No!! Bitcoin did not “DOUBLE-SPEND”!! The Bitcoin blockchain is functioning just as normal and exactly how it should be!! Well, to take a gist of this, let’s take a look at the events in recent days and de-construct them sequentially.
Bitcoin (BTC) price has corrected significantly in the last three/four days while taking a dip just below $30,000 levels a few hours back. However, BTC has now pulled back and is currently trading at $30,440 levels with a market cap of $569 billion.
As we have been reporting, over the last few days, there’s been heavy institutional BTC accumulation by Grayscale. On the other hand, traders resolved to Bitcoin HOLDing with a simultaneous surge in the whale accounts. If these are not bullish signs, the BTC supply at the exchanges has dropped to the lowest in years.
But then why is the Bitcoin price falling continuously? Well, there’s been a FUD floating around Bitcoin double-spend and inflation. So as it happened, BITMEX Research reported a “double-spent attempt” that fueled all the FUD in the market. Well, this was enough to create the frenzy and lead to a selling spree among investors.
But popular personalities from the cryptocurrency space: Bitcoin evangelist Andreas Antonopoulos and CoinMetrics CEO Lucas Nazzi has come out with a fair and square explanation of the same. Let’s take a look at what actually happened.
- On 18th Jan, a user broadcasted a transaction with low fees and miners left it untouched since they had more profitable opportunities at hand. In such a case, the broadcaster has two options 1) wait for fees to drop 2) increase fee by informing miners.
- Now in case of an already broadcasted transaction, the user can increase the fee by an RBF (Replace-by-Fee) transaction. The RBF is just a copy of the original transaction but with a higher fee and explicit instruction to process the new transaction.
- So when miners didn’t respond to the original broadcasted transaction, the next day on 19th, the user issued the first RBF but only with a minor fee increase. Miners again ignored it and the transaction was stuck again. So after a few hours, the broadcaster issued the second RBF with enough high fees.
- So the original broadcaster issued three transactions in total: 1) Dec 18th 22:11 UTC (1 sat/b) 2) Dec 19th 21:22 UTC (9.4 sat/b) 3) Dec 20th 00:32 UTC (14.3 sat/b)
- As Lucas Nazzi explains: “At around 1:18AM the blockchain split into 2 versions, which is an entirely normal occurrence; a fundamental part of how Bitcoin works. When this happens (1+ times per month), miners need to converge on a single version of events, which often takes around 1 block, or 10 min”.
- Interestingly, by the time the user issued the second RBF (i.e. third transaction), the miner fee dropped and the chain was already split. What happened is one miner picked the first transaction with the lower fee and the other miner picked the third one. Note that RBFs are optional and they givers miners to pick the transaction of their choice. In this case, it looked like a “double-spend” aka bitcoin inflation. However, this is a very normal event.
- The chain got split for a single block, which was normal, however, only the miner that accepted the lower fee transaction ended up winning the deal. So although there were different versions of the same transaction only 1 was accepted eventually. Once again, all credit to Lucas once again for this wonderful explanation.
As Andreas Antonopolous says, this has been exactly explained in the Bitcoin bible aka the Satoshi whitepaper.
This is described in the Satoshi whitepaper on page 8. In fact, it's the only math equation in the paper and it describes the declining probability of a re-org, showing why "6 confirmations", though arbitrarily chosen is a good basis to consider a transaction finalized
14/
— Andreas M. Antonopoulos (@aantonop) January 21, 2021
Interestingly, some publications that misrepresented the entire event had been trying to put the blame on BitMex for reporting the “double-spend attempt”. BitMex has issued a clarification and summarised all transactons.
As for yesterday's *possible* Bitcoin double spend, which was resolved after one block, we have summarised the transactions in the below image, so that you can decide for yourselves what may have happened
Image modified from work by @0xB10C https://t.co/V56scTQw5Q pic.twitter.com/W2lPYGZxvb
— BitMEX Research (@BitMEXResearch) January 21, 2021
Andreas Antonopoulos has come to BitMex’s rescue slamming those who were blaming the platform for reporting the story. He writes:
“BitMEX correctly reported a double-spend attempt with their useful monitoring tool. Irresponsible reporters took that and added misinformation. This is not on BitMex, stop shooting the innocent messenger.”
