Bitcoin (BTC) plunged more than 10% Thursday, after a report from Cointelegraph suggested a critical flaw called “double spend” had occurred in the Bitcoin blockchain.
Double spend occurs when someone is able to spend the same Bitcoin twice – an issue the Bitcoin blockchain designed to solve when Satoshi Nakamoto published the Bitcoin white paper in 2009.
As an illustration to explain, we use different banknotes in different transactions, and the “double-spend” is like if the “same banknote” was used in two transactions.
Nevertheless, the report was later debunked by industry experts claiming that a double-spend event did not actually occur.
The supposed double-spend was mentioned first by BitMEX Research on block 666,833’s abnormalities on Twitter. “It appears as if a small double spend of around 0.00062063 BTC ($21) was detected,” BitMEX Research tweeted.
BitMEX later said it appeared that the double spend was actually a “replace by fee transaction” (RBF) transaction – an unconfirmed Bitcoin transaction is replaced with a new transfer paying a higher fee.
‘A Double-spend Broke Bitcoin’ FUD
According to CoinDesk, here’s what actually happened:
Someone sent 0.00062063 BTC to an address, but set the lowest fee possible. Since the fee was so low, the transaction took a while to confirm, so the sender tried to outpace it by sending an RBF transaction. However, instead of the RBF replacing the slow transaction as intended, the lower fee transaction cleared first, made into the block that was mined onto the longest chain. The higher fee transaction found its way onto the stale block. And the result: 0.00062063 BTC is recorded as existing on the address 1D6aebVY5DbS1v7rNTnX2xeYcfWM3os1va on the irrelevant transaction history, while 0.00014499 BTC exists on the same address, but on the relevant transaction ledger.
“‘A double-spend broke Bitcoin’ FUD that was circulated by an irresponsible publication”, tweeted Bitcoin advocate and tech entrepreneur Andreas Antonopoulos. “There was a chain reorganization in the Bitcoin blockchain. There is a common occurrence that is part of Bitcoin’s normal operation.”
What happened is that two blocks were mined simultaneously, but one transaction was double-spent to an address on a transaction history that the Bitcoin network does not consider valid.
“From the perspective of the recipient of a payment, they may see a transaction that appears to have 1 confirmation (it is in a block), then disappears when that block is discarded,” explained Antonopoulos.
As a design feature of Bitcoin, transactions are being confirmed via multiple blocks. It is considered best practice for merchants to wait for six confirmations, i.e. six new blocks are added to the chain, before a payment is considered finalized.
Bitcoin fell as much as 11% on Thursday while other cryptocurrencies also sold off. At the time of writing, Bitcoin is trading at $30,329, down 12.5% over the last 24 hours. Ether (ETH), the second largest cryptocurrency by market cap, is trading at $1,143, down 13.9%, according to CoinGecko.