. The goal of his proposal is to prevent and reduce the exceedingly high organizational costs of fraudulent activity.
What is Double-Spending?
Double-spending refers to the act of spending the same money twice while awaiting security confirmation for the payment from the original transaction.
At present, Bitcoin users protect themselves from fraudulent activity by waiting on confirmation for payments, but this in turn takes time and resource.
Erstu’s proposed solution is what he calls a fee market solution, which is designed to increase the cost of double-spending as the way to discouraging the practice.
Erstu, who is also a backend developer at Coingaming Group, said he was “excited to release this white paper to the wider cryptocurrency community, and I hope that it will generate constructive discussion about what I feel to be a significant breakthrough in mitigating the lost revenues associated with double-spending.”
Nuts and Bolts
The document certainly has a technical side to it. The unit of concern where double-spending attacks are likely to take place is on what Erstu calls 0-confirmation payments, in which miners confirm a subset of unconfirmed transactions (TXs). This code of payment is identified by Erstu as the primary economic and technological unit on which to monitor and moderate double-spending potential and impact.
Replacing the Old
Until now, the protections offered up as solutions include Double-Spend Proofs and Payment Channels. Erstu’s concern with both those solutions is that their functionality must be built on top of the Bitcoin protocol as a potential costly and rigorous process. Erstu’s unique fee market solution leverages Bitcoin miner greed according to economic behavioural principles.
Economic Behaviour Principles
Now a word about blockchain technology, Bitcoin mines, and economic behaviour. Miners are those investing in creating Bitcoin production at the blockchain level. Their whole motivation is to get the best possible return on their investment. They are seeking to use the most cost efficient protocols to protect the yields of cryptocurrency which the mines produce, with Bitcoin transactions being a significant part of that security TX protocol.
Leveraging Miner Greed
As far as economic behaviour within Bitcoin is concerned, these miners tend to seek to increase revenue and cut operating costs by confirming the subset of the unconfirmed transactions (TXs) that pay the most. To pacify miners and efficiently protect against double spending, Erstu offers up an anti-double-spend defence mechanism which does not require any costly changes to the Bitcoin's security consensus protocol.
If this sounds highly technical, that’s because it is. For those who want to benefit from cryptocurrency technology, and better understand the dynamics behind Bitcoin, Erstu’s paper stands an essential study whose numerous tidbits of technical information will remain relevant and timely to all individual stakeholders as Bitcoin mining communities develop and expand worldwide.