Double-spending and how Bitcoin resolved it

Double-spending is a problem that is unique to digital currencies, because digital information can be reproduced relatively easily. Physical currencies do not have this issue, as they cannot easily be replicated. You probably have an idea of all of the protections in place that secure the banknotes in your wallet from anyone simply copying them.

Bitcoin was the first digital currency system to solve the double-spending problem in a decentralized way, and the solution is indeed elegant and ingenious. All transactions on the Bitcoin network are recorded on a shared public transaction log, also known as a blockchain database. On the Bitcoin blockchain, the network timestamps the first transaction where the owner spends a specific coin, and rejects any subsequent attempts by the same owner to spend the same coin, thus eliminating double-spending. The network is smart, and its blocks keep records of who owns a coin right now, and who has already spent it.

At this point, you may think: OK, but this doesn't seem like such an incredible innovation. After all, they just keep a record of all transactions, in order of appearance, in a ledger, just as any bank or similar financial intermediary does.

Well, yes, but the uniqueness of this solution is that the transaction verification and recording is done in a decentralized way, by the entire network, rather than by a single, trusted central authority.

Satoshi's goal is to eliminate the third parties that can become potential central points of failure. Hence, any such verification must be performed by the peers themselves, and not by any middlemen.

In the next section, we'll discuss in more detail how the Bitcoin's decentralized model is different from the existing legacy financial infrastructure.