Much of the blockchain world thought Satoshi Nakamoto solved the “Double Spending” issue with his introduction of the consensus mechanism. However, in the modern ecosystem with multiple chains in existence, what happens when two blockchains both claim the same asset? A single ledger might prevent double-spending on a single chain, but with the existence of hard forks and cross-chain bridges, it is possible to have situations where asset “clones” exist across different chains.
The Phenomenon of the Hard Fork
A Hard Fork is one of the more common ways one asset gets claimed by two blockchains. It is what happens when there is disagreement in a network that leads to an upgrade that is not backwardly compatible and splits a blockchain into two different ones. This creates a scenario where both chains sharing a history up until the point of the fork means users with assets on the original chain will find themselves with the same asset duplicated on both.
One famous example of the Hard Fork scenario is the 2016 split between Ethereum (ETH) and Ethereum Classic (ETC). In 2016, a disagreement erupted in the Ethereum community after a notable hack, where some parts of the community agreed on reverting the stolen funds while others disagreed and this led to a hard fork and the split of ETH into two chains. Investors got their assets replicated on both chains, but since one side of the split (ETH) got most of the economic activity, with the other side(ETC) becoming a minority chain, a balance was reached where ETH captured most of the price of the pre-split token, with ETC having a significantly lower market price.
Cross-Chain Bridges and Wrapped Assets
Another way a scenario with two blockchains claiming the same asset can happen is with “Wrapped Assets”. The typical mechanism to convert a Bitcoin token to an Ethereum token is by bridging it to the Ethereum network. What happens here involves locking the original Bitcoin in a vault on the Bitcoin blockchain and minting an equal value token on Ethereum.
The issue occurs here if a vault is compromised and locked assets on Chain A are drained, leaving the wrapped asset on Chain B “under-collateralized.” In this case, both chains claim the same asset, but only one can claim to hold the actual physical (digital) collateral, and this usually results in the value of the wrapped asset falling to zero.
Who Wins the Claim?
There are many ways to decide who wins the claim in such conflicts, and they often rely on social consensus. Centralized exchanges can decide which version to list and trade, or Price Oracles choose which chain to keep tracking, or users decide which version is worth more on the market.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
