Double spending is a fundamental flaw of digital currencies, but it was solved in 2009 with the implementation of Proof of Work (PoW) on Bitcoin. Now, other currencies have also solved the issue by implementing the Proof of Stake (PoS) consensus algorithm.
Double spending is very dangerous not only because of trust issues, but also because it creates inflation. When double spending occurs, an equal amount of the assets in question are copied, thereby increasing the money supply and resulting in a loss in asset value.
With a 51 % attack, in which one actor takes control of more than half of a network, double spending becomes possible, because the attacker can transfer money to an account, invalidate a transaction by deleting the block from the blockchain, then make the transaction again.
- It causes inflation by creating copies of the assets
- It devalues the value of the asset
- It reduces user trust
Double spending is a problem that is important to be wary of for new cryptocurrencies in particular. Nevertheless, it should not be seen as a major concern, because it is reliant on the possibility of performing a 51 % attack, which is almost impossible for established projects like Bitcoin. The sum of the computational power of the network is simply too large, making an attack economically impossible.
The risk of double spending depends on how easy it is to control 51 % of a network. Therefore, the smaller the hash rate (total computational power of a network), the greater the risk. As a consequence, new crypto projects are the most at risk, but currencies that have been massively adopted, such as bitcoin, are practically invulnerable to 51 % attacks.
In the case of Proof of Stake cryptocurrencies, the bigger the market cap, the safer the network is, because the 51 % attack becomes more economically unlikely. In order to attack the network, an actor or group of actors must take control of more than half of the coins / tokens and put them up for staking. This is difficult enough as it is, but by even doing so, they would need to damage the reputation and value of the currency they hold, allowing them to perform the Double Spend attack and sell everything. The problem with this is that they would be locking their coins / tokens by staking them, making the attack impossible to perform with any success.