15. More on Double Spend, Proof-of-Work and Transaction Fees

15

More on Double Spend, Proof-of-Work, and Transaction Fees

IN THIS EXCHANGE, Satoshi provides several clarifications and discusses compensation of miners (i.e., nodes) via transaction fees once the entire supply of bitcoins has been created.

Re: Bitcoin P2P e-cash paper

Satoshi Nakamoto Mon, 17 Nov 2008 09:04:470800

I’ll try and hurry up and release the sourcecode as soon as possible to serve as a reference to help clear up all these implementation questions.

Ray Dillinger (Bear) wrote:

When a coin is spent, the buyer and seller digitally sign a (blinded) transaction record.

Only the buyer signs, and there’s no blinding.

If someone double spends, then the transaction record can be unblinded revealing the identity of the cheater.

Identities are not used, and there’s no reliance on recourse. It’s all prevention.

This is done via a fairly standard cut-and-choose algorithm where the buyer responds to several challenges with secret shares

No challenges or secret shares. A basic transaction is just what you see in the figure in section 2. A signature (of the buyer) satisfying the public key of the previous transaction, and a new public key (of the seller) that must be satisfied to spend it the next time.

They may also receive chains as long as the one they’re trying to extend while they work, in which the last few “links” are links that are *not* in common with the chain on which they’re working.

These they ignore.

Right, if it’s equal in length, ties are broken by keeping the earliest one received.

If it contains a double spend, then they create a “transaction”which is a proof of double spending, add it to their pool A, broadcast it, and continue work.

There’s no need for reporting of “proof of double spending” like that. If the same chain contains both spends, then the block is invalid and rejected.

Same if a block didn’t have enough proof-of-work. That block is invalid and rejected. There’s no need to circulate a report about it. Every node could see that and reject it before relaying it.

If there are two competing chains, each containing a different version of the same transaction, with one trying to give money to one person and the other trying to give the same money to someone else, resolving which of the spends is valid is what the whole proof-of-work chain is about.

We’re not “on the lookout” for double spends to sound the alarm and catch the cheater. We merely adjudicate which one of the spends is valid. Receivers of transactions must wait a few blocksto make sure that resolution has had time to complete. Would be cheaters can try and simultaneously double-spend all they want, and all they accomplish is that within a few blocks, one of the spends becomes valid and the others become invalid. Any later double-spends are immediately rejected once there’s already a spend in the main chain.

Even if an earlier spend wasn’t in the chain yet, if it was already in all the nodes’ pools, then the second spend would be turned away by all those nodes that already have the first spend.

If the new chain is accepted, then they give up on adding their current link, dump all the transactions from pool L back into pool A (along with transactions they’ve received or created since starting work), eliminate from pool A those transaction records which are already part of a link in the new chain, and start work again trying to extend the new chain.

Right. They also refresh whenever a new transaction comes in, so L pretty much contains everything in A all the time.

CPU-intensive digital signature algorithm to sign the chain including the new block L.

It’s a Hashcash style SHA-256 proof-of-work (partial pre-image of zero), not a signature.

Is there a mechanism to make sure that the “chain” does not consist solely of links added by just the 3 or 4 fastest nodes?‘Cause a broadcast transaction record could easily miss those3 or 4 nodes and if it does, and those nodes continue to dominate the chain, the transaction might never get added.

If you’re thinking of it as a CPU-intensive digital signing, then you may be thinking of a race to finish a long operation first and the fastest always winning.

The proof-of-work is a Hashcash style SHA-256 collision finding. It’s a memoryless process where you do millions of hashes a second, with a small chance of finding one each time. The 3 or 4 fastest nodes’ dominance would only be proportional to their share of the total CPU power. Anyone’s chance of finding a solution at any time is proportional to their CPU power.

There will be transaction fees, so nodes will have an incentive to receive and include all the transactions they can. Nodes will eventually be compensated by transaction fees alone when the total coins created hits the pre-determined ceiling.

Also, the work requirement for adding a link to the chain should vary (again exponentially) with the number of links added to that chain in the previous week, causing the rate of coin generation (and therefore inflation) to be strictly controlled.

Right.

You need coin aggregation for this to scale. There needs to be a “provable” transaction where someone retires ten single coins and creates a new coin with denomination ten, etc.

Every transaction is one of these. Section 9, Combining and Splitting Value.

Satoshi Nakamoto

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