Bitcoin nears the end of a tumultuous week as it recovers from a sudden dive below $30,000 after an inaccurate interpretation of a routine event snowballed into claims that the entire Bitcoin blockchain had been compromised.
A Storm in a Teacup
The focus was on a chain reorganization, or ‘reorg’ for short, a common occurrence on the Bitcoin network.
On Thursday, the research arm of trading platform BitMEX noted that its Fork Monitor had detected a stale block, as well as “a small double spend of around 0.00062063 BTC ($21).”
Every distributed network faces unavoidable propagation delays when replicating information around the globe. Stale blocks occur when two miners mine a new block at around the same time, resulting in two blocks that compete for network acceptance at the current block height. In this case, two blocks were mined at height 666,833, one by SlushPool and one by F2Pool. As both blocks appeared valid, some nodes accepted SlushPool’s block, and others accepted F2Pool’s.
The next mined block then becomes the tiebreaker, as nodes on the Bitcoin network always automatically switch to the longest valid chain. The block that gets included in the longer chain therefore becomes the “winning” block, with the other block becoming the “losing” block that is then discarded. In this case, Binance Pool mined block 666,834 with SlushPool’s block as its parent. This meant the chain containing SlushPool’s block had become the longer chain; as a result, all nodes that were still following F2Pool’s block switched to the chain including SlushPool’s block, turning F2Pool’s block into a stale block.
Following such a reorg, all transactions included in the stale block are returned to the mempool, where they will be picked up by miners for a future block—except for transactions that conflict with transactions in the winning block.
If the losing block contains a transaction that uses one or more of the same inputs as a transaction in the winning block, the transaction in the losing block is invalidated. In this case, a transaction of 0.00014499 BTC was included in the winning block, while a transaction of 0.00062063 BTC that used three of the same inputs as the first transaction was included in the stale block. As the winning block had been determined, the transaction using the same inputs in the losing block was discarded.
Examining BitMEX’s flagged reorg, however, cryptocurrency media outlet Cointelegraph mistook it as a security lapse in which the sender had succeeded in spending the same bitcoin inputs twice.
The rumor was repeated by uninformed reporters at Bloomberg, after which the market began to accelerate its losses as investors entertained the idea that Bitcoin’s entire existence had now been rendered worthless.
AR service provider NexTech on Friday published a press release announcing it had sold its treasury Bitcoin holdings, citing that “something potentially has changed with Bitcoin.”
The firm referred to news “that a critical flaw called a ‘double spend’ may have occurred, which if true allows someone to spend the same Bitcoin twice, undermining faith in the system. If the system is built on scarcity and faith in the system, then a ‘double spend’ would eliminate both -essentially destroying the store of value it was meant to be.”
With its sale, NexTech booked a profit of approximately $200,000.
Business As Usual For Bitcoin
As might be expected, those with an understanding of the events were quick to dispel the myth that a double spend had occurred.
“There was a chain re-organization in the Bitcoin blockchain. This is a common occurrence that is part of Bitcoin’s normal operation. It is a result of decentralized consensus under Proof-of-Work. All PoW chains do this,” Andreas Antonopoulos explained in a series of tweets.
Continuing, he stressed that the resolution mechanism through reorgs is an essential part of Proof-of-Work, without which Bitcoin could not exist as it does.
“This is not a double spend from the perspective of the blockchain as a whole. Only one spend survives, therefore no double spends happen. That’s the whole point of PoW consensus.”
While Bitcoin faced other price pressures over recent days, among which large outflows from its largest mining pool, F2Pool, the double spend debacle underscores the difficulties involved in making the cryptocurrency’s technical aspects understood to even professional market participants.
“There was no #bitcoin double spend. Stop misreporting stuff, seriously,” Blockstream CEO Adam Back commented.
Lucas Nuzzi, network data product manager at on-chain analytics firm CoinMetrics, meanwhile praised BitMEX Research for its efforts.
“Their depiction of what happened was accurate,” he told Twitter followers.
“Unfortunately, their post was grossly […] misrepresented for clickbait.”