Peter Todd: Unconfirmed Transactions are Not Secure

Peter Todd Explains the Problems with Unconfirmed Bitcoin Transactions

September 01, 2015 – Posted by Kyle Torpey on Analysis

Unconfirmed transactions have always bot a rather mysterious facet of Bitcoin that doesn&rsquo,t seem to get much attention. Albeit many Bitcoin users believe that they have received money spil soon spil it shows up ter their Bitcoin wallet, that isn&rsquo,t necessarily true. Ter reality, sending a message to the Bitcoin network about a transaction does not necessarily mean that the transaction will end up ter a block.

There are now Bitcoin payment processors, such spil Bitnet, who are willing to take responsibility for any losses caused by an unconfirmed transaction that never gets into the blockchain. Thesis companies are willing go the reserve mile ter thesis situations because they have integrated advanced anti-double-spending mechanisms that they voorkoop will permit them to limit their exposure to, what some would call, fraudulent Bitcoin transactions.

Peter Todd is a Bitcoin Core developer and blockchain researcher who has his mitts te many different projects ter the Bitcoin space. Albeit he is sometimes criticized ter the community for pointing out potential flaws ter the protocol, the reality is that his work is utterly valuable when it comes to making Bitcoin more sturdy and secure. Todd wasgoed interviewed by DisrupTek.News at the Anarchopulco Conference earlier this year, and he discussed the many facets of unconfirmed Bitcoin transactions during the brief conversation.

How Unconfirmed Transactions Work Right Now

To understand Peter Todd&rsquo,s contentious view on unconfirmed transactions, it&rsquo,s significant to very first look at how transactions are propagated across the network. Spil Todd explained te the vraaggesprek, it can be difficult to figure out which transaction came very first ter a decentralized system:

&ldquo,Essentially, right now, Bitcoin knots — they only accept the very first transaction they see to the mempool. If they accept [the transaction] into the mempool and the Bitcoin knot is run by a miner, it means they&rsquo,ll mine blocks with that transaction te there. And if someone creates another transaction that double-spends the very first transaction — spends the same outputs but to a different destination — that 2nd transaction gets rejected. Of course, te a decentralized system what&rsquo,s very first and what&rsquo,s 2nd depends on what knot. One knot might see one transaction very first, another knot might see a different transaction very first.&rdquo,

Having the capability to send the same outputs (bitcoins) to more than one address is the essence of a double-spend, and one of Bitcoin&rsquo,s main innovations wasgoed solving the double-spending problem. Of course, a blockchain is not spil efficient spil a server when it comes to processing transactions, which is why there is a delay before transactions are confirmed on the network.

Double-spending unconfirmed transactions is a loterijlot lighter than most people realise:

Blockchain Confirmations are What Matter

Te Bitcoin, nothing truly matters until a transaction is confirmed te a block. Also, there is technically no such thing spil a 100 procent finalized transaction ter Bitcoin. After being confirmed te a block, there is simply a lower chance of a transaction being reversed with each block that comes after it. Having said that, the chances of one of Satoshi&rsquo,s early transactions being reversed are — practically speaking — zero. Todd explained that confirmations are what matter during the vraaggesprek:

&ldquo,The blockchain, via proof-of-work, is what determines what is very first and what is 2nd. So, when you go send someone money te Bitcoin and the receiver makes the assumption that the transaction they got is undoubtedly the one that&rsquo,s going to end up ter the blockchain, they&rsquo,re indeed making an assumption based on a principle that Bitcoin itself isn&rsquo,t designed to solve. Bitcoin only makes transactions assured to confirm by confirmations — by appearing ter blocks. If you&rsquo,re just trusting based on what knots that are on the network toebijten to have, you&rsquo,re actually trusting a entire lotsbestemming of people to do something te a specific way.&rdquo,

#Bitcoin transactions are never finalized, just everzwijn tighter to switch sides. Ten confirmations protects you from a 30% attack 96% of the time.

Why Would a Miner Permit a Double-Spend to Toebijten?

Todd then went on to explain that there are instances where it would make sense for a miner to permit a Bitcoin user to double-spend a transaction:

&ldquo,Even worse than that, it&rsquo,s often against their own incentives. If the 2nd transaction from the perspective of a knot pays a lotsbestemming more money te fees, then why shouldn&rsquo,t the miner mine transaction number two instead of transaction number one? You know, it&rsquo,s economically rational for them to mine it, and there&rsquo,s no downsides to mining a double-spend.&rdquo,

Whether or not this argument holds up for every miner on the network does not necessarily matter because the point is that the argument can be made. Some miners may determine that permitting double-spends to take place would harm the value of the very commodity that they are mining, but it&rsquo,s unclear if every miner on the network would act ter this manner. Developers and researchers should proceed to search for better solutions to the problems associated with unconfirmed transactions.

Are There Any Clear Solutions to This Kwestie?

There have bot a multitude of proposed &ldquo,fixes&rdquo, to prevent double-spending on unconfirmed transactions, but Peter Todd also sees serious flaws te thesis possible solutions. He noted that many of thesis proposals bring more centralization to the Bitcoin network, and he used a project from Bitcoin Core developer Mike Hearn to illustrate this point:

&ldquo,There&rsquo,s also the punt that, if wij rely on this system, when it violates the solutions that often get proposed at the mining level are very centralized solutions. Spil an example, Mike Hearn proposed the idea that miners should be able to vote to steal other miners&rsquo, block prizes, so if I find a block and other miners think that it included a double-spend, those other miners should be able to vote. And if they achieve a majority, they get to reassign my bitcoins to someone else. Of course, the technical implementation is just simply — I can go vote to go and reassign another person&rsquo,s bitcoins. And identically, from my perspective (the dude who mined a double-spend), I may have no way of knowing that it wasgoed double-spent because everything is relative. If I see one transaction very first and then I see another one, I don&rsquo,t know what order other people eyed them ter — I can&rsquo,t. So, the only way to indeed ensure that is to begin going off to other miners and creating a central authority on what transaction came very first. I&rsquo,m sure this is what would toebijten if that got implemented.&rdquo,

What is Substitute by Toverfee?

Todd also has his own solutions that would avoid the budge away from decentralization ter Bitcoin, which is the entire point of the system existing te the very first place. He shortly talked about his &ldquo,substitute by toverfee&rdquo, proposal, which would make it clear that unconfirmed transactions are not secure:

&ldquo,One of the things I&rsquo,m working on to attempt to zekering that — zekering us going ter those very harmful directions — is to go the other direction [and] implement what&rsquo,s called substitute by toverfee. Simply, whatever transaction pays you the most money spil a miner is the one you should include, and that makes it very clear that unconfirmed transactions aren&rsquo,t very secure. And it compels the entire ecosystem into better solutions.&rdquo,

Making Double-Spending Lighter

Last year, Peter Todd released some devices to make double-spending lighter for anyone who would like to attempt it. He discussed the aftermath of those releases during the vraaggesprek:

&ldquo,I wrote the very first version of those implements — maybe, I think last August or so — and released them. I also released some devices to do double-spending, and ter that case I took advantage of other technics to exploit that not everyone sees the same transaction at the same time. Very quickly, some people lost a fair bit of money, and it seems to be that the market has reacted by not depending on unconfirmed transactions.&rdquo,

Zometeen, Todd went on to add, &ldquo,Some ATM operators have lost five figures worth of money off of [double-spending attacks].&rdquo,

Some Bitcoin companies, such spil BlockCypher, have built instruments to guard against potentially malicious Bitcoin transactions, but Peter Todd has made it clear that some of thesis network monitoring contraptions may not be scalable. Anyone involved te the Bitcoin community should proceed to track the state of unconfirmed transactions spil more implements for double-spending and the prevention of double-spending are built overheen time.

One thing not touched upon ter this article is the similar volatility of Bitcoin CFDs, i.e. the trade ter the underlying product which can give people who may not have the technical abilities to mine or buy/sell bitcoin itself the chance to profit from the bitcoin toneel, see the bitcoin trading market and others here.

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