Can Bitcoin be counterfeited?

No, it cannot! That’s part of the beauty of Bitcoin – it works on a consensus basis. Many thousands of computers around the world running the same software with the same set of rules come to the same conclusion about the validity of a given transaction. If one computer tries to push a transaction that doesn’t follow the rules, all the other thousands of computers simply reject it, and it is never recorded.

Some of these rules are as follows:

  • A transaction must have a valid input equal to the total output. For example, if I want to send 4 BTC with a 0.0001 fee, the address(es) I am sending from must have received a total of at least 4.0001 BTC in the past.  Bitcoin software looks at the blockchain to determine this.
  • The inputs must not have already been spent elsewhere.  Bitcoin software again looks at the blockchain to determine this.
  • A block reward must (currently) be 25 BTC, and will be halved every 210,000 blocks.  Every block must give a block reward.

The first two rules prevent double-spending, which is really just a case of digital counterfeiting.  If Alice has only 10 bitcoins and sends 10 bitcoins to Bob, she cannot later send 10 bitcoins to Charlie, because the rest of the Bitcoin network would simply reject the transaction to Charlie, recognizing that Alice has already sent the 10 bitcoins to Bob.

The last rule prevents more bitcoins from being created than have already been agreed upon by the network.  Satoshi Nakamoto wrote out this rule to start with in his original implementation of the Bitcoin software, and ultimately, it limits the creation of Bitcoin to 21 million in total, spread over about 130 years.  If a miner created a block that gave himself a reward of 26 bitcoins instead of 25, the rest of the Bitcoin network would simply reject his block and instead accept the next new block that followed the rules in its place.

All of this goes to show that Bitcoin cannot be counterfeited.  That said, there are still ways in which people can trick a person or company into thinking they received bitcoins when they really did not.

One such trick was abused to successfully steal “bets” from an online gambling service called Satoshi Dice, as documented here.  Note that only services that provide instant results (such as a download service or certain types of online gambling) with 0 confirmations would be open to this sort of trick or abuse.

Another trick, albeit extremely complex and difficult to pull off, would be to eliminate a merchant’s outside access to the Bitcoin network, then broadcast a transaction only to the merchant.  The merchant would see that he has been paid, but the transaction would only propagate across the Bitcoin network and be permanently recorded after the merchant’s access to the network was restored.  In the meantime, the thief could simply send the bitcoins to a different address that he/she owns to recover the coins before the merchant’s access to the network was restored, and the coins would never arrive to the merchant.  Ultimately though, if a person has the skills required to disable a merchant’s internet access without them being aware of it, they likely can find easier ways to steal money.

The bottom line is, Bitcoin cannot be counterfeited, and any related trickery that can be done is very limited in scope and skills required to accomplish them.

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