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Bitcoin plunge has newbies scrambling to Google double-spend

Bitcoin plunged more than 10% Thursday, sparking a hunt for reasons the notoriously volatile asset was selling off.

By: BLOOMBERG
Updated on: Aug 21 2022, 14:34 IST
Double-spends are extremely rare though chatter on crypto forums has mentioned a few taking place in the past. (REUTERS)

Bitcoin plunged more than 10% Thursday, sparking a hunt for reasons the notoriously volatile asset was selling off. One that captured attention questioned the very viability of the token itself -- though it turned out not to be cause for concern.

A report in a trade blog suggested that there had been what’s known as a double-spend, where the same token is used by the same person in two transactions. It’s like if someone bought a car, paid the seller, drove off with their brand new wheels and then later yanked back all the money. In the case of the blockchain -- or the software that underlies Bitcoin and other cryptocurrencies -- the transaction in question would be excluded from the final tally on the digital ledger.

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But, “in this case, it doesn’t look like a merchant was defrauded,” said Nic Carter, co-founder of Coin Metrics, a data firm. “This doesn’t look sinister to me. My best guess is this is experimentation or a software bug.”

It’s actually a feature of the crypto world, where the blockchain records Bitcoin transactions and performs the tracking functions similarly to what banks do during traditional transfers. For Bitcoin, it’s done by consensus on a decentralized network, and typically six confirmations (or blocks) are considered secure. It’s rare to consider a payment final after only one confirmation, said Carter. What likely happened is that two blocks had a transaction from the same address but that one entire block was ultimately excluded.

Double-spends are extremely rare though chatter on crypto forums has mentioned a few taking place in the past. They’d typically target exchanges, he said, though it’s incredibly difficult to prove they’ve occurred without the affected party showing their records and proving the fraud happened. While it’s possible it could have happened in this instance, it looks more like it was a bug, said Carter.

Still, online discussions over potential blockchain implications intensified, with Google searches for “Bitcoin double spend” spiking.

Bitcoin fell as much as 11% on Thursday to trade around $30,986. Other cryptocurrencies also sold off, with the Bloomberg Galaxy Crypto Index losing as much as 10%.

“The Bitcoin blockchain is operating exactly as designed, and has been operating exactly as designed for 12 years,” said Andreas Antonopoulos, an expert in Bitcoin and open blockchain technologies. “What we saw today was a one block reorganization. These occur on average every two weeks, and are a normal part of the consensus algorithm.”

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First Published Date: 21 Jan, 22:16 IST
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