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From: Andy Parkins <andyparkins@gmail.com>
To: bitcoin-development@lists.sourceforge.net
Date: Fri, 9 Dec 2011 09:50:03 +0000
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Subject: Re: [Bitcoin-development] Lowering confirmation requirements and
	preventing double spends
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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?  T=
he=20
transactions form multiple signature chains of their own.  It impossible to=
=20
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% secur=
e.

Quite so; this is essentially the problem my suggestion addresses.  What do=
=20
you do when a transaction is dependent on another transaction financially b=
ut=20
not technically?  That is to say that your accounting software would show a=
=20
credit and a debit to a particular entity, but the bitcoin block chain woul=
d=20
not.  In the old world we might do this as "I'll write you a cheque and you=
=20
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=
=20
avoided by my suggestion.  They were accepting deposits in one chain, and=20
allowing withdrawls from another.  That meant that while there was a financ=
ial=20
connection, there was not a bitcoin-connection.  The withdrawls happened fr=
om=20
the pool address, most likely well funded, so were valid on either chain.  =
If=20
MyBitcoin had been able to broadcast the withdrawl transactions as being ba=
sed=20
on the same chain as the deposit (even though it was not using transactions=
 in=20
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=
=20
correspondence between address and account has the advantages you list but =
is=20
highly identifiable and trackable.  However the disadvantage is that all fu=
nds=20
would have to be kept online.  Places like Mt.Gox can (although there is=20
evidence to suggest that they don't, tut tu) move the majority of the funds=
 to=20
five USB sticks, and keep them in five fire-proof safes or deposit boxes or=
=20
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

=2D-=20
Dr Andy Parkins
andyparkins@gmail.com

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