Personal Finance Essentials

The Problem of Double Presentment

The $400 Million Problem

Satoshi Solved With a Timestamp

CryptoDoublePresentment

Say Grandma sends you a $50 check for your birthday. You’d like to spend that money, but no one will accept the check as payment. They don’t know if the check is real or whether Grandma really has fifty dollars in her account to cover it. So, you deposit the check into your bank account; it takes your bank several days to “clear” the check, meaning it takes that long for the bank to confirm that Grandma did have $50 in her account and have that money transferred from her account to yours. Only afterward were you able to withdraw the money and spend it.

Not so long ago, you had to physically deliver Grandma’s check to your bank and hand it to the bank teller, telling them to deposit the check into your bank account. In 2009, USAA became the first bank to accept a photograph of Grandma’s check. You simply took a picture with your phone and uploaded the photo to the bank’s website. Fifty dollars was then added to your account balance.

But wait. You’re still in possession of the physical check. What’s to stop you from then walking into a bank branch and depositing the check? By making two deposits with the same check – once by photograph via your phone, and again by handing the check to a teller at a physical branch – your account would be credited with $100, not just $50. Make a quick withdrawal before the bank realizes what you’ve done, and you’ve doubled your money. That’s a crime, of course, called double presentment fraud; banks lost $400 million to these scams in 2023, according to the Internet Crime Complaint Center.

Double presentment is a problem for blockchains, too. What if two copies of the same deed are posted? What if two people claim to be buyers or owners of the same house?

Satoshi solved the problem by placing a timestamp and encryption on every block of data. The first block of data that’s entered into the system is verified cryptographically and is the only one permitted. Once done, everyone knows the information is reliable because it has been authenticated.

The Traditional “Trust Economy” vs. The New “Authentication Economy”

Pretend You’re Sending Money to Someone

The Trust Economy has existed for thousands of years. It forces us to believe each other, resulting in frequent fraud and thus the continuous need to verify assertions. It’s cumbersome, slow, and expensive.

The Authentication Economy, available thanks to new blockchain technology, eliminates the need to rely on trust. Instead, all transactions are cryptographically proven. This sharply reduces fraud and lets governments, businesses, and consumers engage with each other faster, cheaper, and safer.

Let’s send money, using the familiar “Trust Economy” or the new “Authentication Economy.”

Sending Money via the Trust Economy

1

Create a Bank Account

Create a checking account with a bank. You can do this at a bank’s branch office or via its website.
2

Add Money to Your Account

Deposit money into your checking account, or transfer money to it from another bank.
3

Send Money to Someone Via a Check

Write a check for the amount of money that you want someone to receive. Mail or give the check to your recipient.

You can send money via ACH or wire instead, and we’ll look at those options later.
4

Recipient Deposits Your Check into Their Bank Account

The recipient deposits your check by visiting a local branch of their bank, by mailing the check to their bank branch, or by taking a photo of the check with their phone and uploading the photo to their bank, using their bank’s web application.
5

Digitization

If your recipient delivered or mailed your check, their bank digitizes the check. If a photo of the check was uploaded, the bank converts the photo into a digitized file that conforms to the bank’s electronic systems.
6

Clearinghouse

The recipient’s bank sends the digitized check to a clearinghouse, which routes it back to your bank.
7

Verification

Your bank examines the check to confirm that it is real. This involves confirming that:

• Your signature is valid.
• The check number hasn’t already been used.
• Your account has sufficient money to cover the check.
• You haven’t placed a fraud alert on your account, and
• The check isn’t a duplicate.
8

Transfer

After your bank completes its verification process, it authorizes the transfer of money from your account to the recipient’s bank.
9

Settlement

The recipient’s bank receives the funds and records the deposit in the recipient’s account.

This process can take 3–5 days. Delays can occur if your bank or the recipient’s bank is open only during limited hours on weekdays or is closed on weekends and holidays.

When you send money via the Automated Clearing House or bank wire, you start at Step 6, which can shorten the process—by a day or two for ACH, and to same-day for wire transactions (provided the order is placed before 2pm Eastern Time).

Checks and ACHs are typically free; wire transactions can incur fees.

If you are sending money to a person or entity in another country, called a cross-border transmittal, you can expect the transaction to take five days and cost 6.5% of the amount you’re sending.

Sending Money via the Authentication Economy

1

Create a Crypto Wallet

Create a crypto wallet on the internet. You can do this on any crypto exchange’s website. Your wallet is protected by a password, called a private key.
2

Add Money to Your Wallet

Once your wallet is in place, you can transfer money to it from your bank.
3

Send Money from Your Crypto Wallet to Someone’s Else’s Crypto Wallet

When you transfer money from your wallet to their wallet, the transaction is executed on a public ledger, called a blockchain.

The blockchain resides on the internet, and it operates on thousands of computers around the world, called nodes. Anyone can choose to have their computer serve as a node, and all the nodes can see every transaction that’s ever been placed on the blockchain.

The nodes have the job of validating every transaction that’s added to the blockchain. Once verified, each block of data is added and linked to prior blocks, as if in a chain. That’s where the name blockchain comes from.

What you sent is now in the recipient’s wallet.

Step 3 can be performed 24/7/365, from anyone and to anyone, anywhere in the world. Settlement is almost instantaneous—meaning the recipient has immediate access to what you sent, and the entire transaction is virtually free.

The Crime of Double Presentment

How it Works in the Trust Economy

1

Step 1

A criminal receives a check and uploads a photo of it using the bank’s website, then deposits the actual check at a local branch. The result: the criminal has essentially deposited the same check twice, doubling the amount that is deposited into their bank account. The criminal quickly withdraws all the money from the account before either bank is aware that double presentment has occurred.
2

Step 2

The recipient bank routes both transactions to the clearinghouse.
3

Step 3

The clearinghouse routes both transactions to the sender’s bank.
4

Step 4

The sender’s bank executes its verification process and identifies the double presentment. It alerts the recipient’s bank.
5

Step 5

The recipient’s bank attempts to cancel the double-withdrawal made by the criminal, but it’s too late. The criminal has already taken the money.

How it Works in the Authentication Economy

1

Step 1

A criminal executes the same transaction twice on a blockchain.
2

Step 2

The blockchain validates the first transaction received.
3

Step 3

The blockchain identifies the second transaction as a duplicate and rejects it.
4

Step 4

The sender’s bank executes its verification process and identifies the double presentment. It alerts the recipient’s bank.
5

Step 5

The recipient’s bank attempts to cancel the double-withdrawal made by the criminal, but it’s too late. The criminal has already taken the money.