Lowering confirmation requirements and preventing double spends

Hello,

Another of my crazy ideas:

When a transaction is first broadcast, it should include the hash of the block it wants to appear after, let's call it's basis block. That block can be anything the claimer wants; but it allows the miners to add this condition: the transactions outputs a new transaction claims must be before the new transaction's basis block.

Consider this block chain fork:

 * -- * -- F -- * -- 1 -- 4 -- 5
            \
             * -- 2 -- 3

Let's say in block 2; I transfer coins from address A to Mt.Gox (or any other pooled-account online wallet). In block 1 I transfer credit from address A to address B. In block 3 I transfer credit from Mt.Gox's pool to address B.

The chain at 3 races out first, but eventually the chain at 5 becomes "the one". If Mt.Gox are foolish enough to broadcast my withdrawl in 3; there is nothing to stop that same withdrawl making it into 4 (since it comes from a pooled fund address). Therefore Mt.Gox can't allow such a fast turnaround and must wait for six confirmations of 2 before allowing use of the funds. That is an inconvenience for all the honest users.

With my proposed change, the Mt.Gox transaction broadcast at 3 would include "block 2" as its basis block. Therefore that transaction could never make it into block 4, as no miner will include a transaction based on block 2 in the block 4 chain.

Mt.Gox is probably not a good example, as they have problems with fiat to deal with too. However, for other online wallet accounts it would allow faster acceptance of received funds, since there is no danger of loss should an attacker arrange a reorganisation.

This basis block would be optional (implied by the input transactions if it isn't present); and would only need storing for the pending transactions, so no incompatible change is needed to the block format.

Andy

Hey Andy,

Bitcoin already does something which in practice has exactly this effect: If a transaction is reversed, any transactions based on its outputs are rejected.

Hosted wallets can make use of this - but as you correctly point out, depending on the service, it can get tricky. What if I exchange the money to USD and back before withdrawing? You could have an algorithm where MtGox prefers to spend outputs from your own deposits as the inputs for your withdrawals, it's not trivial though and never 100% secure.

I have trouble thinking of a good example where you need an explicit block dependency as you describe. The only times you'd want to use this dependency of transactions on specific previous transactions is when you can clearly and easily associate the money. But if you can clearly and easily associate the money, you might as well just relate the transactions (use the outputs from the deposit transaction as the inputs of the withdrawal transaction.)

This is btw something that would strongly agree with: Hosted wallets should absolutely keep each account as separate public keys. With that you lose free and instant internal transactions, but you gain instant deposits and much better risk isolation.

This is just my view. Thanks and keep the thought-provoking stuff coming!

Cheers,

Stefan

On 12/8/2011 11:47 AM, Andy Parkins wrote:

> Hello,
>
> Another of my crazy ideas:
>
> When a transaction is first broadcast, it should include the hash of the block
> it wants to appear after, let's call it's basis block.  That block can be
> anything the claimer wants; but it allows the miners to add this condition:
> the transactions outputs a new transaction claims must be before the new
> transaction's basis block.
>
> Consider this block chain fork:
>
>   * -- * -- F -- * -- 1 -- 4 -- 5
>              \
>               * -- 2 -- 3
>
> Let's say in block 2; I transfer coins from address A to Mt.Gox (or any other
> pooled-account online wallet).  In block 1 I transfer credit from address A to
> address B.  In block 3 I transfer credit from Mt.Gox's pool to address B.
>
> The chain at 3 races out first, but eventually the chain at 5 becomes "the
> one".  If Mt.Gox are foolish enough to broadcast my withdrawl in 3; there is
> nothing to stop that same withdrawl making it into 4 (since it comes from a
> pooled fund address).  Therefore Mt.Gox can't allow such a fast turnaround and
> must wait for six confirmations of 2 before allowing use of the funds.  That
> is an inconvenience for all the honest users.
>
> With my proposed change, the Mt.Gox transaction broadcast at 3 would include
> "block 2" as its basis block.  Therefore that transaction could never make it
> into block 4, as no miner will include a transaction based on block 2 in the
> block 4 chain.
>
> Mt.Gox is probably not a good example, as they have problems with fiat to deal
> with too.  However, for other online wallet accounts it would allow faster
> acceptance of received funds, since there is no danger of loss should an
> attacker arrange a reorganisation.
>
> This basis block would be optional (implied by the input transactions if it
> isn't present); and would only need storing for the pending transactions, so
> no incompatible change is needed to the block format.
>
>
>
> Andy

On 2011 December 08 Thursday, Stefan Thomas wrote:

> Bitcoin already does something which in practice has exactly this
> effect: If a transaction is reversed, any transactions based on its
> outputs are rejected.

That part is fine; I was aware that Bitcoin did this. How could it not? The transactions form multiple signature chains of their own. It impossible to have a transaction depend on a non-existent input transaction.

> Hosted wallets can make use of this - but as you correctly point out,
> depending on the service, it can get tricky. What if I exchange the
> money to USD and back before withdrawing? You could have an algorithm
> where MtGox prefers to spend outputs from your own deposits as the
> inputs for your withdrawals, it's not trivial though and never 100% secure.

Quite so; this is essentially the problem my suggestion addresses. What do you do when a transaction is dependent on another transaction financially but not technically? That is to say that your accounting software would show a credit and a debit to a particular entity, but the bitcoin block chain would not. In the old world we might do this as "I'll write you a cheque and you give me cash"; if that cheque bounces, you've lost your cash.

> I have trouble thinking of a good example where you need an explicit
> block dependency as you describe. The only times you'd want to use this
> dependency of transactions on specific previous transactions is when you
> can clearly and easily associate the money. But if you can clearly and
> easily associate the money, you might as well just relate the
> transactions (use the outputs from the deposit transaction as the inputs
> of the withdrawal transaction.)

The MyBitcoin debacle (if we are to believe their reports) would have been avoided by my suggestion. They were accepting deposits in one chain, and allowing withdrawls from another. That meant that while there was a financial connection, there was not a bitcoin-connection. The withdrawls happened from the pool address, most likely well funded, so were valid on either chain. If MyBitcoin had been able to broadcast the withdrawl transactions as being based on the same chain as the deposit (even though it was not using transactions in that chain) then the attack would have failed.

> This is btw something that would strongly agree with: Hosted wallets
> should absolutely keep each account as separate public keys. With that
> you lose free and instant internal transactions, but you gain instant
> deposits and much better risk isolation.

I'm not sure I agree. There is certainly a case for both types: one-to-one correspondence between address and account has the advantages you list but is highly identifiable and trackable. However the disadvantage is that all funds would have to be kept online. Places like Mt.Gox can (although there is evidence to suggest that they don't, tut tu) move the majority of the funds to five USB sticks, and keep them in five fire-proof safes or deposit boxes or whatever only because deposited funds are pooled.

> This is just my view. Thanks and keep the thought-provoking stuff coming!

Thanks for the encouragement. It's appreciated.

Andy