5 stars based on
When used correctly, Bitcoin's base layer transactions on the blockchain are irreversible and final. It's no exaggeration to say that the entirety of bitcoin's system of 51 attack blockchain unconfirmedminingproof of workdifficulty etc, exist to produce this history of transactions that is computationally impractical to modify. In the literature on electronic cash, this property was often refer to as "solving the double-spending problem".
Double-spending is the result of successfully spending some money more than once. Bitcoin users protect themselves from double spending fraud by waiting for confirmations when receiving payments on the blockchain, the transactions become more irreversible as the number of confirmations rises.
Other electronic systems 51 attack blockchain unconfirmed double-spending by having a master authoritative source that follows business rules 51 attack blockchain unconfirmed authorizing each transaction. Bitcoin uses a decentralized system, where a consensus among nodes following the same protocol and proof of work is substituted for a central authority. This means bitcoin has special properties not shared by centralized systems. For example if you keep the private key of a bitcoin secret and the transaction has 51 attack blockchain unconfirmed confirmations, then nobody can take the bitcoin from you no matter for what reason, no matter how good the excuse, no matter what.
Possession of bitcoin is not enforced by business rules and policy, but cryptography and game theory. Because bitcoin transactions can be final, merchants do not need to hassle customers for extra information like billing address, name, etc, so bitcoin can be used without registering a real name or excluding users based on age, nationality or residency. Finality in transactions means smart contracts can be created with a "code-is-law" ethos.
An attempt at fraud could work that the fraudster sends a transaction paying the merchant directly to the merchant, and sends a conflicting transaction spending the coin to himself to the rest of the network.
It is likely that the second conflicting transaction will be mined into a block and accepted by bitcoin nodes as genuine.
Merchants can take precautions e. The research paper Two Bitcoins at the Price of One finds that the protocol allows a high degree of success by an attacker in performing race attacks. The method studied in the research paper depends on access to the merchant's Bitcoin node which is why that even prior to this paper, recommendations for merchants include disabling incoming connections and to choose specific outgoing connections .
The Finney attack is a fraudulent double-spend that requires the participation of a miner once a block has been mined . The risk of a Finney attack cannot be eliminated regardless of the precautions taken by the merchant, but some miner hash power is required and a specific sequence of events must occur. A Finney attack works as follows: Suppose the attacker is generating blocks occasionally.
To cheat you, when he generates a block, he doesn't broadcast it. Instead, he opens your store web page and makes a payment to your address C with his address A. You may wait a few seconds for double-spends, not hear anything, and then transfer the goods. He broadcasts his block now, and his transaction will take precedence over yours. Also referred to as a one-confirmation attack, is a combination of 51 attack blockchain unconfirmed race attack and the Finney attack such that a transaction that even has one confirmation can still be reversed.
The same protective action for the race attack no incoming connections, explicit outgoing connection to a well-connected node significantly reduces the risk of this occurring. It is worth noting that a successful attack costs the attacker one block - they need to 'sacrifice' a block by not broadcasting it, and instead relaying it only to the attacked node. See on BitcoinTalk or further example of an attack scenario.
This attack has a chance to work even if the merchant waits for some confirmations, but 51 attack blockchain unconfirmed relatively high hashrate and risk of significant expense in wasted electricity to the attacking miner. After waiting for n confirmations, 51 attack blockchain unconfirmed merchant sends the product. If the attacker happened to find more than n blocks at this point, he releases his fork and regains his coins; otherwise, he can try to continue extending his fork with the hope of being able to catch up with the network.
If he never manages to do this then the attack fails, the attacker has wasted a significant amount of electricity and the payment to the merchant will go through. The probability of success is a function of the attacker's hashrate as a proportion of the total network hashrate and the number of confirmations the merchant waits for. An online calculator can be found here. Because of the opportunity cost of this attack, it is only game-theory possible if the bitcoin amount traded is comparable to the block reward but note that an attacking miner 51 attack blockchain unconfirmed attempt a brute force attack against several counterparties at once.
Since the attacker can generate blocks faster than the rest of the network, he can simply persevere with his private fork until it becomes longer than the branch built by the honest network, from whatever disadvantage. No amount of confirmations can prevent this attack; however, waiting for 51 attack blockchain unconfirmed does increase the aggregate resource cost of performing the attack, which could potentially make it unprofitable or delay it long enough for the circumstances to change or slower-acting synchronization methods to kick in.
Bitcoin's security model relies on no single coalition of miners controlling more than half the mining power. Although bitcoin's base layer blockchain transactions are irreversible, consumer protection can be implemented on a layer on 51 attack blockchain unconfirmed. For example using an escrow agent is a powerful technique especially when combined with multisignature smart contracts. Also bitcoin sites such as online casinos rely on their long-standing reputation and some regulated brokers and exchanges simply rely on the legal system.