Peter Todd came up with a simple and elegant solution to disincentivizing blockchain rewinding.

If every transaction includes an nLockTime that's the current/next block, its fees can't be claimed without fully catching up to the blockchain. This means that rewinding 10 blocks in order to get all their fees requires re-mining all 10 blocks.

http://sourceforge.net/p/bitcoin/mailman/message/30523958/

I rely on nLockTime and fees to switch directions. Basically, when you're going in one direction, the payee always has the incentive to broadcast the most recent refund transaction version and have it committed to the blockchain.

To switch directions, the nLockTime of the new refund version should be earlier. That way, the more recent version of the refund transaction is valid for inclusion in the blockchain first. I'd also increase the transaction fee in order to incent miners to include the newer version of a transaction over an earlier version for additional safety (in case the nLockTime difference between the versions is too small for the newest to be included by the time the second newest is valid).

I ended up presenting this concept Friday night in San Francisco. I think there will be a video put up; I'll link to it when it is.

Check out the GitHub repo in my signature. It's very experimental at this time but the concept is there.

The great thing about this race is that Warner had already also expressed a positive view toward Bitcoin. But Sarvis is accepting it first. I've been bugging him since he first announced he was running for governor.

Thank you for this!

I've written up a rough draft of another idea.  This one should allow a distributed derivatives exchange or prediction market to exist on top of Bitcoin while permitting most of the bets to be off the blockchain.  I used constructs from my payment network scheme - bet channels similar to payment channels.   The write-up is here:

https://en.bitcoin.it/wiki/Off-Chain_Betting

Feedback appreciated.

In simple terms, this technique allows a series of trustless off chain bets on a single payment channel. Each node can thus maintain "bet channels" like "payment channels" with a number of partners, and bet against the partners on anything from exchange rates to sports to politics to you name it. By hedging bets with one partner against another partner, much like banks do today with OTC derivatives, you can create a decentralized "bet exchange" with no counterparty risk. I'll write up the implementation details in a Technical Discussion thread next week.

Simply put, this will let people and companies hedge the dollar value of their Bitcoin holdings without having to trust their money to an exchange that can get shut down by a government, get hacked, or run away with customer deposits.

Edit: I agree with your list. I also disagree that this is any more complex than what Satoshi has done.

This method has the advantage that it can be used to create a decentralized off chain minimal trust derivatives exchange as well. I'll have time to write up the technique next week, hopefully.

I wrote a blog post about this back in August.

I've got a busy week at work and then I'm giving a Bitcoin talk to a local LUG but after that, I'm going to write up a new way to use this same contract structure for both decentralized inter-currency off-chain payments and for decentralized derivatives markets.

markm: the point is to enable instantaneous payments with lower fees, but to multiple parties. This is just an expansion of Mike Hearn's micropayment scheme that permits payments.  It's friend to friend rather than fully peer to peer, but it's faster and more scalable than Bitcoin on its own because not everyone need to be aware of every payment. Everyone just knows about every payment channel that's established or torn down, as on chain transactions.

coinrevo: sorry, my signature contains a link to the code on GitHub. I'll update my posts.

Your list of advantages is right, and I'm even more interested in the use of this technology to monetize other P2P services and meshnets without needing to create new currencies.

Unfortunately, I've been busy with paying work and family obligations. After the next one or two bubbles, I'm hoping to be able to quit my job and/or hire a freelancer to finish this, but I can't do that as things currently stand. I've written a prototype in case anyone with time feels like working on this in the meantime, and it's public domain and published on Github.

May I quote you on saying that this could be "the most important improvement since Bitcoin itself?" Maybe it would help me line up some resources to be able to work on this.


Because a node accepts money in one payment channel and sends it out another, I wouldn't bet on FinCEN not seeing the running of such a node as money transmission. I have no doubt this would quickly become impossible to police, but I'm not willing to stick my neck out personally to run such a node in production in the US. I have a family to care for. Still, running a node with connections only to people you trust not to rat you out is easy enough to do without giving away your activities.

I think the exact opposite: it will drive efficiency (Gavin's Bitcoin-mining space heater) and decentralization of power generation (household-scale solar).

Look at what the announcement did to the price of this penny stock!

I'm on my phone at work right now but this seems similar to the mechanism I proposed here and prototyped (badly) in the link in my signature. I'll be able to take a closer look in a few hours but I'm glad to see a core developer thinking along these lines because it means hopefully scripts supporting hash preimage checks will make it as standard script types sooner rather than later.

I've been thinking along similar lines in a way...

There's an investment strategy that allows risky bets to be made for "free" not counting inflation and sovereign default risk. For example, if you have $1M, buy $1M face value in Treasuries. Use the remaining money to make your risky bet (like buying bitcoins). If the bet loses money, you get the nominal amount of money back in interest.

In a liquid Bitcoin options or futures market, you may be able to do the same thing synthetically. Hedge the dollar value of your bitcoins, plus interest, in Treasury options/futures and leave the part paid by interest unhedged for potential upside. You may have more counterparty risk at this stage of maturity in the Bitcoin derivatives markets.

This topic might get better answers in the Economics section of the forum.

You're not saving the wallet. Look at the examples again. You should only add the keys the first time you open the wallet, and you Sikhs save it in a file (and enable auto save). The blockchain file doesn't have the full chain, just the headers. The wallet is where related transactions are stored.

I read through their Bitcoinstarter project and am less confident in their ability to execute than I was when I read the press release. Typos, a whole lot of speculative Mastercoin stuff, etc. And yes, the patent turns me off as well.

I'd bet they're trying to patent the business model, specifically the method of selecting and compensating mediators.

I use Gyft a lot and they process through BitPay.

In the tech world, I'd consider venture capitalists "smart money" rather than "institutional investors."

If the Winklevoss twins' ETF or the Coinsetter hype come to pass, we'll see institutional trading (market making and arbitrage, not necessarily investing). After that, mutual funds and such - that's institutional investment.

It won't be smooth.