[Bitcoin-development] Double Spend Notification

[Quinn Harris <btcdev@quinnharris.me>]

The current BitCoin implementation is subject to relatively easy double 
spend attack for 0 confirmation payments.  Yet 0 confirmation payments 
are needed for typical in person transactions like most purchases at a 
local business.

Notably, it is easy to transmit two transactions from the same output at 
the same time to different sets of nodes on the network by using two 
instances of bitcoind with same wallet file and a spend on each daemon 
initiated by RPC by some easy to implement code.  If the first attempt 
to pay the merchant doesn't go through because they received the "wrong" 
transaction it could be quickly followed up with another initiated spend 
from a different output switching which daemon sends the transaction the 
merchant is expecting.  This means an unsophisticated attacker can 
reliably get away with this attack and it would be worth while for small 
transactions.  Given this, I would be reluctant to trust 0 confirmation 
transactions at all though I think many do in practice.  Someone could 
write and publish a special daemon to execute this attack further 
reducing the cost.

Right now a node will drop any second spend of the same output in the 
memory pool.  After the first transaction has propagated through the 
network issuing a second double spend transaction isn't likely to be 
seen by a significant number of miners as most nodes especially non 
miner nodes will drop this transaction.  Today, it is necessary to 
transmit both transactions on the network nearly simultaneously to 
reliably get away with this simple attack.  If in this case, the 
receiving end is quickly notified of the double spend this attack 
becomes more more difficult to get away with.

If the second transaction is relayed instead of being dropped to notify 
the receiving party of the double spend, most miners will receive both 
transactions and it is possible that some or even many of the miners 
would replace the first transaction with the second if it has a higher 
fee as it would be in their short term interest. This can happen some 
time after the first transaction has propagated through the network so 
the receiving end wouldn't get a timely notification of the double 
spend.  Depending on the choices of the miners, this approach to double 
spend notification could exacerbate the very problem it was attempting 
to fix compared to the current implementation.  While miners might 
continue to drop the second spends, the easy availability of the second 
spends would increase the short term reward for changing this policy.

This problem can be fixed if instead of sending the second transaction a 
new double spend message is sent with proof of the double spend but not 
the complete transactions.  This would allow the receiving end to be 
quickly notified of a double spend while in no way increase the chance 
over the current implementation that a double spend would be successful.

The proof of the double spend would include the scriptSig (input) from 
the original transactions and the hashes from the "simplified" 
transaction used by OP_CHECKSIG of the scriptPubKey (output) but not the 
entire transaction.  This is the hash computed by the SignatureHash 
function in script.cpp.   The double spend notification message should 
contain proofs of both signed transaction spending the same output 
ordered by hash to produce a canonical proof for a specific two 
transactions.  To reduce DOS potential, the proof should not be relayed 
unless one of the original transactions has been received to ensure 
there is some commitment to the block chain and different double spend 
proofs of the same output should not be relayed.  The forwarding of 
transactions should remain exactly the same as it is now where the 
second transaction is dropped but a double spend message is transmitted 
if appropriate.

The existing block chain needs to be checked to make sure the proof of 
double spend couldn't have been derived from the block chain and a 
single spend in the memory pool.  This could happen if there was already 
an identical transaction in the block chain.  This would typically only 
happen if someone was paying someone else the same amount they had 
before and neither side changed addresses.  In this case double spend 
detection wouldn't be reliable as it could be generated by anyone, but 
both the sending and receiving client could detect this situation and 
warn the user.

It would still be possible for an attacker to send the second 
transaction directly to powerful miners but this is a distinctly less 
viable attack than the current double spend attack.

I would expect this double spend notification implementation to make 
double spends more costly than they are worth for most cases today that 
0 confirmation acceptance is needed.  That said over time this provision 
might become less effective.  As the reward for each block mined 
decreases, transactions fees will become a more significant part of the 
mining reward accordingly increasing the incentive to replace 
transactions with higher fees.  Today most BitCoin participants have a 
high expectation of significant future appreciation of BitCoins and 
recognize anything that brings into question the integrity of the system 
is likely to reduce that future value so they have a long term self 
interest to keep up the impression of integrity.  As BitCoin becomes 
more establish this incentive will decrease.

On the other hand, non mining nodes have no incentive to replace by 
fee.  The continued increased capital costs of mining would likely 
increase the proportion of non mining nodes typically run by those with 
an incentive to assure integrity of the network such as merchants.  But 
increasing transaction volume is likely to increase node costs which 
would push out non mining nodes with lower incentive more than mining 
nodes.  Accordingly increasing block size would have a tendency to 
reduce the effectiveness of double spend notification.  The primary 
point is there are multiple counteracting forces that make predicting 
the future effectiveness of double spend notification uncertain.

I don't believe this necessary warrants conceding that we can not 
provide any protection from non trusted 0 confirmations transaction as a 
replace by fee implementation would do.  But it would still be important 
to work towards more robust solutions notably various forms of 3rd party 
trust.  This could be tamper resistant devices trusted to not duplicate 
spends, 3rd party certificates with proof the transaction was spent by 
the holder of the certificate or multi signature transactions on the 
block chain that must be signed by a trusted 3rd party to spend.  I 
would expect it would take significantly longer for the companies and 
technologies to be built to implement this on a wide scale than adding 
double spend proof messages to the current implementation.  In addition, 
there will likely always be some use cases where a 3rd party 
(centralization) is not viable.

Should a BIP and pull request implementing a double spend notification 
as described be accepted?

- Quinn