In my opinion, the problem is this:
4) Casino only sends withdrawals to depositing address.
They should stop that. It is silly. Whatever convoluted workaround we come up with is going to be far worse than simply doing the right thing.
The right thing, by the way, is for the casino to request a return address (address A), then generate a new address (address B), and link them in a database so that earnings made with BTC deposited to address B will only be returned to address A.
Yes, you should insist that customers give you a refund/cash-out address BEFORE you give them the funding address.
Simply not reusing addresses is the correct solution. But, this isn't what users do.
I'm pretty sure this isn't possible in all cases. bitlotto's example seems it would be much more insecure with this requirement.
How about the hypothetical case in which someone sends unsolicited funds to an address - the recipient may wish to refuse to accept the incoming TX.
While it seems less likely, surely it will happen that a user decides to send money to Address A and clicks on Address B - user error. Wouldn't it be desirable for the recipient to be "honest" and return the money ( with a XXX TX_REFUSED_UNSOLICITED message or something?)
Here's another example of wanting to refuse an incoming TX (based on amount rather than originating address) Big bad gangsterman has my vanity bitcoin address & wants to stash 50K BTC in my wallet for later physical retrieval. I refuse the TX because it's too large - I'm not expecting any such payment. (paranoid, ridiculous, but I could see plenty reasons)
I'm also quite sure the correct solution in the above case is to not publish Green addresses, but that is what people do.
What about whitelisting addresses? In this case I'm only willing to accept TXes from pre-authorized known addresses. I can see why a financial institution would want to do this.
I understand the issue of introducing code (&bugs) into reference implementations. In general I'd be more inclined to implement a solution on top of the existing client rather than by modifying it directly. (or producing a merchant wallet)
If the solution MUST be "insist that customers give you a refund/cash-out address BEFORE you give them the funding address" I would have thought then that a bitcoin address MUST be a single use address to prevent such error.
If I gave the impression (wrong forum?) that I wished to change the reference client - I apologize. This was not my intent. If that's where it belongs, great, but doesn't seem necessary.
I also suspect that there may be some confusion of this type of refusal with refusal to accept TX from blacklist addresses because of suspected "taint" in their balances. This is not the reason I'd seek this. Unfortunately I'd guess it could be used for that purpose, too. Would Mt.Gox be better off if it could refuse incoming transactions that look "risky"?
Bitcoin just
does not work that way. When you spend coins, you are signing a transaction that
irreversibly passes control of them to the recipient. The recipient is
not a participant in this. There is
nothing he can do to prevent you from doing it, except by preventing you from ever getting an address that corresponds to a key he owns.
We could add another layer that negotiates transactions before they happen, but as long as an address can be found, there is no possible way to prevent someone from sending to it.
In the case where you send coins to person A when you meant to send them to person B, the solution is to call up person A and explain the situation.
If you get an unsolicited transaction and decide to send them back to the last address that was known to have had control of them, you must do so with the understanding that you
can not prevent people from using shared wallets and thus you might not be sending it back to the entity that sent it to you.
Also, the situation where the criminal sends money to you and then shows up in person to collect is pretty silly. If he shows up with a gun, you should give him his coins back. Duh. You should probably give him all of your coins too, and whatever cash you have on you. Oddly, this is exactly the same thing that you should do if a FedEx package full of cash shows up at your house. If he sends the 50k coins from his MtGox account, and you return them, he is
not going to be happy that you sent his money to a random MtGox user.