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Date: Thu, 11 Aug 2011 18:17:23 +0200
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From: Mike Hearn <mike@plan99.net>
To: Andy Parkins <andyparkins@gmail.com>
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Cc: bitcoin-development@lists.sourceforge.net
Subject: [Bitcoin-development] Protocol changes
Precedence: list

This thread is getting off-topic so I changed the subject.

> The benefit I'm aiming at is to imagine a thin client that has done a fast
> startup and only downloaded the headers.

OK. A better way is tx filtering, as discussed here:

   http://bitcointalk.org/?topic=7972.0

The reason is you want to only get the transactions+merkle branches
relevant to you, otherwise cost is still O(system activity) not O(your
activity) as blocks get bigger, even if you don't download every
block.

> The sequence number (and perhaps I've misunderstood) allows me to replace a
> transaction I've already submitted

Yes, but it's more complex than that.

Some contract protocols require one party in a set to be able to
re-issue transactions without interacting with the other parties. The
reason is that each input can come from a different person. If the
sequence number was a property of the transaction, updating it would
either require all participants to re-sign the transaction, or for the
signatures to not cover the sequence number at all.

With seqnums on the inputs, I can create a newer version of the
transaction by just resigning my input with a higher sequence number.
This is defined by IsNewerThan(). Note that my options here are
limited - I can't create an arbitrarily different version of the
transaction without invalidating all the other input signatures. If I
own all the inputs, no problem. If some are owned by others, what I
can change is defined by the SIGHASH flags. To replace this tx in the
memory pool requires others to re-sign their input with a higher
sequence number than mine - so we establish a kind of chain. Nobody
can rewind the transaction to an earlier point, but anyone can update
it within the parameters established by the SIGHASH flags on the
others signatures.

These features all combine together to allow for particular types of
contracts that take place on the negotiating table of the networks
memory pool. For instance, if you are taking part and then decide you
don't wish to continue, you can set the output that's in the same
position as your input to reassign all the money you put in back to
you, sign the input with SIGHASH_SINGLE and broadcast with nSequence
set to UINT_MAX. Now the transaction is still valid but is a no-op
from your perspective. Note that once you've done this, you've bowed
out of the negotiation completely because you can't replace the
transaction anymore.

You can't change anything about the inputs beyond scripts this way.
The transaction still has to connect to the same outputs as before,
and thus import the same amount of value.